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Monday, December 21, 2009

Benefits Swap

I have a single employee, currently enrolled in our group health plan, who is getting married to someone who does not work with us in April. He wants to drop our health insurance group plan in favor of joining his bride's group plan with her employer when he gets married. But he has asked our business owner if we would be willing to pay his new wife's monthly premium. He's arguing that it would be cheaper for the company to do this instead of carrying him and his wife on our health care, and our boss likes the idea.

Is this legit? I'm worried that it might be discriminatory (wouldn't we have to offer to pay for all our employee's spouses health care premiums?) Are we going down a road we don't want to travel? Or is this a clever way to reduce health care costs. I'm not an HR expert, just the poor guy assigned to these duties in the office, and I really could use some guidance. We're located in Pennsylvania.


This is an excellent question, for which I don't know the answer. So, I'm publishing it anyway! I used to work for a company that did just that, but that was 11 years ago, I was an admin, and I certainly wasn't in on any of the discussions. It was in New York State, if that helps any. I worked with some fine people, so I presume they did their legal checking, but it was also a very small company, so who knows?

Anybody know the answer to this, or how to proceed? I would never want a policy where you paid the whole amount of the spouse's insurance increase.

I would just raise everyone's salary by $200 (or whatever) and increase the amount they paid towards their own benefits by $200, so if they didn't take the insurance, they would have the extra $200. But, of course, once you did that, people would forget about that and you'd run into the same situation later.

19 comments:

kate said...

Apart from being a bad practice in general, I would think that providing an opt-out policy for an individual employee would potentially open an employer up to legal problems and threaten the tax exempt status of the benefit program through non-compliance with non-discrimination rules. Even if you could get away with it legally, other employees would doubtless find out and object.

An opt-out program in general, where an employer pays employees to get coverage through an alternate source, is fine in most (all?) states, assuming that the employee is making a contribution to the coverage (in New York, at least, if there is no employee contribution for a benefit program, then employees may not waive coverage for themselves or their dependents). Whether those programs are effective in reducing medical costs is arguable, but there are certainly many employers who make use of them.

I disagree with the "give everyone a raise" method, since that only works as a one-time incentive. A genuine opt-out program creates a separate (taxable) payroll line item. I do agree that you would never want to pay the whole amount of the spouse's insurance increase, since among other things you're creating adverse selection issues.

Allyson and Dave said...

We have an opt out program. The employee must prove that he or she has insurance through another source and will then get an additional $35 on each paycheck. I doubt that is enough to cover the premium but it is what we offer...to everyone....so it is equal.

Matthew said...

I work for a large company in California, and we do the same thing as allyson and dave above, except I never had to prove anything. Maybe that's only required in an state with mandatory insurance?

kate said...

the proving you have alternate coverage is typically not tied to state insurance regulations, it's a best practice, because you don't want people opting out of coverage if they don't have other coverage - both for their own safety and also because you wouldn't want to create a situation where all the healthy people who don't "need" insurance opt out.

Anonymous said...

I am a benefits administrator for a small company. I negotiate directly with insurance carriers to get the best coverage. Our insurance carrier asks to see why people aren't signing up for our healthcare. If the person is covered by another plan, it is not counted against us... If the person is NOT covered by another plan, the insurance company has an incentive to raise premiums because only the high risk people are signing up. We actually had one insurance plan cancel our coverage because too many people opted out without other coverage.

A Frugal Work in Progress said...

My husband works for the state of Texas and they also have an opt out plan. They give you a $60 a month credit towards other insurances like LTD, STD, Life, and Dental, if you can prove you are covered under another insurance plan. The rules are posted here http://www.ers.state.tx.us/news/documents/neg_booklet.pdf

page 21. Which also brings up a good question if in the future your employee will be able to resign up for benefits with your company?

noah said...

If the employee can prove they are covered under another policy then we give them $100 per month to help cover the cost. We are in Oklahoma, but I have no idea about the legal ramification beyond the fact that our legal counsel signed off on the plan.

shifty turtle said...

