Employers are always looking for proven ways to lower health costs, so why are so many firms balking at a tactic with guaranteed results?
Restricting healthcare coverage to employees’ spouses who are offered health insurance through their own employer will no doubt impact an employer’s healthcare costs.
Consider these findings from a 2014 study by the Employee Benefit Research Institute (EBRI): Insured employees spent an average of $5,430 on healthcare services, while insured spouses spent $6,609, a difference of $1,179.
(Note: Because the EBRI study found that spouses in an employment-based health plan are two times more likely to be female than male, the stark difference in cost uncovered in the EBRI study is at least partly explained by pregnancy-related expenses for wives insured through their husbands’ plans.)
Even if employers aren’t comfortable completely excluding spouses who can receive coverage elsewhere, there are other deterrents such as imposing a spousal surcharge.
But in spite of the potential savings of such a move, a surprisingly low number of employers are tackling the cost of spousal healthcare coverage through carve-outs.
In fact, according to a recent Mercer report just 9% of employers (with 500 or more workers) don’t cover spouses who have health insurance coverage available elsewhere. Plus, just 9% impose a spousal surcharge, and 13% offer cash to employees who waive coverage for their spouses, according to Mercer.
Thinking about it, but …
Backlash appears to be the major factor that’s keeping employers from taking advantage of the benefits of a spousal carve-out. As Jim Winkler, the chief innovation officer for Aon Hewitt, puts it:
“A lot of organizations are very focused on developing and maintaining a reputation for being family-friendly. These organizations worry that a decision like this could hurt that reputation. Many employers are considering a carve-out but they have not pulled the trigger.”
But if HR can clearly communicate the specifics of how a carve-out can benefit the majority of employees, the company may avoid worker backlash and employee damage.
According to Winkler, firms should stress how the savings will directly benefit employees by telling them the carve-out may prevent premium increases or allow the company to avoid switching to a higher deductible plan for more narrow (i.e., “restrictive”) networks.
Formal or informal verification
If you do decide to opt for a spousal carve-out for your health plan, you’ll need to decide how aggressive you want to be about verifying whether spouses have other coverage options.
In other words, do you want to rely on the honor system where workers voluntarily let you know about their coverage — or do you want to set up a more formal coverage verification process (e.g., requiring workers to sign an affidavit when spouses don’t have healthcare coverage available elsewhere)?