Employer-sponsored health plans typically cover employees’ spouses, but some employers have cost‑saving rules for working spouses. These may include:
Some employers also offer incentives like taxable cash or a health reimbursement arrangement (HRA), to encourage employees to use a spouse’s employer plan instead. A spousal incentive HRA can reimburse the employee for tax‑free cost-sharing expenses like deductibles under the spouse’s plan.
To help manage rising health plan costs, some employers use spousal carve‑outs or surcharges to encourage working spouses to enroll in their own employer’s coverage when eligible. These rules usually don’t apply if a spouse is unemployed or not offered health coverage. They can be especially effective for plans with generous benefits or high employer contribution levels.
A spousal carve‑out removes or limits a spouse’s eligibility, while a spousal surcharge adds an extra cost for covering a spouse who could enroll in their own employer’s plan. Carve‑outs are considered more aggressive because they may block eligibility entirely, whereas surcharges still allow enrollment at a higher cost. These special rules work as follows:
Employers using these rules may also consider the cost and type of coverage the spouse’s employer offers, such as whether it’s a full group health plan or only an ICHRA, and how expensive it is.
Any changes to spousal eligibility must be clearly explained in plan documents, including the Summary Plan Description and open enrollment materials.
Federal law does not require employers to offer health coverage to spouses. Under the Affordable Care Act, large employers must cover full‑time employees and dependent children, but not spouses, giving employers flexibility in setting spousal eligibility rules. Employers that add spousal restrictions or surcharges should ensure these rules align with their insurance policies and any applicable state mandates for fully insured plans.
To avoid discrimination concerns, carve‑outs and surcharges should apply consistently to all participants, regardless of age, health status, or other protected factors. While some states ban marital‑status discrimination, ERISA may preempt these rules for private‑sector group health plans.
A less strict cost‑saving option is to offer incentives for employees and their spouses to waive the employer’s health plan and enroll in the spouse’s employer’s coverage instead. These incentives can be taxable cash payments or a spousal incentive HRA, which reimburses the employee for cost‑sharing expenses under the spouse’s group health plan. Like traditional HRAs, the HRA’s value isn’t taxed, and reimbursements for medical expenses are excluded from the employee’s income.
Some employers offer cash incentives for employees to waive coverage, especially when a working spouse can enroll the family in their own employer’s plan. These opt‑out payments are usually much lower than what the employer would spend on health coverage and are typically paid throughout the year to limit financial risk if an employee leaves.
While allowed, cash opt‑outs come with several compliance considerations:
Employers with fully insured plans should also confirm that offering opt‑out cash incentives does not violate participation requirements or other insurance contract terms.
A spousal incentive HRA functions like a traditional HRA but is available only to employees who enroll in a spouse’s employer-sponsored health plan. It reimburses eligible out‑of‑pocket medical costs tax‑free, encouraging employees to choose the spouse’s coverage instead of their own employer’s plan.
These HRAs must follow many of the same rules as traditional HRAs, with a few key compliance points:
Download the bulletin for more details.