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To cut costs, local governments ending health coverage for spouses

To combat spiraling medical costs, some local governments in the Charlotte area are joining a national trend of dropping health-care coverage for employees’ spouses.
To combat spiraling medical costs, some local governments in the Charlotte area are joining a national trend of dropping health-care coverage for employees’ spouses. Corey Lowenstein

To combat spiraling medical costs, some local governments in the Charlotte area are joining a national trend of dropping health-care coverage for employees’ spouses.

The latest action came Thursday, when the Lincolnton City Council eliminated coverage for all employee spouses.

“We were out of options,” City Manager Jeff Emory said. “I’ve been a city manager for 27 years, and (dealing with) the costs of health care is probably the biggest challenge I’ve ever faced.”

Hickory announced this year it was making that change, too, and expects to save about $500,000 annually.

Most local governments in the area still offer coverage to spouses, including the city of Charlotte and Mecklenburg, Cabarrus, Union and Lincoln counties. But Gaston and Iredell counties are dropping spouses who can get insurance at their own place of employment.

Some private sector companies, including UPS, also ended coverage for spouses eligible for insurance at their own job. In 2013, the Kroger grocery chain ended benefits for all worker spouses in Indiana.

But local governments aren’t simply following the lead of private businesses, said Dr. Adam Zolotor, president and CEO of the North Carolina Institute of Medicine, an independent, quasi-state agency.

Rather, they have been cash-strapped for several years and need to find ways to reduce costs, Zolotor said. He is not surprised that spouses are being used to contain costs because they now can seek coverage in the health care marketplace through the Affordable Care Act.

That trend is likely to grow in the coming years for the public and private sector alike, said Gary Claxton, vice president at the Kaiser Family Foundation, a nonprofit that provides information on health issues. Nine percent of firms it surveyed last year that offer benefits to dependents do not allow spouses coverage if they are eligible to receive it from another source.

A changing landscape

And while the national GOP still views the Affordable Care Act with great disdain, a pair of Republican-controlled cities are leading the way in the region for employee spouses to move onto that plan.

Last year, Lincolnton ended coverage for employee spouses eligible for health care at their own place of employment. The city saved $422,000 a year.

But it faced a 30 percent increase in premiums for the fiscal year starting July 1, said Emory, the city manager. So he proposed ending coverage for all spouses as of Jan. 1, which saves another $393,000 a year.

That helped offset the premium increase, city Finance Director Steve Zickefoose said, and prevented the need to raise taxes.

Some 35 of 152 employees have spouses who need to leave the plan. For the most part, employees were understanding about the need for the change, Emory said, and realize what the city is up against.

Lincolnton pays all premiums for employees, costs that typically come out of bi-weekly paychecks.

Had spouses remained on the plan in the new fiscal year, those employees would have had to cover all of the spouse’s premiums, which Zickefoose estimated to be about $800 a month.

Spouses should be able to beat that rate on the federal marketplace, he said, especially if they are eligible for subsidies. Based on his own research, Zickefoose said, he found comparable plans on the open marketplace for spouses that were substantially lower than the city plan.

In Hickory, officials felt it would be cost effective for the city as well as employees to drop spouses from the health care plan. The city was staring at another year of a 34 percent increase in premiums.

“It got to the point where it doesn’t make sense for us as an employer to offer insurance for a nonemployee,” City Manager Mick Berry said.

So Hickory is making a pair of moves. As of May 1, new employees were not offered spousal coverage. And starting July 1, 2016, the city will drop all spouses. The combined savings is about $500,000 a year.

The city’s benefits broker will help employees find coverage for their spouses in the marketplace, and officials expect that coverage will be for less money than the city would have to charge.

“The Affordable Care Act changed the whole landscape,” Berry said.

Announcing the move a year ahead of time gives employees time to adjust, he said. Out of 654 employees, 41 are affected by the change.

‘Not going away’

Last July, Iredell County ended coverage for about 40 spouses eligible for health care coverage at their own jobs. The county has about 870 employees on its health insurance plan.

The county saved about $18,000 a year in premiums it had subsidized for the spouses, and it expects to see a significant reduction in costs associated with spouses’ claims, Human Resources Director Sandra Gregory said.

But Iredell still had an 18 percent increase in its premiums this fiscal year. The county is not facing an increase in the upcoming fiscal year, however, and is not considering ending all spousal coverage at this time, Gregory said.

Gaston County is ending coverage in October for spouses who have insurance where they work, and it will save about $500,000 a year, human resources director Pam Overcash said. The county made the change reluctantly, knowing it would cause a disruption for some employees, she said.

The savings will help reduce the 10 percent rise in health care costs in the new fiscal year, as will a modest premium increase.

“This problem is not going away,” Overcash said. “It’s what everyone is going through.”

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