I think this is opening a huge can of worms. I work in HR in Missouri and if an employee opts to use another insurance source then that is their choice, we don't compensate them for not taking the insurance. To have to monitor which individual is and isn't taking the coverage and then verifying the premium his wife is paying sounds like a hassel. Plus how would you administer this for several employees? I am assuming that because you are a small company you do not have very many systems to help you monitor who needs paid what. Also, how will you verify that they are continuing with his wife's coverage? You could be paying a premium that they no longer are using and simply are trying to get a raise. I think the face value of this plan sounds like a good idea for both parties, but when you dig in, I think you are asking for more headaches than you need.

Unemployed Gal said...

I don’t get what this guy is trying to pull. When he has insurance through his own company, presumably they deduct his premiums from his paycheck. If he cancels his coverage, the deductions will stop, increasing his take-home pay. Can’t he use that extra money towards his wife’s premiums? Why should his company pay him more? It sounds like he’s trying to “double-dip” to me.

If he prefers is wife’s plan over his own, that’s his choice. He should pay for it (and feel privileged that he has this luxury of choice).

Anonymous said...

I would not recommend paying a premium for a spouse's plan that is not your own. Most small insurance plans require 75% eligibility and having insurance with a spouse on another plan will count towards that 75%. All they will need to do is show his new insurance card to your insurance company.

chanael said...

My old company did something similar. If we choose to cover our dependents on my husbands insurance instead of mine they gave a monthly credit (I think it was like $50-75). Basically the credit completely covered my portion of the premiums for healthcare, vision AND dental with a little left over so they were actually paying me an extra few $.

Ultimately that credit is WAYYYYY cheaper than the company portion of the premiums would have been.

I do think it needs to be a policy and probably set up as a credit, not directly paying the premium, but it can be done.

Anonymous said...

I think the anonymous above is incorrect, if employees are covered by another plan it will NOT count against your eligibility. Check with your broker or insurance carrier rep to verify... but in my experience, if you can prove coverage, it doesn't count against you.

shawn said...

How does implementing something like this benefit the employer? EEs are typically going to choose how/where to insure themselves based on level of coverage and price. If my wife's employer has a better option for us (and they do), we will go through them. My employer offering me a $50-75 credit for making this decision would be good (for me), but how do they benefit? I was already going to insure through my spouse, the measly credit wasn't going to sway me.

Anonymous said...

Dear Shawn...
Here is an example...
Individual insurance costs $500 a month and my employer covers the entire cost. My employer also offers a $100 credit if I deny coverage because I can obtain it elsewhere.

My spouse's employer will cover me for $25 a month.

I will cancel my coverage with my employer and get covered by my spouses employer. I will get $75 more than I had before. My employer will pay $100 instead of $500 a month. Win-Win (except for my spouse's employer)

Anonymous said...

Evil HR Lady,

How can I send you a question? I could not find an e-mail address. Thanks!

shawn said...

That specific scenario makes sense. However, does it actually work out to benefit the company when this is done for everyone like? Like I said, my employer offers insurance but I get it from my spouse because it's cheaper there. If my company paid me money to make a choice I was already going to make won't they just be out more money?

class-factotum said...

Win-Win (except for my spouse's employer)

Which is why some employers will not cover spouses who are eligible for coverage under their own employer plans. Perfectly reasonable and fair. Why should my employer (say, Harley Davidson) pay extra so my husband's employer (Rockwell) has lower benefit costs?

Jennifer said...

I agree with most of what has been said. My husband's company pays him (and the other two associates in his office) $100 because they don't offer insurance at his branch.

However, please note, if you do something like that you have to offer it to EVERYONE! as well as document the process copiously to avoid charges of discrimination or favoritism. It would also be smart to run the numbers and see what the cost to the company is to cover the spouse (vs. employee only) to verify that it is actually cheaper.

Also, as mentioned states have varying laws about what you can and can't do. I would check with your broker.

Anonymous said...

Someone asked what happens if the employee loses coverage through the spouse...it's no problem - COBRA rules allow the employee and his wife to re-enroll with the husband's employer based on the loss of coverage. (one of those magical qualifying events.)

We've saved a lot of money with our opt-out program. We do require proof of other insurance...amongst other things, you don't want a good employee to to sicken and die just because they're looking for a little extra cash each month.