Consider Spousal Exclusions Carefully

CUNA's Escan
February 2, 2012 | COMMENTS

Pressed between rising health care costs and mandatory health insurance rules, employers are showing renewed interest in adding “working spouse” provisions to their health care plans, according to the Society for Human Resource Management’s HR Magazine.

These provisions limit access to a plan when an employee’s spouse works for another employer that offers health insurance.

Before adopting such policies, however, employers should examine whether or not the savings will be sufficient to offset the administrative burdens and possible adverse employee reactions. Employers also must pay attention to the nuances of spousal exclusions because these details can determine whether or not they’re effective—and legal.

Working-spouse provisions—also termed "spousal carve-out" or "spousal exclusion" policies—generally take one of three forms:

1. A requirement that a working spouse pay a premium surcharge for coverage through the employer’s plan if the spouse’s employer offers health insurance.

2. A requirement that the spouse purchase health insurance through the spouse’s employer’s plan before also purchasing it through the employer’s plan.

3. An outright exclusion from coverage under the employer’s plan if similar coverage is available from the spouse’s employer.

The third option is not common, with only 3% of companies declining to cover spouses at all if they’re eligible to be covered by their own employers.

Many employers are receptive to working-spouse provisions because spouses can still obtain health insurance under their own employers’ plans.

Trending upward

In 2010, 19% of nearly 600 employers surveyed used spousal surcharges or waivers when other coverage was available for a spouse, according to a 2011 Towers Watson report. Another 3% of employers said they intended to implement such provisions in 2011, and 13% intended to implement them in 2012 or later.

Health care reform has likely spurred adoption of these provisions.

At the same time, consultants say surcharges or plan exclusions are only one way—and not the most common way—of addressing the costs of spousal coverage. Instead, more plans simply charge more to cover spouses than they charge to cover employees.

In addition to the issue of savings, concerns around spousal exclusions include matters of legality, enforcement, and employee acceptance.

Legal questions

Generally, working-spouse provisions are legal under the Employee Retirement Income Security Act (ERISA) and other federal laws. But many states have marital discrimination laws that could allow challenges to working-spouse provisions. Such state prohibitions are, in many cases, pre-empted by federal law if the employer’s plan is subject to ERISA.

Enforcement

Another question relates to enforcement of the policies. Employer options include:

* Ask employees whether or not their spouses work and have access to other health insurance.
* Require employees to notify the HR department if their spouse becomes eligible for coverage through another employer.
* Rely on the honor system.

Some firms impose surcharges on participating spouses unless the spouses can demonstrate they’re unemployed or not covered through their own employer’s plan. Others retain employment verification specialists to conduct compliance audits, often as part of broader audits.

Employers should temper enforcement of working-spouse policies with forbearance when verification is not possible, advises Michael Smith, president and CEO of ConSova Corp., an eligibility verification company.

“If the employee and the employee’s spouse have done everything an employer asked of them, and the other employer isn’t cooperating, it’s not fair to impose a surcharge or exclusion, though some employers still do,” Smith says.

Employee reactions

The way a working-spouse policy is communicated will determine how well it’s received. And, regardless of how the policy is communicated, some employees will be unhappy. Experts encourage employers to carefully design their working-spouse policies to minimize undesirable outcomes.

Consider how a working-spouse policy will affect corporate culture, morale, and recruiting. In some industries, health benefits are a major recruitment and retention tool, and they might represent a reasonable cost for keeping employees motivated.