As a small business, offering benefits to employees is a critical part of attracting and retaining talent. With great employees their spouses also come. However, the nuances of covering spouses under employer-sponsored benefits can be complex. Employers often wonder: When do I need to provide benefits to spouses? What if a spouse is already covered under their own employer’s insurance, do you still need to offer benefits to them?
These are all questions we hear often.
Our team at AUI will try to give you helpful scenarios to consider when making your small business spousal benefits coverage in this blog. We will try to cover the legal requirements, industry practices, and strategies for managing spousal benefits.
When Are Employers Required to Provide Benefits to Spouses?
In the United States, employers are not legally required to provide benefits to spouses unless certain conditions apply. Here are a few of the scenarios to think about when considering your spousal benefit policies.
What Are the Legal Requirements for Offering Spousal Benefits?
Most people today are very familiar with the Affordable Care Act (ACA). The ACA mandates that large employers (50 or more full-time employees) offer affordable health insurance to their full-time employees and their dependents. Under the ACA, dependents are defined as the employee’s children under age 26, but spouses are not included in this definition. Therefore, employers are not obligated by federal law to offer benefits to spouses.
Businesses with less than 50 employees are not obligated under federal law to provide employee benefits, but most small businesses want to offer them as part of their employee benefits package. Spousal inclusion is a great way to even more value and shows that you care about your employees and their families.
In Ohio there are no specific regulations requiring employers to extend benefits to spouses. However, children of employees are protected under Ohio law. You can read the requirements HERE. Employers should check their state’s employment laws to ensure compliance as both federal and state laws can change.
Marriage Equality Laws: Following the Supreme Court’s ruling on marriage equality, employers cannot discriminate based on the type of marriage (e.g., same-sex or opposite-sex). If spousal benefits are offered, they must be extended equally to all legal spouses.
However, that does not apply to domestic partner benefits. Ohio law does not have a mandate for employers to offer healthcare coverage to domestic partners or their families. However, employees who have coverage for their domestic partners and their families may be required to pay taxable income on that coverage for tax liability.
How Should Your Small Business Determine Employer Policies?
Although not federally mandated, many employers choose to offer spousal benefits as part of a competitive benefits package. According to the Kaiser Family Foundation, most employers with healthcare plans include spousal coverage, but the specifics of the spousal coverage vary widely.
Your small business does not have to fit in a box. Offering benefits to spouses is a personal choice. Here are some of the frequent questions for businesses to make about spousal health insurance coverage.
What If the Spouse Has Insurance Through Their Employer?
Employers often face situations where an employee’s spouse is eligible to have coverage under their own employer’s insurance plan. In such cases, employers have several options:
Offering Spousal Benefits Regardless of Other Coverage
Some employers choose to offer spousal benefits even if the spouse has access to coverage through their own employer. This approach provides maximum flexibility for employees but can increase costs for the company.
Example : Full Spousal Coverage at a Family-Owned Business
Company: A manufacturing company, a family-owned business with 75 employees.
Scenario: The manufacturing company covers employees, their spouses, and dependents without restrictions, even if the spouse has access to their own employer’s plan.
Why They Chose This: The company views its employees as part of an extended family and believes that offering comprehensive benefits is key to retaining loyal, long-term staff. The owners intentionally absorb higher healthcare costs as part of their commitment to employee well-being.
Outcome: The manufacturing company’s approach has created a culture of trust and loyalty. Turnover rates are significantly lower than industry averages, and employees frequently cite the benefits package as a reason for staying with the company. While this approach is costlier in the short term, the company has saved money by avoiding recruitment and training expenses associated with high turnover.
What Does Implementing a “Spousal Carve-Out” Policy Entail?
A spousal carve-out policy excludes spouses from an employer’s health plan if they have access to coverage through their own employer. This policy is becoming increasingly common as a cost-containment strategy. Employers should clearly communicate this policy to employees and ensure consistency to avoid legal challenges.
Example: Spousal Carve-Out Policy at a Tech Company
Company: A fast-growing software company with 200 employees.
Scenario: The software company provides health insurance for employees and their dependents but recently adopted a spousal carve-out policy. Under this policy, spouses who have access to affordable health insurance through their own employer are not eligible for coverage under the software company’s plan.
Why They Chose This:
Rising healthcare costs prompted the software company to evaluate its benefits offerings. The HR team discovered that 40% of covered spouses already had access to their own employer-sponsored insurance. By implementing the carve-out policy, the software company reduced its health insurance costs by 15% without negatively impacting employees whose spouses truly needed coverage.
Outcome: Employees were initially skeptical of the change, but clear communication and a gradual rollout eased concerns. The software company used the savings to enhance other benefits, such as mental health resources and a generous parental leave policy, strengthening employee satisfaction.
What About Charging a “Spousal Surcharge” for Employees?
Rather than excluding spouses outright, some employers impose a surcharge on premiums for spouses who have access to other insurance. This surcharge helps offset the additional costs of covering a spouse while still allowing them to be included in the plan.
Example: Spousal Surcharge at a Retail Chain
Company: A regional retail chain with over 1,000 employees.
Scenario: The retail chain offers health insurance to employees and their spouses but requires a spousal surcharge of $150 per month if the spouse has access to health insurance through their own employer.
Why They Chose This:
The company wanted to maintain flexibility for employees while encouraging spouses to use their own employer’s plan when possible. The surcharge was designed to share the cost burden more equitably, as insuring spouses who have other options often drives up premium rates.
Outcome: Around 30% of spouses switched to their own employer’s plan after the surcharge, saving the retail chain about $250,000 a year. Employees appreciated that the company did not remove spousal coverage entirely, and many viewed the surcharge as a fair compromise.
What Are the Best Practices for Managing Spousal Benefits?
To balance cost management and employee satisfaction, employers should consider the following best practices:
- Review Your Policies Regularly: Ensure your spousal benefits policies align with current regulations and industry trends.
- Communicate Clearly: Clearly explain spousal coverage rules, carve-outs, or surcharges to employees during open enrollment and in benefits materials.
- Use Eligibility Audits: Conduct regular audits to verify that covered spouses meet eligibility criteria. This helps reduce unnecessary costs.
- Consult Legal and Benefits Experts: Work with legal counsel and benefits advisors to ensure compliance with federal and state laws.
How Can AUI Help You with Spousal Benefits?
Before the next open enrollment, we encourage all business owners to think about their business policy on spousal benefits. Employers are not required to offer benefits to spouses, but they can be valuable as part of your competitive benefits package.
Offering spousal benefits becomes more complex when the spouse has access to their own employer-sponsored insurance. Be careful when considering spousal carve-outs, surcharges, and other cost-management strategies. It is important for you to be able to find a balance between controlling costs and supporting your employees. You do not have to go through these decisions alone. The team at AUI can help you navigate all your options for spousal benefits before you lock in your next employee benefits plan. Contact us today to learn more.
