Strategies for Limiting Spousal Participation on Group Health Plans

Employer health plans usually allow employees to enroll their spouses. However, when a spouse has access to their own employer coverage, some organizations impose additional conditions to manage overall medical plan spending. These strategies generally fall into two buckets:

• Spousal carve-outs: when a spouse is not allowed to join the plan (or must meet extra rules), if they can enroll in their own employer’s coverage.
• Spousal surcharges: when the spouse remains eligible, but the employee pays a higher deduction or premium if that spouse has an alternative plan available.

Employers may also try positive incentives, such as cash opt-out credits or a special type of HRA, to encourage employees to use the spouse’s employer plan instead.

Carve-outs and Surcharges: The Basics

These plan design features aim to shift coverage to the spouse’s employer when possible. They’re most common where the employer pays a large share of dependent health premiums. Carve-outs may:

• Block enrollment entirely for spouses with other coverage options
• Require the spouse to sign up for their own employer’s plan first, with the employer plan covering only secondary costs

Surcharges work differently:

• The spouse can still enroll, but the employee pays an additional fee if the spouse declines their own employer’s plan

Employers introducing either approach often consider:

• What kind of coverage the spouse has available (full group medical vs. ICHRA-only)
• Whether the spouse’s plan is affordable
• How and when the rules apply (e.g., at hire, annually)

All restrictions must be included clearly in enrollment materials and plan documents, like the SPD, so employees understand when spouses qualify.

Legal and Compliance Considerations

Under federal law, including the ACA employer mandate, there’s no requirement to cover spouses. Only full-time employees and their dependent children must be offered coverage to avoid penalties. That gives employers significant flexibility, but not without guardrails:

• Fully insured plans must follow state insurance mandates, which sometimes protect spousal eligibility
• ERISA generally preempts state rules for self-funded plans
• Eligibility and surcharges must be applied consistently to avoid concerns related to discrimination based on age, health status, and other factors.
• Insurance contracts or stop-loss arrangements should support the intended spousal policy.

Offering Incentives to Waive Coverage

For a less restrictive approach, employers may encourage employees to rely on a spouse’s coverage by offering:

• Taxable opt-out payments, or
• Spousal incentive HRAs, which reimburse out-of-pocket medical costs incurred under the spouse’s employer plan (generally tax-free)

Both options can reduce plan enrollment and costs while still offering a benefit.

Opt-Out Payments: What to Watch

Opt-out credits are a popular strategy, but employers must navigate several compliance issues:

• Tax treatment: payments are taxable wages and must run through payroll; because they represent a choice between cash and coverage, they must be handled under a Section 125 cafeteria plan
• ACA affordability: depending on design, the amount of the opt-out may increase the employee’s “required contribution” when calculating affordability
• Nondiscrimination: incentives must be offered uniformly
• Wage/hour rules: may affect overtime calculations under federal or state law
• Insurance policies: ensure minimum participation rules are not violated

Payment amounts are typically spread across the year to mitigate risk if the employee leaves mid-year.

Spousal Incentive HRAs

A spousal incentive HRA works similarly to a traditional HRA but is only available when the employee waives the employer’s major medical plan. Rather than providing coverage, the HRA reimburses deductibles, coinsurance, and other eligible cost-sharing under the spouse’s employer’s plan.

Compliance Checkpoints

Due to these complexities, careful design and administrative alignment are crucial before rollout.

Bottom Line

Employers have multiple ways to manage the financial impact of spousal enrollment in their health plans:

Clear communication, strong documentation, and regular compliance reviews help ensure these strategies deliver savings without unexpected legal risks.