Cutting spousal coverage? Think again

Producers trying to save commercial clients on their health insurance bill may not want to embrace this strategy.

Life & Health

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The rising cost of healthcare and health insurance, coupled with new requirements in the Affordable Care Act, are leaving many producers scrambling to trim the fat off commercial health policies and save clients much-needed cash. Slashing spousal benefits—a strategy embraced in recent months by companies like Target and UPS—is an attractive option.

“Some people think it’s fair because all the costs are added up and divided among the employees. When costs go up, everyone pays for it,” said Helen Darling, president of the National Business Group on Health. “Anything that drives up costs is going to affect everybody, so this is one way to make sure everyone gets compensation for that.”

Darling added that spousal benefit packages are among the most expensive, and carving out this coverage is a quick way to save a great deal of money.

However, while cutting health insurance for spouses and partners may save money in the short run, producers may want to steer clear of the strategy in light of new findings from the Employee Benefit Research Institute.

According to a recent report from the group, the majority of companies offset the cost of employee-only coverage more than they subsidize family coverage—something that could leave employers footing a greater bill if several companies adopt this strategy.

The EBRI study reveals employers typically pay 82% toward the cost of employee-only coverage and 71% toward the cost of family coverage. In dollars and cents—based on average salaries and employer subsidies—that means workers paid an average $996 annually toward employee-only coverage and $4,560 toward family coverage last year. The total health plan cost for an employee was $5,430 while employers picked up $4,453 of the bill.

For married couples, the total health plan cost was $12,039, with $6,609 coming from the spouse and the employer covering $4,095 for spousal coverage.

However, as more employers move toward spousal carve-outs, companies are likely to see a jump in enrollment. That jump means employers would find themselves paying $4,453 for all workers—an increase of nearly $400 from what they would have been paying per spouse.

Additionally, EBRI said businesses could find themselves—ironically—paying more in healthcare plan subsidies than they were in spousal plans.

“Working and non-working spouses are likely quite different in their use of health services,” said study author Paul Fronstin. “Therefore, the strategy of not covering spouses who are employed may have unintended consequences for the employers.”

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