More employers reject double health coverage for two-income families - as a means to help reduce utilization

Business & Health, Sept, 1993 by Katy Robbins

Employers develop coordination of benefits strategies to help reduce utilization and help make employees better health care consumers.

He works at a bank. She's a manager for a local manufacturer. The couple is married with two children. The question: Whose company should pay health benefits when each spouse--and their children--is eligible for health benefits?

In the past, the answer was frequently "both." Employers routinely permitted their employees to enroll in two plans. After the husband's plan reimbursed him for 70% or 80% of the care, his wife's would pick up the remainder. Children were smartly covered, with standard rules establishing which plan paid first. Employees and dependents were eligible for as much as 100% coverage.

Today, however more employers are ending this policy. In fact, 52% of employers surveyed by benefits consultants A. Foster Higgins & Co. Inc., New York, have implemented a policy that ends special levels of coverage for two-income families.

This strategy, called non-duplication of benefits, or carve out coordination of benefits (COB), limits benefits for employees with two sources of health insurance. For example, if an employee's plan pays 75% of costs, and the spouse's plan covers 80%, the employee can only receive a total of 80% coverage--with 5% of is coverage coming from the spouse's plan. If both plans reimbursed to 80%, the employee would not receive any additional coverage. The Foster Higgins survey shows that the approach saved employers an average of 4.4% of total claims paid in 1992.

The most obvious way non-duplication saves employers money is by eliminating supplemental payments. Equally important, the policy helps employers reduce the number of health plan enrolles, since the system removes incentives for employees to seek double coverage. Moreover, non-duplication allows employers to get the most out of benefit designs aimed at making employees more cautious health care consumers--such as coinsurance and deductibles.

"Some employers want employees to share health costs," says George Faulkner, a managing consultant at Foster Higgins. "The theory behind coinsurance and deductibles is to help reduce utilization. With 100% coverage, you lose control over that."

Yet experts also suggest that there is another reason employers use non-duplication: The measure is typically part of other changes that are intended to shift enrollees away from employers' health plans.

"Today, the issue is more than COB," says Harvey Sobel, a principal wtih William M. Mercer Inc., benefits consultants in New York.

"The issue is: Are there ways of getting spouses off the insurance roster? And is there a way to get your own employee off the insurance payroll?"

A cost-sharing mechanism

Communicating COB to employees was a priority for benefits managers at Owens-Corning, a manufacturer of fiberglass building products in Toledo, Ohio, which introduced non-duplication COB, or maintenance of benefits, in 1990. The company employs 13,000, and has 6,000 retirees.

Although Marty Lahey, manager of health care at Owens-Corning, won't divulge the company's savings from COB, he maintains that the amount is significant, especially with retirees, whose benefits payments Owens-Corning now coordinates with Medicare. The company offers a choice between an indemnity plan and several HMO and PPO alternatives. The general rule at Owens-Corning is that the company pays up to the limits of its plan. So if an employee's spouse has a point-of-service plan, he or she could still receive a balance payment under Owens-Corning's plan, again only up to the company's plan limits. But with most managed care plans, spouses have little to gain in the way of balance payments.

Owens-Corning's decision to use non-duplication of benefits was based on more than money, Lahey stresses. "We felt that it was important for employees to share costs, to encourage them to be health care consumers. Whenever you have 100% coverage, it's easy to lose the incentive to be a good consumer." Employees contribute between 0.5% and 0.7% of their salary to cover their spouses and dependenrs under Owens-Corning's plan.

At the time the company changed to non-duplication, it also introduced a new policy related to COB. "The new policy said, If you have a spouse eligible for employer-sponsored health care, that plan has to be the primary payer,'" explains Lahey. In other words, employees' spouses who were eligible for benefits elsewhere could not expect Owens-Corning to cover them if they opted out of their own coverage. Children in two-income families would still be eligible for primary coverage, based on the birthday rule. The birthday rule is guideline developed by the National Association of Insurance Commissioners, Kansas City, Mo., which represents the 50 state regulators. Under the rule, the employer of the spouse whose birthday falls first in the year is the primary payer.

"We were concerned that other companies were giving employees a financial incentive to opt out of coverage," Lahey says. "So we adopted COB as a defensive measure."