UPS to Drop Health Care for Some Workers’ Spouses

This story appears in the Aug. 26 print edition of Transport Topics.

UPS Inc. has told employees it plans to halt health-care coverage next year for about 15,000 spouses of nonunion workers who are covered by other plans, a move some analysts said could spark other companies to follow suit.

The move was outlined in a question-and-answer document posted on the Internet by news outlets last week. UPS, which has said its health costs have nearly doubled in the past eight years, expects an 11.25% increase next year when the federal Affordable Care Act takes effect Jan. 1.

Under that legislation, often referred to as “Obamacare,” companies with more than 50 workers must provide health coverage. If a nonunion employee’s spouse doesn’t have coverage, UPS’ memo said the company will keep providing it.

“Since the Affordable Care Act requires employers to provide affordable coverage, we believe your spouse should be covered by their own employer, just as UPS has a responsibility to offer coverage to you,” the company document states.

“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.”

“This change is consistent with the way many large employers are responding to the costs associated with the Health Care Reform legislation,” the document said.

A company spokesman told Transport Topics the move, which affects only a limited number of employees, was made in response to those rising health-care costs.

The UPS document said the move will affect about 20% of the company’s 77,000 U.S. employees who aren’t union members. UPS has nearly 399,000 employees worldwide, meaning that the change affects 4% of its total workforce.

The move doesn’t affect about 60% of UPS employees who are Teamsters. They are covered under health plans negotiated through labor agreements.

“UPS is one of the largest companies in the Fortune 500 and is the first or one of the first companies to do this,” Kevin Sterling, a BB&T Capital Markets analyst, told TT. “Everybody will be watching to see what the reaction will be from other companies.”

As an industry bellwether, Sterling said other companies could follow suit, particularly FedEx Corp. that earlier this year announced a series of other cost-reduction measures in its Express unit, Sterling said.

FedEx, based in Memphis, Tenn., did not respond to requests from TT for comment.

“UPS is a little different,” Dave Ross, an analyst at Stifel Nicolaus told TT. “They have one of the best health-care plans in the industry. The companies that have richer plans may take a similar stance to UPS. I doubt that ‘ABC Trucking’ with five trucks can afford to offer that kind of coverage.”

A survey released last week from New York-based health insurance consultant Towers-Watson found that 35% of firms plan to take steps in 2014 to cut coverage when a spouse has another plan. That percentage is nearly triple the 12% spousal restrictions in their 2013 plans. The survey also found that employers pay 77% of health-care costs.

Other cost-reduction options outlined in the survey include new rate programs to increase dependent coverage costs, spousal surcharges, or require spouses to utilize other health-care programs for which they are eligible.

UPS also said the company considered a premium increase before making the “difficult decision” to make the spouse-related move.

UPS said it would lower health-care costs by as much as $1,600 for workers whose spouses are covered elsewhere. Children of UPS workers’ spouses who get insurance elsewhere still will be covered by the plan.

Dental, vision and other benefits such as life insurance will be available to spouses next year, even if they are enrolled in another employer’s health plan.

U.S. nonunion retiree health coverage and overseas workers also aren’t affected by the change.

Though Teamsters aren’t covered by the white-collar benefit change, health care remains an issue for the union in the ratification process for 17 side agreements that were rejected in the first vote.

“Many supplements and riders failed because of confusion and misinformation about a change in some members’ health-care benefits in the national agreement,” said a union statement Aug. 22. “Members currently in a UPS [contract] health-insurance plan are being moved to alternative plans in order to ensure that they continue to receive excellent health-insurance benefits without having to pay a monthly premium.”

American Trucking Associations and the Truckload Carriers Association declined to comment when asked by TT for a reaction.

The U.S. Department of Health and Human Services didn’t respond to a comment request.