(Bloomberg) — United Parcel Service Inc.’s decision to drop health benefits for 15,000 of its workers’ spouses may be a sign of the future, as U.S. businesses grapple with rising medical bills and the added burdens of the Affordable Care Act.

The nation’s fourth-largest employer said yesterday that beginning Jan. 1 it will no longer offer health coverage to spouses who can get it through another company. UPS cited the ACA as part of its impetus, saying it would increase costs and provide other insurance options for spouses.

The shift is a sign of corporate America’s increasing willingness to make deep changes to benefits once taken as a given by U.S. workers. The health care overhaul, estimated to boost expenses for businesses by 2% to 4% next year, is adding to the momentum that already spurred higher deductibles and surcharges for covering dependents.

[IMGCAP(1)]

“The feeling is, drastic times call for drastic measures,” says Rich Fuerstenberg, a partner at New York-based benefits consultant Mercer Inc. “What employers are adopting today are strategies that were considered crazy or out of the mainstream just a few years ago.”

The benefits change will only affects workers in the U.S., according to a memo to employees published yesterday by Kaiser Health News. Spouses who don’t work or lack employer-provided insurance will still be covered by the Atlanta-based company’s health plan, as will children of workers, according to the memo. The change won’t affect 250,000 Teamsters union workers or employees in other countries.

Employer responsibility

“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, our employee,” UPS said in the memo. “Limiting plan eligibility is one way to manage ongoing health care costs.”

Joanne Peters, a spokeswoman for the U.S. Health and Human Services Department, had no comment about UPS’s move.

“Since the Affordable Care Act became law, health care costs have been slowing and premiums are increasing by the lowest rates in years,” Peters said in an e-mail. “The law is changing the way we deliver care to keep costs down and produce better outcomes for patients.”

The act isn’t the only reason employers are reassessing benefits, says Mercer’s Fuerstenberg. In its memo, UPS also cited “the rising cost of health care in general,” particularly expenses for chronic conditions such as cancer and heart disease.

‘Simple’ explanation

“But those are all a lot harder and a lot more nuanced to communicate,” Fuerstenberg says. “’Obamacare’ is a simple, easy-to-explain reason as to why our costs are going up and your benefits have to change.”

The ACA seeks to extend health coverage to more of the nation’s 50 million uninsured and requires all Americans to obtain insurance next year. Employers with 50 or more full-time workers will have to provide health benefits, though the Obama administration announced last month that it was delaying the provision by a year at the request of business leaders.

While a Kaiser Family Foundation study released earlier this week showed employer premiums rose 4% this year, less than in the previous two years, companies continue to seek ways to cut medical bills that are increasing faster than inflation, Fuerstenberg says.

UPS in its decision joined 6% of U.S. employers who excluded spouses from health coverage last year, according to a survey by Mercer of companies with at least 500 workers. That was double the figure in 2008. Another 6% imposed a surcharge on top of health-care premiums for insuring spouses.

Changes ahead

“Is it a harbinger of things to come? Possibly,” says Paul Fronstin, a director at the Washington-based Employee Benefit Research Institute. “Once a major employer like UPS takes a step, all of the others will at least start looking at it.”

The question for other companies will be whether the health plan savings from dropping some spouses outweigh the cost in terms of recruitment and retention, he says.

“There’s a reason that employers have been offering health benefits voluntarily for decades,” Fronstin says. “For some, it makes sense for business.”

How the shift affects individual families depends on the cost and quality of the health plan a spouse can get through his or her own job, he said. In general, employers offer bigger subsidies for workers on individual policies than for those with family plans, he says.

Law’s provisions

The health law imposes new taxes and requires companies to expand coverage of preventive care and workers’ adult children. In June, a Mercer survey of 900 companies found 37% expected the law to increase their expenses by at least 3% next year.

Eventually, the law may also offer employers a way out of benefits completely. Detroit and Chicago have announced they’ll limit or end coverage for some retired municipal workers, with the expectation they can buy plans through the new insurance created by the act and scheduled to open for business Oct. 1.

If the sites are a success, “you’ll see some private employers go down that road in the future,” Fuerstenberg says.

 

Photo: Bloomberg News

Register or login for access to this item and much more

All Employee Benefit Adviser content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access