Spousal Surcharge

[Chaz]

Does anyone have any experience with requiring an employee to pay a surcharge if the employee's spouse is eligible for coverage under another plan (and waives that coverage and enrolls under the employee's plan)? Is the surcharge deducted on a pre-tax or post-tax basis? (I think it can be done either way but I am looking to see what common plan designs are.) Thanks.

[J Simmons]

Chaz, would the total cost for spousal coverage (including the surcharge) be more than the cost of the coverage (either the extra premiums to a 3rd party health insurer or under self-funded coverage)? If not, then it would seem all of that cost ought to be allowed tax-free. To the extent that it exceeds the actual cost of coverage for the spouse, then the excess is really not for health coverage and ought not be tax-free.

If a spouse is eligible for Medicare as that other coverage, I think you'd have a problem. Otherwise, I think from a regulatory basis you can do what you describe. But as a practical matter, how can you enforce it? You have to depend on the 'honor system' to get the information that is against the interest of the employee for whom you are dependent for the info about whether the spouse is or is not eligible for other coverage.

[Chaz]

That's a good point. I don't have the numbers but I would imagine that the employee's share plus the surcharge will still be less than the total cost of coverage.

I should have clarified that Medicare coverage is excluded from the surcharge policy.

Enforcing it is a totally different issue. The employer will be using a number of methods to do so, the most effective one is loss of coverage and termination of employment if a misrepresentation is discovered. Obviously, there will not be 100% compliance.

Does anyone else have any thoughts on this? I am trying to get a sense on what the trend is out there.

[J Simmons]

Well, Chaz, I'm not anyone else, but maybe you could redesign it as a carrot rather than a stick, and have easier enforcement. Perhaps you could pay a larger part of the married EE's premium if he proves his spouse is covered under another policy than if the spouse is enrolled under your plan.