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U.P.S. to End Health Benefits for Spouses of Some Workers

Tim Boyle | Bloomberg | Getty Images

United Parcel Service has told its white-collar employees that it will stop providing health care coverage to their spouses who can obtain coverage through their own employers, joining an increasing number of companies that are restricting or eliminating spousal health benefits.

U.P.S., the world's largest package delivery company, said its decision was prompted in part by "costs associated with" the federal health care law that is commonly called Obamacare. Several health care experts, however, said they believed the company was motivated by a desire to hold down health care costs, rather than because of cost increases under the law.

In a memo addressed to employees, U.P.S. said, "Limiting plan eligibility is one way to manage ongoing health care costs, now and into the future, so that we can continue to provide affordable coverage for our employees."

The memo also estimated that about 33,000 spouses were covered under its insurance plan for white-collar employees and that "about 15,000 of these would have health care coverage available through their own employers."

(Read more: Companies are sweating the Obamacare tax)

In explaining its move — which was first reported by Kaiser Health News and USA Today — U.P.S. told employees, "Since the Affordable Care Act requires employers to provide affordable coverage, we believe your spouse should be covered by their own employer — just as U.P.S. has a responsibility to offer coverage to you, our employee."

"In an effort to maintain premiums at or below current cost," Andrew McGowan, a U.P.S. spokesman, said, "U.P.S. made a change that affects a limited number of employees."

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U.P.S. is one of the biggest companies so far to drop spousal coverage for some segment of its work force, and its announcement was viewed by some as a harbinger of a broader trend in employers' restrictions on health care benefits.

Large employers like Xerox and Teva Pharmaceuticals already impose surcharges for spousal coverage. And some cities, like Terre Haute, Ind., decided to follow what many of its private corporations were doing, by adopting a "spousal carve-out" so that working spouses would not be covered under its health plans.

The limits on coverage are occurring as some cities and companies are also considering changes to coverage for retirees under 65 and not eligible for Medicare, who might be shifted to the health insurance exchanges being established in states under the Obama health care law.

(Read more: Young, invincible and wanting health insurance)

While the percentage of employers adopting changes in policies like U.P.S.'s new limits remains in the single digits, it is growing. According to a corporate survey by Mercer, a consulting firm, 6 percent of companies with 500 or more employees excluded coverage for spouses in 2012 if their spouses could obtain coverage through their own employer. That is double the percentage in 2008, Mercer found.

Mercer's survey also found that 6 percent of employers required a surcharge for workers who keep their spouses on their health coverage even though their spouses could obtain coverage from their own employer. A Towers Watson survey found that 33 percent of large employers said they would impose such a surcharge by 2015.

The new U.P.S. policy does not apply to the children of those employees. Nor does it affect the company's 250,000 unionized workers, who belong to the International Brotherhood of Teamsters. At the end of last year, the company had around 399,000 employees.

Several health care experts said companies were taking these moves partly because the federal health care law does not require employers to provide spousal coverage, but does require them to offer it to employees and their children. U.P.S. made clear that it would continue to provide coverage to spouses who did not have it through another employer.

(Read more: Obamacare quirk: Your insurance costs could go up)

Assessing U.P.S.'s new policy, Gary Claxton, a vice president and health care expert at the Kaiser Family Foundation, said, "It's clear that it's a competitive industry, and they want to cut costs."

Barry Schilmeister, a senior health consultant at Mercer, said one reason more employers were embracing this policy was to help avoid being hit by the so-called Cadillac tax, which imposes a 40 percent tax on health care premiums above a certain threshold. In 2018, when that tax takes effect, the threshold will be $10,200 for individual coverage and $27,500 for family coverage.

"The Cadillac tax is going to be a serious extra cost for plans that exceed a certain level," Mr. Schilmeister said. He added that with this move, "U.P.S. is in an indirect way addressing its overall costs — it's going to lower its total exposure by potentially covering fewer people."

Mr. Schilmeister predicted that many companies would shun the policy because it posed numerous problems. "It's not going to be a popular move among employees," he said.

He added that it would put many employers and employees in an uncomfortable position, with companies that adopt this policy often requiring employees to sign an affidavit affirming that their spouse was not being offered health coverage by another employer.

Many corporations have complained that their health costs would rise as a result of various provisions of the Affordable Care Act, like the requirement that insurance plans cover workers' children up to age 26 and the prohibition against a lifetime cap on the amount insurance plans would pay for an employee's health care. Both those provisions took effect in 2010.

Joanne Peters, a spokeswoman for the Department of Health and Human Services, pointed to numerous studies that predicted that employers would continue to offer coverage notwithstanding the law's requirements.

Moreover, premiums have been rising modestly, she said. In a survey of employers released on Tuesday, the Kaiser Family Foundation found that the average annual premium for a family rose 4 percent in 2013, to $16,351.

Mr. Claxton, the vice president with the Kaiser Family Foundation, said he doubted provisions like the requirement to insure employers children up to age 26 were creating strains on U.P.S. and other companies.

"Those things are trivial in terms of expenses — just pennies per month," Mr. Claxton said.

By Steven Greenhouse of The New York Times

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