To Cover Spouses… or Not? Managing Spousal Health Coverage


UPDATED 8/31/15:

Are spousal surcharges even more common now? Absolutely. Let’s look at some updated numbers:

The 2015 Emerging Trends in Health Care Survey, sponsored by Towers Watson, found that the percentage of employers using spousal surcharges, for spouses with access to coverage through their own employer, is expected to almost double from 32% to 61% over the next three years. Additionally, 53% of respondents plan to significantly reduce subsidies for spouses and dependents by 2018, when the Cadillac Tax is effective.

The Cadillac Tax is a 40 percent non-deductible excise tax on high-cost employer sponsored health coverage. The potential financial impact of the tax is bringing additional focus on the cost of health insurance, and therefore, the cost associated with covering spouses. According to the survey results, two in five employers who have modeled the potential impact of the Cadillac Tax, expect to trigger the tax the first year it is implemented. So, it is not a surprise that 62 percent of employers said that the Cadillac Tax will impact their benefit strategy. Since the Cadillac Tax applies to both the employer and employee premium cost, passing on additional cost for covering spouses does not impact the tax, unless the surcharge causes spouses to drop coverage. A more effective way for some employers to address this cost and reduce their excise tax may be to eliminate spouse eligibility.

Spousal surcharges continue to be part of the benefit strategy for a growing number of employers. However, it is only one of many ways that employers can address rising health care costs and the upcoming Cadillac Tax. As always, it is important to have a written benefit strategy to ensure that your benefit plan fits within your total rewards package and aligns with you overall benefit objectives.


Have you considered eliminating the availability of spousal coverage to your employees if their spouse is able to obtain insurance through their own employer? If so, you are not the only company to consider this approach as a way to manage healthcare costs. In August, UPS officials announced that they will eliminate coverage for many working spouses of non-union employees, affecting approximately 15,000 individuals.

The company specifically cited rising healthcare claims costs and healthcare reform costs as the reason behind its decision. This change will lead to a savings of around $60 million for UPS, according to a company spokesperson.

While healthcare reform requires that large employers cover dependent children to age 26, there is no requirement for employers to cover spouses. At the same time, if the employee coverage is considered affordable and the spouse is eligible for coverage, the spouse will not qualify for a subsidy through the health insurance exchange.

Currently, spousal eligibility policies take one of the following approaches:

  1. Coverage available for all spouses regardless of whether or not they work or have access to other health insurance.
  2. A surcharge for coverage of a working spouse if the spouse’s employer offers health insurance.
  3. Exclusion from coverage under the employer’s plan if coverage is available through the spouse’s employer.

When researching whether to eliminate eligibility for spouses with access to other coverage, UPS found that 35 percent of other companies it surveyed plan to do so next year.

Many companies are following the second approach and requiring employees to pay a surcharge for covering their working spouse. These surcharges typically range from $20 up to the entire cost of covering the spouse. A Towers Watson survey this year found that 20 percent of more than 600 participating companies charge an average of $100 a month for spouses to be covered.

Employers are facing increasing medical costs and are looking for ways to manage these costs.  There is even more focus on escalating costs due to healthcare reform, as employers have seen pre-existing condition exclusions go away, the elimination of a lifetime benefit limit, the requirement to cover dependent children to age 26, the requirement to cover preventive care at 100%, and the implementation of reform fees.  Employers are making plan design changes and/or contribution changes to pass on more costs to employees, focusing on robust wellness programs including tobacco cessation and BMI, and also making changes to spousal coverage.  Awareness and benchmarking to other employer eligibility practices will help to determine if this is a viable strategy to control costs and attract new employees.

Self funded companies and fully insured companies with more than 100 employees can determine the claims cost for spouses on their healthcare plan.  If the employer wants to mitigate this cost, there are several approaches that can be taken.  One approach is to increase the payroll deductions for employee/spouse and family coverage. This affects all spouses regardless of whether they have access to other coverage.  Another approach is to charge a spousal surcharge for working spouses with access to coverage through their own employer.  The most impactful method is to eliminate spousal coverage for spouses with access to coverage, or to eliminate spousal coverage and only cover employees and dependent children.  Currently, fully insured companies do not have the option to drop spouses entirely, but this may change in the future since these spouses will be able to obtain coverage through the health insurance exchange.

Whether an employer adds a surcharge or eliminates coverage for working spouses, any change to spousal coverage will result in pushback from employees. Employers need to determine whether they are willing and financially able to provide coverage to spouses who have access to coverage through their own employer, along with other strategies they can pursue to address the rising cost of health insurance.

While implementing a spousal surcharge has become more common, and the amount of the surcharge has been increasing, eliminating eligibility for spouses with access to their own employer’s coverage has not been a widespread trend. As healthcare costs continue to increase, however, more employers may eliminate spousal coverage for spouses with access to other coverage in 2014 and beyond. This decision should be made as part of an overall benefit strategy.

If a change to spousal coverage eligibility or cost is going to be implemented, inform employees about the change as soon as possible, so their working spouses have the opportunity to investigate all of their options. Avoid waiting until an open enrollment period, as that can cause confusion and put stress on employees.

If the choice is made to add a surcharge or discontinue coverage, explain the reasons why it is occurring. For example, discuss how the expected savings will preserve benefits for employees, and that it will help the company meet its overall budget. This information should be communicated clearly to all affected employees.

Hill, Chesson & Woody can provide further assistance for employers who want specific advice on strategies to address healthcare cost.

UPDATED: For the 2016 update, see here.

Photo credit: Andrey Popov