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Issue of spousal coverage in health plans flares as Catholic Health restores benefit

Catholic Health System last month informed its workers that it would no longer provide health insurance to their spouses who could obtain coverage through their own employers, citing the rising cost and a growing number of spouses added to its medical plans.

The hospital system reversed course two weeks later in response to objections from employees. But administrators defended their initial decision and left open the chance that the policy could be put in place next year.

“We’ll look at everything going forward. But one of the things we do know is that one employer – and there’s many of them like us – cannot absorb the health care costs and responsibilities of a community,” said Michael J. Moley, senior vice president and chief human resource officer for Catholic Health.

While Catholic Health changed its mind, more companies are imposing limits on coverage of workers’ spouses to hold down the price of employee health benefits.

First Niagara Financial Group this year began excluding spouses who can get insurance elsewhere, and UPS generated headlines last year when it did the same with its white-collar workers.

A survey by benefits consultant Towers Watson found that the share of large employers planning to exclude spouses is likely to double by 2015. Local insurance brokers say few companies here have taken that step because of concerns over how employees will react, but it’s on their minds.

“It is definitely in the conversation,” said Kathleen O’Connell Armstrong, employee benefits manager with the Evans Agency. “Our clients are scraping with their nails on keeping benefits for their employees – however they can still offer them – but they’re becoming so cost-prohibitive.”

The price of company-provided insurance is rising, though more slowly than in the 1990s and early 2000s, and employers are hunting for new ways to trim costs. The average yearly premium for employer-sponsored family health benefits rose by 3 percent this year, to $16,834, according to the latest Employer Health Benefits Survey from the Kaiser Family Foundation and the Health Research & Educational Trust. That’s in line with modest increases in recent years; workers pay about one-fourth of that bill.

Many companies are trying to trim costs without affecting employees’ basic benefits. While the Affordable Care Act requires coverage for full-time employees and dependents at large employers, it doesn’t for spouses.

“I think that just brought it to light. ‘OK, you don’t have to offer it to spouses – that’s what the government’s telling me. Maybe I should look at this as a benefit plan design option,’ ” said Brian Murphy, a partner with Lawley Benefits Group.

Generally, companies that have made this move only exclude spouses who are eligible for coverage through their own employers, and they continue to cover spouses who aren’t working or who don’t receive health benefits through their employer. Other companies allow spouses to remain on medical plans but charge them more to do so.

The move to exclude spouses, or charge them a higher rate, has accelerated in recent years.

A survey from Towers Watson and the National Business Group on Health found that 23 percent of large employers – those with 1,000 or more workers – planned next year to limit benefits for spouses who can get coverage from their own companies, up from the 10 percent who did so this year. Next year, 39 percent of large employers plan to let spouses stay on their insurance but to levy a surcharge – averaging $100 per month – if they had access to coverage from their own employers. That’s up from 24 percent this year.

“Employers are getting a lot more aggressive, with spousal surcharges and spousal carve-outs, in that space now. And when big companies like UPS make news, I think we will start to see more adopters,” Michael J. Gaal, an actuary and health benefits consultant with Milliman, said at a health care forum last week in Buffalo.

First Niagara said in September 2013 that it was ending coverage for spouses and domestic partners who can get insurance through their own employers. Without that move, the increase in premiums for 2014 would have been more than the bank and its workers could absorb, First Niagara said in a memo obtained by The Buffalo News. The bank said that about 2,000 spouses and domestic partners were covered by its medical plans and estimated that up to half were eligible for coverage elsewhere. Of the 10,000 people covered by First Niagara’s insurance plans, employees were outnumbered by spouses, partners and children.

“First Niagara is committed to providing our employees with benefits that are comprehensive and affordable, and the company continues to pay the majority of the cost for our employees’ medical insurance,” Kate White, managing director of human resources, said in a statement Tuesday.

Catholic Health officials said they began discussing a spousal exclusion two years ago, after noticing an uptick in spouses coming onto their plans.

Moley thinks the trend is driven by the attractiveness of the system’s comprehensive coverage, at a time when many employers are offering plans with higher co-pays and deductibles. “What we found is they were dropping the coverage from their employers and moving over to us,” he said.

The number of spouses covered by Catholic Health’s insurance increased by 22 percent over the last several years. The overall cost of employees’ health insurance rose by $20 million in the last four years, with nearly $6 million of that due to spouses’ health care, Moley said.

Catholic Health calculated that about 700 workers’ spouses would need to leave its insurance plan under the new policy; children could remain. Employees, who were told Sept. 30, balked at the policy, saying they didn’t have enough time to plan and lamented the financial impact. Catholic Health officials said they were swayed by the workers’ arguments and, in a memo dated Oct. 14, announced they were reversing their decision. “It certainly was an emotional feedback,” Moley said.

However, Catholic Health said that retaining the spouses would lead to a larger increase in premium costs for next year. Moley said that the costs of Catholic Health plans will increase by 8.75 percent for 2015 and that about half the increase is due to keeping spousal coverage.

Area insurers and insurance brokers said that companies are reluctant to adopt spouse carve-out policies because benefits are part of an employee’s compensation and that limiting them could make the company a less desirable place to work.

“I haven’t had any, to date, actually do that, and I think part of it is because of morale,” Armstrong said. “I also think that there’s a way in which to deliver this message, and employers are hesitant. And yet if they’re going to do it, they understand that they have to do it well, well, well in advance.”

It’s not yet clear how much money employers would save by excluding spouses. The Employee Benefit Research Institute predicted that the first companies to make the move would see savings but that as more companies drive spouses back to their own employers, the benefit to any one company would subside over time. The brokers also said some employers worry that limiting spousal coverage could hurt their reputation in the community.

“I think there’s a lot of people that maybe, like Catholic Health System, wanted to dip their toes in the water,” Murphy said, “but we’re not seeing a bunch of groups jumping in and say let’s do this.”