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Investing Specialists

Should Spouses Obtain Separate Healthcare Insurance?

With more employers levying spousal surcharges, obtaining coverage on a single plan isn't necessarily the most cost-effective for dual-earning couples.

A previous version of this article was published on Oct. 13, 2020.

When it comes to selecting healthcare plans during benefits open enrollment, most dual-earning couples probably don't give it a lot of thought. They might--and I mean might--spend a few moments comparing their respective plans' quality and costs, then opt for the better plan for both of their coverage. Or they might fall back on their due diligence from several years ago, simply re-upping in the plan that looked better at that time.

But while covering both partners under a single plan is often the path of least resistance for many couples--and may also be more cost-effective than obtaining separate coverage--it's not always the right course of action.

Some employers, especially very small ones, may not offer coverage for spouses at all, especially if that spouse is eligible for coverage through his or her own employer. Some firms may provide coverage for the spouses of employees who are married but not extend that coverage to unmarried domestic partners. In either of those instances, each partner will have no choice but to fend for him/herself for health insurance. 

Even employers that do provide spousal coverage may levy "spousal surcharges" to insure spouses who also have access to their own plans. That means the cost might be lower for each partner to obtain coverage individually; alternatively, the couple may opt for coverage under the plan that doesn't levy the surcharge.

Each partner's healthcare needs may also figure into the choice, especially if one spouse has higher healthcare usage than the other. The partner who has higher usage might benefit from coverage under a gold-plated plan even if it has higher premiums that may result in lower overall outlays than opting for a plan with cheaper premiums but more out-of-pocket expenses. If children also have heavy healthcare usage, the better-quality plan is apt to be a good fit for them, too. Meanwhile, the spouse with few healthcare expenses could opt for a cheaper, skinnied-down plan, thereby reducing the family's total healthcare outlays.

If you're part of a married couple or family working your way through open enrollment in 2021, here are some of the key issues to keep in mind as you decide whether to choose employee-only, employee-plus-one, or family coverage.

Costs Are a Starting Point

Comparing costs among plans is a key starting point when deciding which spouse’s plan is best and whether to choose coverage for the employee only, employee plus one, or family coverage. A complicating factor is that employers often have multiple options for coverage, with larger firms more likely to field multiple types of plans than smaller ones. Sixty-four percent of workers had access to more than one type of healthcare coverage in 2020, according to a survey from the Kaiser Family Foundation. That means that not only do couples have to compare costs for employee-only, employee-plus-one, or family coverage at their respective plans, but they may also have to compare the costs for multiple plan types for each employer.

Preferred provider organizations and high-deductible health plans are the two main options at many large employers. PPOs typically have higher premiums but lower deductibles, while high-deductible plans, as their names imply, have higher deductibles but lower premiums. To help weigh the trade-offs, plug the details of each plan's premiums, deductibles, and coinsurance into a calculator designed to facilitate such comparisons. 

When comparing costs for employee-only coverage versus employee-plus-one or family coverage, it's worth checking into whether the plans levy a spousal surcharge. That's an extra fee charged to employees whose spouses have access to coverage through their own employer. The imposition of such a charge may make it more economical for each partner to obtain coverage under his or her own plan. A fourth of employers are levying spousal surcharges, according to a Willis Towers Watson survey. The details of the surcharges--the amount and when they apply--depends on the plan. If the spouse is unemployed or if the covered employee's income falls below a certain threshold, the surcharge may not apply.

Usage and Coverage

The next step when deciding which healthcare coverage to opt for is to think about healthcare needs and usage for each family member, including both spouses as well as any children. Start with a rough estimate of each partner's expected healthcare needs for the year ahead. If it's unequal, and the heavy healthcare user also has better, albeit more costly, coverage, that's a good argument for pursuing separate coverage. The person with more healthcare needs could opt for the more comprehensive and expensive plan, whereas the spouse with fewer expected healthcare needs might opt for lower-cost, more minimalist coverage through his or her own employer.

Parents splitting coverage can use their children's healthcare needs to help determine which spouse's plan covers the kids. If the children have limited healthcare usage, obtaining lower-cost coverage through the parent with the less expensive plan may make sense. On the other hand, if parents value peace of mind, putting children on the better plan may be well worth the extra costs.

Does Dual Coverage Ever Make Sense?

Thus far, I've discussed whether spouses should be covered by one partner's plan or each go on their own plans. But there's a separate coverage configuration, called dual coverage, which means that both partners sign up for coverage of themselves and their spouse under their own employers' plans. The key benefit is that the coverage is more comprehensive because each family member is covered by two plans. Dual coverage is more costly, obviously, and it doesn't mean that each covered individual has double the coverage. Rather, one insurer--typically the employee's own insurance--is considered the primary insurance and the other secondary. However, for people who have the wherewithal to shoulder both sets of premiums, this type of coverage may make sense when expecting very heavy healthcare outlays in the year ahead. Having dual coverage has the potential to reduce total out-of-pocket costs in those instances.