Can Employers Refuse to Cover Spouses?

This is a question that is often asked by employers. The media tends to exaggerate the number of employers that currently use this tactic or are considering using this tactic in the future.

I will highlight the main reasons employers consider this strategy as well as the pitfalls of employing such restrictions. However, I strongly encourage that all employers read the link below to the article by Kelley Drye & Warren LLP so you have a solid understanding of the recommendations made by a legal firm.

Reason 1 for refusing spousal coverage:
Some employers prefer that spouses of employees consider participating in their own employer’s plan to reduce the employer contribution amount paid by the company toward dependent spouse coverage. (Assuming the employer contributes toward the dependent portion of premium)
Issues:

Spouses of some employees may not work or may work for employers that do not offer coverage. Employers can’t ‘pick and choose’ which spouses are offered coverage and which are not. It could be difficult for the spouse to find comparable coverage to the employee’s group sponsored plan. If the spouse purchased an individual medical insurance plan, the deductible, out-of-pocket maximum, provider network and other elements of the plan would be different from the employee’s coverage. This could lead to confusion and significantly higher out-of-pocket medical costs for their family.
Although clients of Bestefits have support for spouses who may need individual coverage, not all brokerages actively offer support beyond the direct employees of the client. Thus, many spouses may have trouble finding professional support with their decisions and insurance evaluation process if they do not receive coverage through the employer.

Reason 2 for refusing spousal coverage:
If an employer offers minimum value and affordable coverage to employees and extends that offer to spouses, some low-wage families may pay more for a group-sponsored plan than they would otherwise pay for a plan through an Exchange (examples, Covered California, Healthcare.gov). Many employers with predominantly low-wage employees, have considered refusing spousal coverage in order to ‘free-up’ the spouse to purchase a plan through an Exchange that may cost less than spousal coverage on the group plan.
Issues:

Some low-wage employees have a working spouse such that their combined income is higher than subsidy eligible limits. Refusing spousal coverage would mean the spouse would have to purchase an individual policy at full-cost. This again, would lead to the same issues mention above. The family would have different deductibles, out-of-pocket maximums, and potentially much higher medical costs.
Since the employer cannot ‘pick and choose’ which spouses will and will not be offered coverage, higher wage employees, mostly likely those in management and the executive team, would find their benefits package much less attractive.

Reason 3 for refusing spousal coverage:
It seems reasonable that an employee benefits program be focused on the health and well-being of the employee. In light of this, some employers have considered a surcharge for or ‘disallowing’ of spouses who are offered coverage by their own employer.
Issues:

Any employer who wishes to consider this option should consult with a reputable employment law attorney as this can be a complicated matter. An employee cannot be required to give this information to the employer and there is little the employer can do to enforce it.
The employer should also take into consideration that, once again, they cannot ‘pick and choose’ the spouses that will be offered coverage. Therefore, managers and those on the executive team who would like their spouse to be on the same plan or may not like the plan offered by the spouse’s employer may be unhappy with this practice.

Reason 4 for refusing spousal coverage:
Some studies show that spouses tend to have more frequent and higher claims experience. Employers with self-funded plans may want to eliminate spousal coverage to reduce claims impact and expense. Large employers with fully-insured plans may want to eliminate spousal coverage to reduce catastrophic claims that affect the rates and number of carrier options available to the group. In general, small employers with fully-insured plans would not feel the rate impact of spousal claims.
Issues:

Remember again that employers cannot ‘pick and choose’ which spouses are offered coverage. If an employer chooses not to offer spousal coverage, there may be great impact to spouses who do not have affordable alternatives and have great medical need.
Also consider key employees who would be dissatisfied and heavily impacted by this decision, which may lead to seeking coverage from another employer.

Each company’s financial objectives and constraints differ. As well, the demographics and employment environments differ among employers. This makes the decision to or not to offer and/or contribute toward spousal coverage a delicate balance for every employer. If the objective is to control claims cost and reduce the number of employed spouses who participate in a company’s group coverage options, without eliminating the coverage option for those who need it, perhaps reducing or eliminating the employer contribution toward spousal coverage is a strategy to consider.

READ ARTICLE BY KELLEY DRYE & WARREN LLP