Working Spouse Rule

[Guest peeflob]

I'm sure this has been asked before, but I'm new.... Company wants to require employees currently with family coverage, who have working spouses with available medical coverage from their employers, to elect the other coverage as primary coverage for the spouse. Is this legal?

[GBurns]

In a nutshell, Yes.

Although I think that you meant that it was the non-employee spouse who should elect to be covered under their employer's coverage.

[ERISAatty]

a "Working Spouse" rule or policy is the nice name for these. They are also referred to (often when not communicating with employees,) as "Spousal Carve-Outs." This kind of provision is becoming increasingly popular as plans try to cuts expenses in the face of rising health care costs.

The thing to note is that, should the non-employee spouse LOSE their other coverage (i.e. by loss of job), then the non-employee spouse must have special enrollment rights (per HIPAA) in the plan that carved them out in the first place.

Another thing I've seen, which is a little dirty, is a plan of Employer A "deciding" that a certain employee's spouse is no longer eliglbe for plan A coverage, because the spouse "has" employer-provided coverage available under spouse's plan B. This is an agressive move, as it could be that, under the terms of Plan B, that employed-spouse is not, in fact, "eligible" for health insurance, for a variety of reasons, one of which, possibily, being that he/she is covered by Plan A. Then, Spouse may need to enroll under special enrollment rights under Plan B. Plan B is not always happy to cooperate. You can get into the sitaution that each plan is fighting to throw the spouses at the other one. Kind of a mess, but likely to become more common. Just requires a careful case by case review or plan terms and applicable HIPAA principals.

[Guest peeflob]

Very informative. Thanks. Apart formt he ERISA/HIPAA issues, are you aware of any cahllenges to such rules on Title VII grounds, for example, as having a disparate impact on women?

[ERISAatty]

I am not aware of any litigation concerning these carve-out provisions to date.

Nonetheless, my thinking is that it would be difficult, at best, to prove that such a provision had a disparate impact based upon gender, as the pool of covered employees (and therefore their spouses) contains such a mix of women and men. As long as the plan applies the policy equally to all employees, it's hard to see a discrimination challenge holding water, since employers are not required under ERISA to provide benefits at all. And a Title VII action, in particular, would have relevance only to public/govt. employer-sponsored plans.

I think these provisions are here to stay. The tough cases will be those in which the spouse is eligible for his/her own employers' insurance, but where such insurance is offered only at very expensive rates. Employees will likely balk at the fact that, in order for all family members to be covered, they are being required to pay much higher total health premiums under these carve-out policies. So there are HR issues to consider in implementing such a policy.

Also, some state laws may contain applicable provisions. In Wisconsin, for example, if a plan is fully insured, the employer may NOT "carve out" the spouse. The only option is for the spouse to be charged a higher premium; but they can't be ejected. (Self-insured plans in Wisconsin can still carve-out at will).

[Guest peeflob]

Once again, very informative. But I have to disagree on the potential application of Title VII -- Title VII prohibits discrimination by both private and public sector employers. Whether there would be an actual violation is another story -- but the concern is, assuming female employees are more likely to have a working spouse with medical coverage than male employees are (debatable, but possible), then it could be argued that the carve out has a disparate impact on the female employees.

[GBurns]

In the private sector, although there could be disparate treatment of a gender in any specfic employer group, it should not rise to discrimination hence violation, simply decause the disparate treatment would not even apply to every member of that gender group. Also I think that a violation would also have to have an intent portion and since the "carve out" applies to all employees, intent to discriminate would not exist.

[mbozek]

I am at a loss in figuring out what is the actual detriment that occurs under Title VII because of this requirement. If the effect is to make the working spouse's HI primary and the employee's HI for the spouse secondary what discrimination occurs if the health benefits provided under both plans is the same as having the working spouse's HI be secondary and the employee's HI coverage for the spouse be primary coverage. In other words if the total benefits for the spouse paid under both plans is the same, regardless which plan is primary, what is the economic discrimination that occurs?

[ERISAatty]

Well, I think that the way these spousal carve-outs often work (from what I've seen) is that the working spouse's HI becomes a mandated primary coverage source. Period. The working spouse is not eligible for the employee's coverage. Therefore, there is no secondary, or COB, coverage issue.

The economic impact of this policy will vary by spousal couple, and will depend upon the affordability to each couple of the insurance offered by the spouse's employer. Under spousal carve-out rules, each spouse, to be covered, will need to pay HI premiums to his/her employer. This may or may not be more expensive than obtaning full family coverage from only one spouse's employer.

Therefore, I am highly skeptical that, given the broad array of cost variables, and the lack of uniform impact by gender, anyone could ever prove gender-based discrimination based upon a carve-out policy. And, as GBurns point out, there is no intent to discriminate on an impermissible ground. The policy applies equally to all employees, where it is used.

Having said that, just today, one of these came across my desk. A more humane version this time: instead of making a working spouse completely ineligible under the employer's plan, the employer just charges a "working spouse surcharge" for working spouses who are [/i]eligible for coverage under their own employer, but who decline to be covered under that other plan. So the employee can elect to pay a bit more to keep the working spouse (who has access to other coverage) on his/her employer's plan. Again, this applies equally to all.

I'm not unsympathetic to recognizing the existance of policies that disparately impact by gender. I just don't see a gender discrimination case here, let alone one ever getting off the ground on this issue (says the female attorney, whose husband is covered under her employer's plan).

[mbozek]

The disparate impact arises due to marital status, not because of gender, e.g., married employees whose spouses decline coveage under their own HI are not permitted to include them for HI coverage. Marital status is not protected under Title VII although it is protected under some state laws. Second the disparity is impossible to determine since comparing the cost of coverage under two different plans is similar to comparing apples to oranges because the coverage/ risk group will never be identical. Third, the dispartiy exists because of the exclusion of the spouse from HI coverage and spouses of employees are not protected persons under Title VII.

[Guest Stepper]

In Trustees of the Southern Illinois Carpenters Welfare Fund v. RFMS, no. 03-2870 (Mar. 24, 2005), the Seventh Circuit allowed an ERISA plan which would otherwise have been primary to shift $160,000 in medical bills to the spouse's plan.

Lisa Krebs was covered by her employer's plan, RFMS, and her husband had coverage through the Southern Carpenters Welfare Fund, which also provided secondary coverage to spouses. Basically, the RFMS plan limited primary coverage to $1,000 where there was spousal coverage from another plan.

[sharonfoster]

Indirectly this topic was litigated by the EEOC against JC Penney. Head of Household rule. Case decided in favor of JC Penney

http://law.justia.com/cases/federal/district-courts/FSupp/632/871/2260256/