Companies Are Restricting Insurance Coverage in Anticipation of Higher Costs from the Affordable Care Act

With the full implementation of the Affordable Care Act (ACA) rapidly approaching in 2014, U.S. employers are moving to get out in front of the anticipated cost increases while also trying to provide affordable health coverage for their employees. One way companies are cutting back is by restricting eligibility for coverage under their plans, with several companies recently making the news by announcing they would no longer offer coverage to employees’ spouses who can obtain coverage through their own employers.

UPS announced that it would drop coverage for thousands of spouses of non-union U.S. employees beginning Jan. 1, 2014. In an internal memo announcing the rationale for this change, UPS stated that “since the Affordable Care Act requires employers to provide affordable coverage, we believe your spouse should be covered by their own employer — just as UPS has a responsibility to offer coverage to you.” The UPS memo said that this change in coverage “is consistent with the way many large employers are responding to the costs associated with the Health Care Reform legislation. A working spouse is ineligible for [coverage] when he or she is eligible for medical coverage provided by their own employer. This allows UPS to continue to provide its employees and their families with the coverage they need and value, at an affordable cost.”

UPS estimates that about 15,000 of the roughly 33,000 spouses currently covered under its health plan are eligible for health care coverage from their own employer.

This change will force families to deal with the hassle of applying for separate insurance, submitting separate claims, managing different copays and deductibles, and dealing with different networks and bureaucracies, which is bad enough for the families of employees whose spouses’ companies offer coverage plans that are similar to what UPS has provided. But many of these spouses are employed by companies that offer only high-deductible health plans that carry high out-of-pocket costs, forcing them to choose between taking on an immense and unexpected financial burden or going without insurance.

UPS says it is not the only company that is taking this step to manage its health care costs. According to the memo, “based on market data, 35% of [other large] companies plan to exclude working spouses eligible for their own employer’s coverage in 2014.” Other surveys confirm this trend. The Towers Watson/NGBH Employer Survey on Purchasing Value in Health Care from March 2013 found that 18% of all employers either currently require spouses to purchase health insurance through their own employer plan or will require them to do so in 2014.

The memo lays the blame for this new policy directly at the feet of the Affordable Care Act, noting that UPS is expecting an 11.25% increase in the cost of coverage next year, with 4% “directly due to the impact of the Affordable Care Act.”

Interestingly, UPS doesn’t shy away from pointing out specific pieces of the ACA that contribute to that 4% increase. In addition to the more familiar expense-adding features of the ACA (policies covering children up to age 26, removal of lifetime spending caps, coverage of pre-existing conditions, etc.) the memo says the comparative effectiveness fee (which goes to fund the Patient-Centered Outcomes Research Institute), temporary transitional reinsurance (funds from which “will be used to stabilize premiums in the individual marketplace”), and the individual mandate (which has lead more employees to enroll for coverage), plus other provisions of the law contribute to the cost increase.

Another employer taking similar steps to cut back on coverage to reduce costs is the University of Virginia, which recently announced that, due to “rising health care costs, spiking expenses of high-dollar claims and looming fees and taxes connected with federal health reform,” starting Jan. 1, 2014, spouses of University employees who have access to coverage through their own employer will no longer be eligible for coverage under the University plan. The University says that the ACA is projected to add $7.3 million to the cost of the University health plan in 2014 alone. The University also claims that if it had made no changes to address rising costs or the impact of the ACA, “employee premiums would have risen a projected 12 percent to 13 percent this year.”

Other companies, such as Xerox and Teva Pharmaceuticals, rather than deny coverage to employees’ spouses have opted instead to impose hefty surcharges for spousal coverage in an effort to recoup added costs.

These added costs and expenses have real-world effects on businesses and their employees. A story in the Atlanta Business Chronicle reported that Delta claims, in an internal memo circulated among employees, that the ACA will cost the airline $100 million in 2014. According to the memo, “the costs imposed on Delta and our employees are very real and they are escalating… the cost of providing health care to our employees will increase by nearly $100 million next year. Delta will have to absorb the vast majority of that increase in costs so that we continue providing a high value, quality health plan, but some of it will have to be shared with our employees as well. And of course, the balance that the company pays simply means less left over for other investments that make our business stronger.”

As the ACA implementation proceeds, employers will seek to remain competitive while controlling their health care costs with affordable coverage to keep and attract quality employees. However, expect to see more news stories in the coming months like the ones detailed here as companies large and small try to control health care costs by restricting insurance coverage of spouses, cutting some employees’ hours to shift them from full-time to part-time status, and other methods. President Obama promised that Americans who were happy with their existing coverage would be able to keep it. As we can see from these and other stories, that is clearly not the case, as more and more employers feel the financial squeeze. The ACA was sold as a plan to help Americans. It does not appear to be living up to that promise.