Why UPS is eliminating some health benefits

Company expects others in the industry to follow suit

UPS this week announced that it will stop providing health care coverage to employees' spouses who can obtain insurance through their own employer, in part because of costs linked to the Affordable Care Act (ACA).

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UPS move will affect 15,000 spouses

UPS said the change applied only to the company's non-union employees and would affect roughly half of its 33,000 non-unionized employee spouses—or about 15,000 people—who receive coverage through UPS. The change will not affect children, spouses who cannot obtain their own coverage, or UPS's 250,000 unionized employees.

Under the new policy, affected employees will be required during annual enrollment to provide information about their spouses' eligibility for employer-based coverage. Employees who falsify data will be penalized for violating the company's code of ethics. Violations can result in discipline, loss of health coverage, and potential employment termination, but will at the very least require an employee "to repay all claims you paid for your wife's medical expenses," according to a UPS spokesperson.

The decision is expected to save UPS about $60 million annually, the spokesperson added.

In a memo to employees, the company said that increasing health care costs for the coverage of chronic and other health conditions, "combined with the costs associated with the [ACA], have made it increasingly difficult to continue providing the same level of health care benefits to our employees at an affordable cost." The company expects an 11.25% increase in health coverage costs in 2014 over 2013, more than the standard 6% to 7% increase for non-union employees, according to the memo.

The company said that the ACA-related costs are primarily related to required medical research fees and the cost of covering employees who had previously opted out of coverage. Under the ACA, individuals beginning in 2014 are required to purchase coverage or pay a fine. 

UPS: Other companies will follow suit

UPS said that change "is consistent with the way many large employers are responding to the costs associated with the" ACA, adding that 35% of companies UPS analyzed intend to similarly limit their spousal coverage.

According to a survey conducted by consulting firm Mercer, only 6% of companies with 500 or more employees enacted similar restrictions in 2012, although that is twice as many as in 2008. Another 6% imposed a surcharge for spouses who could obtain their own employer-sponsored coverage, according to the survey.

Meanwhile, a Towers Watson survey found that about 33% of companies expect to enact spousal coverage restrictions by 2015 (Greenhouse, New York Times, 8/21; Howell, Washington Times, 8/21; Martin et al., Wall Street Journal, 8/21).

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