Commentary: Have you noticed the growing trend among employers to exclude from their health plans employees’ spouses who have access to coverage through their own employers? While these policies are primarily adopted to lower health plan costs, many employers have discovered that an alternative method delivers the same result with greater efficiency. Let’s review some background on including spouses in employee health plans, then take a look at the inherent challenges of spousal exclusion policies, consider an alternative method, and review two quick case studies.
First, let’s consider the three reasons employees choose to enroll their spouses on their health plans:
- The spouse does not have access to employer-based coverage.
- The cost of employee + spouse coverage is lower than the total cost the couple would pay to purchase single coverage at each of their employers. Or, if they are insuring their kids, the cost of family coverage is lower than the total cost the couple would pay for employee + children coverage at one employer and single coverage at the other.
- The couple is willing to pay a little more to be insured under the same policy.
When an employer amends its eligibility definition to exclude spouses with access to other employer coverage, the remaining enrolled spouses are either:
- Working full time for an employer that doesn’t offer health coverage.
- Working part time.
- Not currently employed.
The challenges of spousal exclusions
Importantly, an employee’s total compensation includes the employer’s contribution toward the employee’s health plan premiums. For example, an employer might contribute $500 per month toward single coverage and another $500 per month toward spousal coverage.
Thus, when a spousal exclusion policy is implemented, employees might ask:
- Why is this $500 in compensation being taken away from me just because my spouse works for an employer offering coverage?
- Is it equitable that if my spouse chooses to work, I am given less compensation?
Meanwhile, enforcing this exclusion through the creation, completion and collection of affidavits from each employee that applies for spousal coverage is administratively burdensome and costly.
An alternative method
If an employer would like to encourage spouses to join their own employers’ plans, here’s a gentler, more efficient approach to consider:
- Set the payroll deduction differential between single and employee + spouse coverage and the differential between employee + children and family coverage at a rate that is higher than what an individual would pay, on average, for single coverage. A good source for this benchmark is the
Kaiser Family Foundation and Health Research & Educational Trust’s Annual Survey . - Allow the resulting economic incentive to gently lead the spouses off of the existing plan and onto their employers’ plans.
Case studies
This strategy can only be accomplished if the cost of spousal coverage is isolated. Let’s consider two quick examples of the techniques two employers used to quickly create a financial incentive for spouses to migrate off of their plans by adjusting their plans’ tier structure and payroll deduction amounts:
Example #1: Converting a three-tier structure to four tiers to isolate the cost of spousal coverage:
Using the new four-tier structure to create a proper differential between the tiers:
- New cost of adding a spouse to single coverage: $175 ($250 - $75)
- New cost of adding a spouse to employee + child(ren) coverage: $175 ($375 - $200)
- Average cost of single coverage for all plans/all firm sizes, per the 2014 Kaiser Family Foundation and Health Research & Educational Trust Employer Health Benefits 2014 Annual Survey: $90
Result: Unless the spouse’s employer charges more than $175 for single coverage, the spouse will have a financial incentive to join his/her employer’s plan. $175 is significantly higher than the $90 comparable.
Example #2: Converting employee + 1 child to employee + children to isolate the cost of spousal coverage:
Using the new four-tier structure to create a proper differential between the tiers:
- New cost of adding a spouse to single coverage: $150 ($200 - $50)
- New cost of adding a spouse to employee + child(ren) coverage: $150 ($275 - $125)
- Average cost of single coverage for all plans/all firm sizes, per the 2014 Kaiser Family Foundation and Health Research & Educational Trust Employer Health Benefits 2014 Annual Survey: $90
Result: Unless the spouse’s employer charges more than $150 for single coverage, the spouse will have a financial incentive to join his/her employer’s plan. $150 is notably higher than the $90 comparable.
If you have questions about this alternative strategy, please let me know via the below comment section or via Twitter @zpace_benefits.
Zack Pace is a senior vice president, benefits consulting at CBIZ, Inc. He can be reached at
