With United Parcel Service's announcement this week that it will stop providing health care coverage to the spouses of some white-collar workers, it joined an increasing number of companies that are restricting or eliminating spousal health benefits.
In UPS's case, it told its white-collar employees that it won't cover spouses who can obtain coverage through their own employers.
UPS is one of the biggest companies so far to drop spousal coverage for some workers.
Large employers like Xerox and Teva Pharmaceuticals already impose surcharges for spousal coverage. And some cities, like Terre Haute, Ind., decided to follow what many of its private corporations were doing, by adopting a “spousal carve-out” so that working spouses would not be covered.
UPS, the world's largest package delivery company, said its decision was prompted in part by “costs associated with” the federal health care law.
In a memo addressed to employees, UPS said, “Limiting plan eligibility is one way to manage ongoing health care costs, now and into the future, so that we can continue to provide affordable coverage for our employees.”
The memo also estimated that about 33,000 spouses were covered under its insurance plan for white-collar employees and that “about 15,000 of these would have health care coverage available through their own employers.”
UPS told employees, “Since the Affordable Care Act requires employers to provide affordable coverage, we believe your spouse should be covered by their own employer — just as UPS has a responsibility to offer coverage to you, our employee.”
The limits on coverage are occurring as some cities and companies are considering changes to coverage for retirees younger than 65 and not eligible for Medicare, who might be shifted to the health insurance exchanges being established in states under the Obama health care law.
Although the percentage of employers adopting changes in policies like UPS's new limits remains in the single digits, it is growing. According to a corporate survey by Mercer, a consulting firm, 6 percent of companies with 500 or more employees excluded coverage for spouses in 2012 if their spouses could obtain coverage through their own employer. That is double the percentage in 2008, Mercer found.
Mercer's survey also found that 6 percent of employers required a surcharge for workers who keep their spouses on their health coverage even though their spouses could obtain coverage from their own employer. A Towers Watson survey found that 33 percent of large employers said they would impose such a surcharge by 2015.
The UPS policy does not apply to the children of those employees. Nor does it affect the company's 250,000 unionized workers. At the end of 2012, the company had around 399,000 employees.
Several health care experts said companies were taking these moves partly because the federal health care law does not require employers to provide spousal coverage but does require them to offer it to employees and their children. UPS made clear that it would continue to provide coverage to spouses who did not have it through another employer.
Assessing UPS's policy, Gary Claxton, a vice president and health care expert at the Kaiser Family Foundation, said, “It's clear that it's a competitive industry, and they want to cut costs.”
Barry Schilmeister, a senior health consultant at Mercer, said more employers were embracing this policy to help avoid being hit by the so-called Cadillac tax, which imposes a 40 percent tax on health care premiums above a certain threshold. In 2018, when that tax takes effect, the threshold will be $10,200 for individual coverage and $27,500 for family coverage.
“The Cadillac tax is going to be a serious extra cost for plans that exceed a certain level,” Schilmeister said.
Schilmeister said many companies would shun the policy.