UPS Among the First To Dump Spousal Coverage. It Won't Be the Last.

by Dan Diamond, California Healthline Contributing Editor

TOPIC ALERT:

What can Brown do for you?

Maybe deliver a non-stop string of media requests. Especially if "you" are "Paul Fronstin."

Fronstin, a director at the Employee Benefits Research Institute, is one of the go-to sources on how the Affordable Care Act could affect workers' health coverage. And by the time "Road to Reform" reached Fronstin on Tuesday, he'd already gotten interview requests from outlets like Bloomberg, the Associated Press and Congressional Quarterly to help explain why UPS made the decision last week to drop health coverage for about 15,000 spouses of its employees, partly because of Obamacare's costs.

It's "the story that won't die," Fronstin said.

Why the UPS News Matters -- And Why It Doesn't

One reason why the UPS news has gotten so much traction: It's a tangible example of an employer negatively reacting to the ACA. And it's especially eye-catching because so few of the Cassandra-like prophecies about the law have come to pass.

  • Two years ago, McKinsey infamously predicted that 30% of employers would start to shed coverage beginning in 2014, given that the costs of complying with the employer mandate far outweighed the costs of incurring penalties and sending workers to the exchanges. Yet with the law's full implementation looming, there's been almost no sign that employers will ditch benefits.
  • More recently, some restaurant chains like Denny's and operators like Darden (which runs Red Lobster and Olive Garden) warned that they'd shift to more part-time labor in the face of Obamacare. But after a wave of criticism, most retracted their announcements or retreated from their strategies.

UPS' decision isn't wholly because of the ACA, according to a company spokesperson. (He acknowledges that Obamacare is expected to add to the firm's spending, but the law is just one driver behind the move to restructure employee benefits.) But UPS could be a bellwether for several reasons. Big companies do take their cues from other big companies, and nixing spousal coverage is already in their crosshairs.

According to a recent Towers Watson survey, while 4% of firms currently exclude workers' spouses from enrolling in their health plans if comparable coverage is available, another 8% of employers say they'll drop spousal coverage next year. Meanwhile, 20% of employers currently levy a penalty for spousal coverage -- about $100 per spouse per month -- and another 13% will begin imposing surcharges next year.

Those trends are partly driven by traditional employer economics, partly by the new Obamacarenomics. Firms already have spent years scrambling for ways to lower their health costs, and under the ACA, they must pay new fees -- about $60 per covered life on their plans next year.

"The question about whether it's obligatory to cover the family of the employee is being thought through more than ever before," Helen Darling, president of the National Business Group of Health, told MarketWatch earlier this year.

And the decision to cut back on spousal coverage probably matters much less in 2013 than it did in 1983. As Jonathan Cohn writes at the New Republic, offering benefits to the spouse of an employee is "a relic from an era when dual-income couples were still relatively uncommon."

Employers' obligations -- or at least their perceptions of them -- have changed, largely because more women have entered the workforce and secured their own coverage, Cohn notes.

Early Advantage for First Movers, but Zero-Sum for the Rest

Many employer benefit trends tend to be gradual, with the adoption of certain plan designs or eligibility thresholds accreting over decades. But firms' decisions to drop spousal coverage may be more rapid, given the financial incentives that tighten the window of opportunity.

"How does an employer save money doing this?" Fronstin rhetorically wonders. "[By] being the first, or among the first" to drop spousal coverage, thereby reaping lower health costs, even as lagging firms may end up absorbing more people into their plans.

But that also means the benefits of trimming these benefits may be short-lived.

"Ultimately, if you're offloading spouses" from your plan, "at some point someone is going to offload their spouses -- and their spouse is going to be your employee," Fronstin concludes.

Around the nation

Here's what else is making news on the road to reform.

Church v. state: Politico's Kyle Cheney highlights what he calls Obamacare's "holy wars" -- how some conservative evangelical groups continue to fight the health law's implementation, given the ACA's contraceptive coverage requirements and other provisions, even as more liberal congregations throw their support behind the law.

Some states may lack the dollars to do effective ACA outreach: Writing at Talking Points Memo, Dylan Scott calls attention to the disproportionate funding levels, which are often based on whether state leaders threw their support behind the ACA. Texas, which has 6.1 million uninsured residents and is led by staunch Obamacare opponent Gov. Rick Perry (R), will have roughly the same amount of money to do ACA outreach and awareness as Washington state, which has a fraction of the uninsured population.

Penny Stroud
I'm disappointed that the California Healthline, which specializes in health care, uses a deceptive headline that inaccurately describes what is happening. The are only dropping coverage for people with their own coverage, so no one is being left uninsured. I agree with both of the prior comments.
Patrick Pine
The concept of moving employed spouses to the spouse employer plan is not that new - I recall many discussions on this as long ago as 2004. At that time, it appeared that spouses/dependent children were often getting the benefit of "dual" coverage. Firms that engage in "dependent eligibility audits" have been promoting this concept for years. So the article is generally accurate but UPS is hardly a pioneer in this regard.
Donald Stumpp
I don't perceive the UPS move as negative. It is what needs to happen. The current situation is another 'cost-shift' that needs to be eliminated. Why does UPS need to pay for health coverage of a spouse who works at Denny's or some employer who skates by without offering insurance? Don't most dual-income families go through the math to determine whether their insurance should be through the husband or wife? As Fronstin states: You'll pick up new ones as your employee spouse gets offloaded by the other employer. I contend it's a good thing. The US has chosen employer-based coverage, so employers should not take care of other employer's employees! It's that simple. As far as dependent children, that's still the financial math a family might do to determine which employer plan to pick. If you both cover, understand the birthday rule will apply - which is probably a new concept for those just delving into the world of insurance, benefits and claims.

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