Carve Out Immediate Benefits Plan Savings During the COVID-19 Pandemic

The recent market reaction and sudden business disruption brought from the coronavirus has heightened concerns about managing newly remote workforces and staying in compliance with new and immerging federal regulations. However, for some businesses, it’s much more severe, as they determine ways to scale back overhead costs to avoid potential furloughs, layoffs, or worse, business closure.

In addition to other mid-year benefit changes cost-savings measures, one avenue employers can explore to control costs are through spousal carve-outs and spousal surcharges. Employers can adopt these health plan provisions, restricting coverage of spouses, or requiring additional premiums for spousal coverage. These can be cost-savings tools for health plans, particularly for plans with generous provisions for dependent coverage and plans where a significant portion of the enrolled population elects family coverage.

According to a recent survey of nearly 2,200 married U.S. adults, 71% reported having their spouse on their current insurance plan. With the average premium per covered individual costing employers around $6,000 per year, the savings potential for removing this coverage in times of business uncertainty is exceptionally high.

Definitions:

Spousal Carve-Out

A spousal carve-out is a plan provision that restricts or excludes coverage for employees’ spouses. Most common are carve-outs that consider a working spouse with available health coverage through their employer to be ineligible for coverage under the employee’s plan. This saves the employer the premium contributions that it would have otherwise made on behalf of the employee’s spouse. For self-funded plans, this also reduces the claims spend/risk of covering the otherwise eligible spouse.

Spousal Surcharge

A spousal surcharge is an additional premium or contribution that an employee must pay for coverage for his or her spouse. Spousal surcharge also typically applies if the spouse has an alternative source of coverage available through his or her employer and chooses not to enroll. Most spousal surcharges do not apply to spouses who are not employed or whose employers do not offer health insurance.

There are several ways to carve out spousal health care benefits:

• Restricting health care coverage only to spouses who do not have health insurance available elsewhere, such as through the spouse’s employer.
• Imposing a surcharge on coverage for spouses who have health insurance available elsewhere.
• Eliminating premium subsidies for spouses who have health insurance available elsewhere.

With any cost-saving measure, there are cautions to consider:

• Ensure that your state’s Department of Insurance allows spousal carve-outs.
• For fully-insured plans, the insurance carrier must approve the change in their underwriting guidelines.
• Excluding spouses may enable them to qualify for tax-subsidized coverage in your local Exchange.

Additional Considerations:

• A new surcharge may impact the plan’s ACA grandfathered status.
• Employers need to determine the administration of the plan provisions:
• How will the spousal data be collected and verified?
• Enrollment application
• Affidavit
• Dependent audit
• How frequently will you collect the data?
• What are the ramifications if an employee falsifies information?

The cost benefits of imposing a carve-out or surcharge will vary from employer to employer and might have a larger impact on self-funded plans. Utilizing spousal carve-out or surcharge strategies can be an effective way to decrease plan costs. Still, employers should first carefully consider the different methods and make certain compliance-related issues are properly tackled.

Connect with your OneDigital Benefits Consultant to help model/forecast the financial impact to your plan. If a carve-out or surcharge is to be implemented, ensure that your plan documents and policies are updated to outline these details. OneDigital is here to assist in developing a communication plan to your team to help reduce any negative perception about the new guidelines.

The situation is evolving minute-by-minute, and so are your challenges. Visit OneDigital's Coronavirus Advisory Hub for the latest information, resources and advisory session schedule.