UPS to End Health Benefits for Some Working Spouses of Employees Company Says Move Is Prompted in Part by Federal Health Overhaul

UPS to End Health Benefits for Some Working Spouses of Employees
Company Says Move Is Prompted in Part by Federal Health Overhaul
http://online.wsj.com/article/SB1000142412788732398060457902708277594554...

• Updated August 21, 2013, 7:50 p.m. ET

UPS to End Health Benefits for Some Working Spouses of Employees
Company Says Move Is Prompted in Part by Federal Health Overhaul

• TIMOTHY W. MARTIN
,
• BETSY MORRIS
and
• SCOTT THURM

United Parcel Service Inc. UPS -0.24% plans to cut off health benefits to working spouses of thousands of employees starting in 2014, a move it said is prompted in part by higher costs related to the federal health overhaul.

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Bloomberg News
UPS is wrestling with health costs. Above, a worker in Washington, D.C.

The Atlanta-based package delivery giant said in an internal memo to employees last month that rising costs for coverage of chronic and other health conditions, "combined with the costs associated with the Affordable Care Act, have made it increasingly difficult to continue providing the same level of health care benefits to our employees at an affordable cost."

The change will affect about 15,000 spouses, UPS said—slightly fewer than half of the 33,000 spouses who are covered today under its health plan for nonunionized workers.

It applies to working spouses who can get health-care coverage through their own employers, the company said. The change doesn't apply, however, to spouses who can't get their own coverage, or the spouses of unionized employees, who make up the bulk of the company's workforce.

About 250,000 of UPS's 322,000 U.S. employees belong to unions, the biggest of which is the International Brotherhood of Teamsters. That could create an awkward dichotomy inside the company between nonunion employees who no longer have the choice to insure working spouses through the UPS plan, and union members who will continue to have the choice under their union contracts.

A UPS spokesman said the company made the change in an effort to maintain premiums at or below current levels for a significant number of employees, even though the company's health-care costs have nearly doubled in the past eight years.

No UPS employee, dependent or nonworking spouse is losing coverage, he said, and any spouse who won't be eligible for coverage through another employer will still be able to get UPS coverage.

Denying health coverage to working spouses who are eligible for health insurance through their own employers is a rare practice, though it is growing. About 6% of companies with more than 500 workers have excluded spouses who could get coverage elsewhere, up from 3% in 2008, according to a 2012 survey conducted by Mercer, a consulting unit of Marsh & McLennan Cos.

Ozburn-Hessey Logistics LLC, a Brentwood, Tenn., third-party logistics provider, two years ago excluded from its health plans working spouses who are able to get health-care coverage through their own employer, said Hoyt Fitzsimmons, executive vice president of human resources.

Mr. Fitzsimmons said Ozburn-Hessey made the change to save money. He said the company, which has about 6,000 employees, pays roughly 70% of the cost of its employees' health-insurance premiums, both for employees and any dependents.

"People didn't like it," he said. "But it wasn't like you were pushing them out where they had nowhere to go" for insurance.

UPS said in its memo that it expects an 11.25% increase in health-coverage costs in 2014 over 2013, far above its normal 6% to 7% increase in annual costs for coverage for nonunion employees.

That is also far above the 4% increase this year in the cost of a family plan, according to an annual poll of employers conducted by the Kaiser Family Foundation and the Health Research & Educational Trust, a nonprofit affiliated with the American Hospital Association.

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The package-delivery company said that four percentage points of next year's increase is due to the impact of the health law, including fees it must pay to help fund research on effectiveness of medical interventions, as well as the cost of adding employees to its plan who currently opt out.

Under the individual mandate of the health law, most people must obtain health insurance starting in 2014, or pay a fine.

The company's cost of compensation and benefits was $33.1 billion in 2012. The company's revenue last year was $54 billion. UPS provides both pension and postretirement medical benefits to its retirees.

The Treasury Department in July said it would delay for a year penalties that could be charged to employers with 50 or more people for not providing adequate health insurance. UPS, in its explanation to employees, said the delays "do not impact the individual mandate coverage requirements."

UPS said its change "is consistent with the way many large employers are responding to the costs associated with the Health Care Reform legislation." It said that 35% of companies whose health coverage it has analyzed plan also to exclude working spouses who can get coverage from their own employers next year.

"Since the Affordable Care Act became law, health-care costs have been slowing and premiums are increasing by the lowest rates in years," said Joanne Peters, a spokeswoman for the U.S. Department of Health and Human Services.

Removing spouses from health plans is one obvious solution for companies that are facing higher health-care costs and new requirements under the health law, said Julie Stich, director of research at the International Foundation of Employee Benefit Plans, a nonprofit research firm that focuses on employee benefits and compensation. "This is something the new health law doesn't require you to provide—coverage to spouses," Ms. Stich said. "Employers are really taking a harder look at costs, and things they may have never considered before, they are now."

Some companies, especially larger ones, have long instituted a surcharge above the cost of a spouse's coverage, typically about $100 a month, for having that spouse covered under an individual's health plan when other options exist.

Some 12% of companies with 500 to 4,999 employees impose a surcharge, according to the Mercer report.

Health insurance represents about 7.8% of the total compensation for a private-sector employee, according to the Bureau of Labor Statistics. But health costs have grown significantly over the past decade.

One difficulty about culling working spouses from employer health plans is verifying who is eligible for coverage elsewhere, and who isn't. UPS said it will ask employees about their spouse's eligibility during annual enrollment. The penalty for providing false information—concealing the spouse's ability to get insurance elsewhere—would be a "violation of UPS's code of ethics," subject to discipline, the loss of health-care coverage and potentially termination of employment, UPS said. "You would be required to repay all claims paid for your wife's medical expenses—at the very least," UPS said.

A former UPS official said the move was part of UPS's efficiency and cost-cutting rather than any response to business conditions. As soon as the law was enacted, the company started an intensive review of what it might mean from an expense standpoint, the official said. "This is classic UPS, in terms of examining every part of every bit of the operations to see how to improve the bottom line," the official said.

UPS has said previously that costs related to the new health law were adding up. In March, Mike Jones, the company's vice president of investor relations, said a health-law provision requiring children to be allowed to remain on their parents' health insurance until they turn 26 would add about $60 million in expenses this year.

In its most recent quarterly filing, UPS said its health and welfare costs rose $49 million in the first six months of the company's fiscal 2013, compared with a year earlier, "largely due to higher medical claims and the impact of several provisions of the Patient Protection and Affordable Care Act," according to the filing on Aug. 2.

The change was initially reported by Kaiser Health News and USA Today.

Write to Timothy W. Martin at timothy.martin@wsj.com and Betsy Morris atbetsy.morris@wsj.com