Employers have a myriad of levers to pull in order to control their employee benefit costs. The Working Spouse Provisions is one that is gaining momentum.
Working Spouse Provisions restrict coverage of spouses or require additional premiums for spousal coverage. These provisions take the form of spousal carve-outs (also known as “working spouse provisions”) or spousal surcharges. They can be cost-savings tools for health plans, particularly for plans with generous provisions for dependent coverage and plans where a significant portion of the enrolled population elects family coverage.
Also contributing to the growing popularity of spousal carve-outs is The Affordable Care Act (ACA). The ACA provides spouses who are ineligible for coverage under an employee’s group plan with a way to secure their own health insurance, through the law’s health insurance Exchanges and market reforms. Also, effective for 2015, the ACA’s employer mandate provision requires applicable large employers to provide health coverage to their full-time employees and dependent children or risk a penalty, but the coverage requirements do not apply to spouses. Further, because spousal coverage is expensive, implementing a spousal carve-out may help limit an employer’s exposure to the ACA’s tax on high-cost health coverage, which is scheduled to take effect in 2020.
What is a spousal carve-out?
Spousal carve-out is a plan provision that restricts coverage for employees’ spouses. One typical spousal carve-out provides that working spouses with available health coverage through their own employers are ineligible for coverage under the employee’s plan. This saves the employer the premium contributions that it would have otherwise made on behalf of the employee’s spouse.
What is a spousal surcharge?
A spousal surcharge is an additional premium or contribution that an employee must pay for coverage for his or her spouse. The surcharge applies if the employee’s spouse has an alternative source of coverage available through his or her own employer, and chooses not to enroll in that coverage. Most spousal surcharges do not apply to spouses who are not employed or whose employers do not offer health insurance. They also are not applicable to coverage for children. The surcharge is designed to encourage spouses to use their own available health coverage and to contribute to the added cost of covering spouses who choose not to do so.
Potential legal issues
Some states have laws and regulations that limit the design of spousal carve-out and surcharge plan provisions. In many cases, these laws and regulations prohibit discrimination (for example, sex or marital status discrimination) that can result from an employer adopting spousal carve-out or surcharge provision in a plan.
For example, the Wisconsin Supreme Court ruled that a spousal carve-out provision in a fully-insured school district health plan violated the Wisconsin Fair Employment Act.[1] The court found that the spousal carve-out provision was discriminatory against married individuals because the plan did not require single employees who may have had coverage elsewhere to also make an election. The court noted that this type of plan language had a disparate impact on married employees.
The court implied that a spousal carve-out provision would not be a violation of the law if the plan limited duplicative coverage to any employee, rather than to any married employee. The court also suggested that a spousal carve-out provision would be lawful if the employer’s plan was made secondary to any other coverage for which an employee might be eligible.
Spousal carve-out and surcharge plan provisions may not always be enforceable. Both state and federal courts have struck down certain provisions based on public policy grounds.[2] However, in some situations, state laws and regulations relating to employee benefit plans are preempted by ERISA and, thus, not enforceable against an employer-sponsored health plan.
In addition, implementing a spousal surcharge may jeopardize a plan’s grandfathered status under the ACA. Grandfathered status is significant because it allows a plan to avoid some health care reforms. Grandfathered status is lost if the percent of premiums that the employer pays for the health care coverage is decreased by more than five percentage points from level it was at on March 23, 2010.
Should you implement working spouse provisions in your organization? Before you do:
- A thorough review needs to be completed for any laws, regulations or public policy issues that may impact this design
- A thoughtful discussion needs to take place around employee communications and the impact on your workforce.
The Broad Reach Benefits team welcomes the opportunity to help your organization examine its plan design(s) and make recommendations for improvement.