Spousal Surcharge: A Fix for Rising Costs of Employer Sponsored Plans?

Some employers consider health insurance spousal surcharges as a way to reduce the impact of rising healthcare costs. Because they can be unpopular with employees, however, many companies question whether they should institute the practice.

Let’s take a look at what a spousal surcharge is and whether it can help keep your health insurance premiums at bay, along with additional considerations.

What is a Spousal Surcharge for Health Insurance?

Most employers today have a set portion of premiums that they pay for employee healthcare insurance. A common model is one in which an employer pays 70 – 80 percent of premiums and requires the employee to pay the other 20 – 30 percent.

A spousal surcharge is an additional fee or premium that an employee is required to pay if his or her spouse has an alternative source for healthcare coverage through their own employer, yet elects to be added to the employee’s plan. A spousal surcharge applies only if the spouse has other health insurance options.

According to research, 25 percent of employers use spousal surcharges and an additional 9 percent are planning to implement such surcharges in the next two years.

Is a Spousal Surcharge Legal?

Though sometimes questioned by employees, spousal coverage surcharges are legal, but employers must remain in compliance. It’s best to consult with a professional risk advisor or legal counsel to structure a benefits package that contains proper language and treats all employees fairly.

Pros and Cons of Spousal Surcharges

The practice of spousal surcharges is sometimes viewed as an effective way for employers to hold down healthcare costs by dissuading spouses (i.e., a husband or wife who has other insurance options) from enrolling in the employee’s group plan. The surcharge is also intended to offset some of the costs of the spouse’s coverage, with the goal of keeping the plan as affordable as possible. For the affected spouse, the surcharge typically qualifies as a pre-tax deduction.

However, savings from implementing surcharges don’t appear to be significant, and there are potential drawbacks. As any employer knows, benefits packages are a main driving force in recruitment and retention strategies. During a time when many companies are experiencing significant labor shortages, they’re ramping up efforts to brand themselves as employers of choice to attract talent. Spousal surcharges could hurt those initiatives.

Since the average cost to onboard a new employee is $4,129, any potential savings accrued by implementing spousal surcharges might be negated if it results in poor retention.

Alternatives to Spousal Insurance Surcharges

When talking with business owners, we look at every possible way to lower health insurance premiums. While spousal surcharges may make sense for some organizations, others might prefer to restructure plans to include higher deductibles instead.

Another common approach is to compensate an employee for opting out of coverage. If an employee elects to not take insurance through your company, he or she can be paid a set amount each year. There are considerations with this practice as it relates to compliance with the Affordable Care Act (ACA), however, so be sure to understand any implications.

One of the most effective ways we’ve found to reduce costs is to stress the importance of behavioral changes in employees. When employees embrace the fact that it’s not just their employer’s job to keep costs down and that they play a major role in managing rising premiums, it can have significant results.

Aggressive wellness programs that encourage employees (and spouses) to stop smoking, lose weight, score well on risk assessments, and minimize visits to the ER, along with other initiatives, have the greatest potential to inevitably bring costs down. In fact, one company we worked with reduced their health plan loss ratio by two-thirds using this type of strategy. Be sure to check out their success story at the end of this article.

Are Spousal Surcharges Right for Your Company?

Before adopting spousal surcharges as part of your benefits package, consider the implications. Have a thoughtful discussion with your insurance broker about how the practice could impact your workforce. Work with a trusted and strategic risk advisor who can conduct a thorough review to make sure your plan design remains in compliance with all state and federal regulations while still providing value to your employees.

If you’d like to talk with an expert about your options and ideas on how to keep insurance premiums in check, reach out to us at McClone.

Editors Note: This post was originally published in May 2018 and has been completely updated and revamped for accuracy and comprehensiveness.