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Spousal Surcharges

By Andy Warren,

Today we have a guest editorial from Andy Warren as Steve is out of town.

One of the recent trends in benefits provided by employers is the implementation of a spousal surcharge – a fee charged if your spouse is eligible for insurance from their employer and doesn’t accept it, instead being covered by your policy. The fees vary, but I’ve read that $50 to $100 pay period is not unusual. It sounds bad, but is it?

Businesses are always trying to control costs and the employer portion of health insurance is a sizeable one. Imagine you own a small business and you hire an employee that has a spouse. If they both use your insurance, your costs go up; if they both go on the spouse’s insurance, your costs are zero. The employer providing the better insurance (or at least lower costs/deductible) ends up paying more! Is that fair?

On the employee side of things cost is probably the biggest decision factor – we go with whichever plan ends up costing us less (after looking at deductibles, etc.). It’s nice to have one policy instead of two as far as something to manage. It might make a difference in total costs for the year if all expenses go towards the deductible limit on one plan instead of two.

We (the employees) are making a cost based decision. So are employers. If the spousal surcharge is $50 and that’s less than what the spouse would pay on their employer plan, we go with that option. It sounds small, but at $50 a pay period that would reduce our net income by $1300 a year – an un-negotiated change in compensation. I don’t have any numbers on what percentage of employees are affected, but for an employer any savings is a win, at least until it affects their ability to retain employees and this doesn’t seem to rise to that level.

As far as I can tell this is built on the honor system right now. Some employers ask employees to sign affidavits that their spouse is not eligible via their employer. I imagine eventually someone will build a business around finding violators and getting the fee charged in return for a percentage.

I’m unclear if a spouse losing a job that included health insurance is a qualifying event on your insurance. Probably not. COBRA (here in the US) is still an option, though one that is not cheap because you’re paying both the employee and employer portions of the premium. To be fair it’s not really any worse than if the spouse that is covering the entire family loses their job.

Some have indicated this fee is a result of the ACA. It may be, but I suspect even if the ACA were changed employers would still see this a way to better manage costs. From my perspective it’s not an unfair approach, just one that I think should be phased in and not dropped on all employees at the start of the benefit year.

Ultimately we have few options if this is invoked – pay the fee or have the spouse pay for their insurance, or opt to get a plan independent of your employers, though that rarely works out to be a cheaper option. Make the best decision you can based on whatever the current policy is and revisit if it changes.

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