Table of Contents
Table of Contents
What Is Spousal Surcharge?
A spousal surcharge is an additional fee on a medical plan if an employee’s spouse is eligible for health insurance through their own employer on their own plan. This surcharge is a method used to help control employer costs. If an employee’s spouse does not work or if their spouse isn’t eligible for health insurance through their own employer, the employee typically will not be subject to the spousal surcharge.
Advantages and Disadvantages of Spousal Surcharge
There are several benefits for implementing a spousal surcharge. These include the ability for employers to control costs and provide affordable coverage for all. The spousal surcharge also typically qualifies as a pre-tax deduction, which can benefit employees. There are also cons to enacting a spousal surcharge policy, which can pertain to recruiting and state laws.
Pros of Spousal Surcharge
- Control costs. To overcome the cost of spousal coverage, many employers decide to use a spousal surcharge to lower the costs of employer healthcare. Studies show that spouses cost more than employees (about 10 percent more on average) for health insurance, which is why more companies incentivize spouses to enroll in their own employer-sponsored plans. Larger companies can save quite a large amount of money through using a spousal surcharge. For example, Xerox estimated that the surcharge would “save about 2 percent of the company’s health care costs,” which would result in several millions of dollars in savings.
- Affordable for all. By offsetting the cost of coverage for spouses, employers are shaping their health plans so that they continue to be affordable for all of their workforce.
- Pre-tax deduction. For employees whose spouses have been affected by the spousal surcharge, it is typically deducted from their paychecks pre-tax. This allows employees to add their working spouses to their healthcare plans while also reducing their taxable income, which usually ends up saving them money.
Cons of Spousal Surcharge
- Recruiting. A company’s benefit package can play a large role in both attracting and retaining talent. When it comes to recruiting, the decision to have a spousal surcharge can affect a candidate’s decision to work for your company. For example, if a company is the only employer in a particular location that includes a spousal surcharge, it may be a bit more difficult to attract talent.
- State laws. Before considering the use of a spousal surcharge policy, employers should consider potential issues from several state laws 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.”
Spousal Surcharge Alternatives
Alternatives to a spousal surcharge include providing wellness incentives, preventing working spouses who are eligible for their own coverage through their own employer from being added to a plan, and secondary coverage.
Wellness incentives can be used to help promote healthy lifestyles, resulting in fewer claims made by employees. Instead of creating a spousal surcharge, your company could educate employees on alternative options to save money, such as using telemedicine rather than going straight to the emergency room. Your company could incentivize employees who receive a wellness or preventative care checkup, those who quit smoking, or even those who lose weight. The idea is to improve the overall health of your employees, detect or prevent medical issues before they become serious, and help them protect their standard of living.
Prevent Eligible Spouses From Being Added
This is considered a more aggressive alternative that an employer could choose, because it prevents all spouses who are eligible to obtain health insurance through their own employer from enrolling in your company’s healthcare plan. Employees can’t elect an additional surcharge to add their spouse, and the spouse is only able to obtain health insurance through their own employer’s plan.
Another alternative to consider is allowing employees’ spouses to enroll on the plan only as secondary coverage. This means they would still have to acquire health insurance through their own employer as primary coverage. However, they would be able to use the employee’s coverage as secondary coverage.
How to Prepare to Implement a Spousal Surcharge in the Workplace
Before you implement a spousal surcharge in the workplace, it is important to determine the risks associated with it. The following steps will help you through the process!
Step 1: Determine Risks
You need to understand any applicable state laws that might affect your decision to implement a spousal surcharge in the workplace. Through speaking with a legal professional, broker, or a risk advisor, you’ll be able to determine any potential risks before deciding to implement a spousal surcharge.
Step 2: Determine the Organizational Costs
Will the benefits of the spousal surcharge be greater than the organizational and administrative costs required to implement it? Your answer will determine whether or not you are ready to administer the spousal surcharge. HR and management must also be willing to follow through with any disciplinary action that could occur should employees be caught withholding the truth about their spouse’s eligibility.
Step 3: Communicate Benefits Information
Communicating the surcharge clearly, along with updating guides and other benefit information, is important for preparing your organization for this change. Make sure that your benefits information adequately explains the policy. You might also consider consulting with a broker to assist you with this.
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James has worked in the HR field going on 5+ years and has held various positions of leadership. His areas of expertise are in benefits, recruiting, onboarding, HR analytics, engagement, employee relations, and workforce development. He has earned a masters degree in HR, along with a nationally recognized SHRM-SCP certification.