Spousal Coverage Options Fall Victim to ACA

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UPS has gotten a lot of press about their decision to exclude from coverage spouses of employees who have primary coverage available through their own employer. But this has been a common planning strategy for years. Why should employers subsidize the cost of coverage for the spouse’s employer? Those plans with rich benefits and lower contributions, in particular, are dependent magnet plans. When a married couple sits down at the kitchen table to review benefit plans, they are obviously going to select the best lowest-cost plan for them. The spousal exclusion makes sense.

In the past, many employers, especially those with generous benefit plans, have been reluctant to adopt a spousal exclusion out of a concern about the quality of benefits available through those spousal plans. Some employers adopted a lighter version, the spousal surcharge, where spouses with available coverage are charged extra if they elect coverage under their spouse’s plan.

This technique will gain a lot of traction with the implementation of ACA, which mandates coverage for employees and their children, but not spouses. The mandate on employers with more than 50 full-time equivalents to provide a minimum-value plan removes the concern about the quality of the employer’s plan—although, as discussed in these blogs, 60% actuarial value plans are hardly quality plans. In addition, cost escalations will make employers take a harder look at all options, including the spousal surcharge, a relatively benign eligibility limitation.

I threw a caution about eligibility expansion for magnet plans. . . some employers, like UPS, are reacting.

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