UPS Among the First To Dump Spousal Coverage. It Won’t Be the Last.

What can Brown do for you?

Maybe deliver a non-stop string of media requests. Especially if “you” are “Paul Fronstin.”

Fronstin, a director at the Employee Benefits Research Institute, is one of the go-to sources on how the Affordable Care Act could affect workers’ health coverage. And by the time “Road to Reform” reached Fronstin on Tuesday, he’d already gotten interview requests from outlets like Bloomberg, the Associated Press and Congressional Quarterly to help explain why UPS made the decision last week to drop health coverage for about 15,000 spouses of its employees, partly because of Obamacare’s costs.

It’s “the story that won’t die,” Fronstin said.

Why the UPS News Matters — And Why It Doesn’t

One reason why the UPS news has gotten so much traction: It’s a tangible example of an employer negatively reacting to the ACA. And it’s especially eye-catching because so few of the Cassandra-like prophecies about the law have come to pass.

  • Two years ago, McKinsey infamously predicted that 30% of employers would start to shed coverage beginning in 2014, given that the costs of complying with the employer mandate far outweighed the costs of incurring penalties and sending workers to the exchanges. Yet with the law’s full implementation looming, there’s been almost no sign that employers will ditch benefits.
  • More recently, some restaurant chains like Denny’s and operators like Darden (which runs Red Lobster and Olive Garden) warned that they’d shift to more part-time labor in the face of Obamacare. But after a wave of criticism, most retracted their announcements or retreated from their strategies.

UPS’ decision isn’t wholly because of the ACA, according to a company spokesperson. (He acknowledges that Obamacare is expected to add to the firm’s spending, but the law is just one driver behind the move to restructure employee benefits.) But UPS could be a bellwether for several reasons. Big companies do take their cues from other big companies, and nixing spousal coverage is already in their crosshairs.

According to a recent Towers Watson survey, while 4% of firms currently exclude workers’ spouses from enrolling in their health plans if comparable coverage is available, another 8% of employers say they’ll drop spousal coverage next year. Meanwhile, 20% of employers currently levy a penalty for spousal coverage — about $100 per spouse per month — and another 13% will begin imposing surcharges next year.

Those trends are partly driven by traditional employer economics, partly by the new Obamacarenomics. Firms already have spent years scrambling for ways to lower their health costs, and under the ACA, they must pay new fees — about $60 per covered life on their plans next year.

“The question about whether it’s obligatory to cover the family of the employee is being thought through more than ever before,” Helen Darling, president of the National Business Group of Health, told MarketWatch earlier this year.

And the decision to cut back on spousal coverage probably matters much less in 2013 than it did in 1983. As Jonathan Cohn writes at the New Republic, offering benefits to the spouse of an employee is “a relic from an era when dual-income couples were still relatively uncommon.”

Employers’ obligations — or at least their perceptions of them — have changed, largely because more women have entered the workforce and secured their own coverage, Cohn notes.

Early Advantage for First Movers, but Zero-Sum for the Rest

Many employer benefit trends tend to be gradual, with the adoption of certain plan designs or eligibility thresholds accreting over decades. But firms’ decisions to drop spousal coverage may be more rapid, given the financial incentives that tighten the window of opportunity.

“How does an employer save money doing this?” Fronstin rhetorically wonders. “[By] being the first, or among the first” to drop spousal coverage, thereby reaping lower health costs, even as lagging firms may end up absorbing more people into their plans.

But that also means the benefits of trimming these benefits may be short-lived.

“Ultimately, if you’re offloading spouses” from your plan, “at some point someone is going to offload their spouses — and their spouse is going to be your employee,” Fronstin concludes.

Around the nation

Here’s what else is making news on the road to reform.

Church v. state: Politico‘s Kyle Cheney highlights what he calls Obamacare’s “holy wars” — how some conservative evangelical groups continue to fight the health law’s implementation, given the ACA’s contraceptive coverage requirements and other provisions, even as more liberal congregations throw their support behind the law.

Some states may lack the dollars to do effective ACA outreach: Writing at Talking Points Memo, Dylan Scott calls attention to the disproportionate funding levels, which are often based on whether state leaders threw their support behind the ACA. Texas, which has 6.1 million uninsured residents and is led by staunch Obamacare opponent Gov. Rick Perry (R), will have roughly the same amount of money to do ACA outreach and awareness as Washington state, which has a fraction of the uninsured population.

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