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

As healthcare costs rise, some employers are turning to spousal surcharges in health insurance plans as a way to manage expenses. Although spousal surcharges can offset healthcare costs, they can also be unpopular with employees. This leaves many companies questioning whether adding a spousal surcharge to employee benefits packages is the right move.

Here, we’ll explore what a spousal surcharge is, examine its benefits and drawbacks, and look at alternatives for employers seeking to control rising healthcare premiums.

What is a Spousal Surcharge for Health Insurance?

Most employers cover a portion of employee healthcare premiums—often 70-80%—with employees paying the remaining 20-30%. A spousal surcharge is an extra fee that employees must pay if their spouse has access to other healthcare coverage through their employer but chooses to join the employee’s plan instead. This surcharge only applies when the spouse has alternative insurance options available.

According to industry research, around 25% of employers currently use spousal surcharges, with an additional 9% planning to implement such fees over the next two years.

Related: 6 Tips for Controlling Rising Healthcare Costs

Is a Spousal Surcharge Legal?

Yes, spousal surcharges are legal as long as they comply with relevant employment and insurance laws. However, implementing a surcharge must be done carefully to ensure compliance and fairness across employees. Consulting with a professional risk advisor or legal expert can help design a benefits package that includes compliant and transparent language for employees.

Pros and Cons of Health Insurance Spousal Surcharges

Pros:

• Cost Savings: Spousal surcharges can help manage healthcare costs by dissuading spouses who have their own employer’s health coverage from joining the employee’s plan, thereby reducing overall premium expenses.
• Pre-Tax Deduction: The surcharge is often structured as a pre-tax deduction, which can lower the taxable income of affected employees.

Cons:

• Employee Morale: Surcharges may be unpopular, potentially impacting morale and retention, especially if employees perceive the surcharge as a penalty.
• Recruitment and Retention: During times of labor shortages, spousal surcharges might hinder recruitment efforts. Given that onboarding costs average over $4,000, the savings from implementing a surcharge may be outweighed by increased turnover costs.

Alternatives to Spousal Surcharges

If spousal surcharges feel too restrictive or potentially harmful to employee satisfaction, consider these alternatives to manage healthcare costs:

1. Higher Deductible Plans: Restructure health insurance offerings to include higher deductible plans, which can lower premium costs for both the employer and employees.
2. Opt-Out Compensation: Offer compensation to employees who opt out of your health plan if they have alternative coverage, which can be a strategic option for reducing plan enrollment. However, be mindful of compliance requirements under the Affordable Care Act (ACA).
3. Employee Wellness Programs: Encourage employees to adopt healthier lifestyles through wellness initiatives, which can help reduce overall claim costs. Aggressive wellness programs that include smoking cessation, weight loss incentives, risk assessments, and other initiatives can have a significant impact. For example, one of our clients reduced their health plan loss ratio by two-thirds using these strategies.

Current Trends in Spousal Surcharges

Spousal surcharges are increasingly popular as employers look for ways to manage healthcare costs without compromising employee benefits. However, the benefits of spousal surcharges should be weighed against potential impacts on employee satisfaction, recruitment, and retention. With the Affordable Care Act and evolving insurance trends, it’s essential to stay informed of compliance requirements and explore flexible plan designs that suit both employer and employee needs.

Are Spousal Surcharges Right for Your Company?

Before adding a spousal surcharge to your benefits package, consider the implications for your business. Talk with your insurance broker or risk advisor about how a spousal surcharge may impact your workforce and overall benefit costs. They can help assess if a surcharge aligns with your objectives or if alternative solutions might be more beneficial.

If you’d like to discuss spousal surcharges or other options to control rising insurance premiums, reach out to the team at McClone for personalized guidance.

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