Spousal Carve-Outs and Surcharges

Information provided by Zywave, Inc.

In order to reduce rising health care costs, some employers have adopted group health plan provisions restricting coverage of spouses. These provisions take the form of spousal carve-outs (also known as “working spouse provisions”) or spousal surcharges. They can be cost-savings tools for health plans, particularly for plans with generous plan provisions for dependent care and plans where a significant portion of the enrolled population elects family coverage.

What is Spousal Carve-out?
Spousal carve-out is a plan provision that restricts coverage for employees’ spouses who are eligible for other coverage, such as through the spouse’s employer. One type of spousal carve-out provides that such spouses are not eligible for coverage under the employee’s plan. Spousal carve-out shifts a large percentage of the employer’s cost away from the plan. In effect, the employer’s plan becomes a secondary payer to other plans where employees’ spouses are covered.

What is a Spousal Surcharge?
A spousal surcharge is an additional premium or contribution that an employee must pay for coverage for his or her spouse. The surcharge generally applies if the employee’s spouse has other coverage available, such as through his or her own employer, and chooses not to enroll in that coverage. Most spousal surcharges do not apply to spouses who are not employed or whose employers do not offer health insurance. They also are not applicable to coverage for children. The surcharge is designed to encourage spouses to use their own available health coverage and to contribute to the added cost of covering spouses who choose not to do so.

Legal Issues of Which You Should Be Aware
Some states have laws and regulations that limit the design of spousal carve-out and surcharge plan provisions. In many cases, these laws and regulations prohibit discrimination (e.g., sex or marital status discrimination) that can result from an employer adopting spousal carve-out or surcharge language in a plan.

For example, the Wisconsin Supreme Court ruled that a spousal carve-out provision in a fully-insured school district health plan violated the Wisconsin Fair Employment Act. The court found that the spousal carve-out provision was discriminatory against married individuals because the plan did not require single employees who may have had coverage elsewhere to also make an election. The court noted that this type of plan language had a disparate impact on married employees.

The court implied that a spousal carve-out provision would not be a violation of the law if the plan limited duplicative coverage to any employee, rather than to any married employee. The court also suggested that a spousal carve-out provision would be lawful if the employer’s plan was made secondary to any other coverage for which an employee might be eligible.

Finally, spousal carve-out and surcharge plan provisions may not always be enforceable. Both state and federal courts have struck down certain provisions based on public policy grounds.

Thus, check with your state insurance commissioner for any laws, regulations or public policy issues that may impact spousal carve-out or surcharge, and consult with your insurance broker and carrier, before amending your plan.

The Horton Group, Inc. welcomes the opportunity to help your organization examine its plan design(s) and make recommendations for improvement. The sample spousal carve-out plan provision on the reverse side may be a permissible design if allowed by applicable law.

For an important notice form to fill-out regarding your medical insurance, please download the printable PDF.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your needs.