Debunk / bunk this US health insurance question

Factual Questions
1

I was speaking to a colleague at a US company currently going through several rounds of layoffs. She reckoned the company was tacitly looking to can family men because the savings were much greater, on account of health insurance costs. ie an employee with spouse plus 4 kids is drawing health insurance for 6 people which the company is paying for to some extent.

First impression was that this was a load of bollox - seems like it would cause an almighty clusterF of unfair dismissal claims. However, I know nothing about health insurance costs in the US. Could it be true?

2

Possible. It could be true. Not much different than targeting more experiences employees who have tons of vacation time, benefits and higher salaries.

Lots of shady things happen. No one goes around saying, “Hey, you’re canned. Your benefits are like way high, so we are gonna get rid of you. We’re gonna go with some smart, sterile punk to save dough.”

3

It could be true. It definitely is true that employers pay more for health benefits for workers with families. My employer, for example, pays $500/month for single employee coverage, but $1000/month to cover a spouse and $1300/month to cover an entire family (This is on top of the portion of the premium payed by each employee). So it’d definitely save them a lot of money if they could somehow fill every position with single employees. I don’t think it’s legal, but I could be wrong.

4

I am not aware of “family man/woman” being a protected class, so I suspect it is legal. However, if this resulted in laying off forty-somethings with kids and keeping single twenty-somethings, then age discrimination would come into play.

5

Are you asking if a U.S. company would do something that might seem unsavory or if the financial incentives are valid? The finances work out clear as day. As lazybratsche said, employers pay based on who is being insured, employee, employee+spouse, employee and child, family. They’re not paying more to insure the employee’s dependents/spouse “to some extent”, like you speculate, they’re explicitly playing more to whatever extent they cover dependents and spouses. So financially it does make sense.

6

Absent an employment contract, most employees work on an at-will basis in the US. What this means is that there is not any such thing as an “unfair dismissal.” At-will employees can be fired for any reason (or no reason) except an illegal reason. Illegal reasons would be things specifically prohibited by law, such as firing on the basis of race, sex, age (being over 55), or in retaliation for filing a claim of discrimination.

Firing people because they cost a lot in benefits, while considered dickish in polite company, is perfectly legal barring some other tie-in to a prohibited classification or an employment contract.

7

IANAL, but I think this depends on the locality and context. For employment, marital status isn’t protected under the federal Equal Employment Opportunity act, but it is protected in some states (see Wisconsin for one example).

ETA: But apparently employment discrimination based on marital status is explicitly legal in Massachusetts, as long as it’s equally applied to men and women.

8

Sorry, I wasn’t thinking you’re right: more protective state laws may apply. My post regards the Federal scheme, that is to say, the scheme that applies uniformly across the country unless a more protective local law (city or state) applies.

9

40

10

I get a D-!!! Sorry y’all… distracted.

11

Kind of ironic reversal. In the early 80’s I recall a discussion with some guy who thought that the single guys should be laid off first because married people had to support a family.

Yeah it depends on what the law is on discrimination based on marital status. People in civilized countries may be surprised at the lack of protection in the USA. Not just marital status, but some states offer little or no protection to being let go for being pregnant, and no maternity leave right to return to your job; no provision for severance if they decide to let you go after 20 years…

Heck, there were even reports a few years ago after the Iraq invasion of companies trying to let go their employees in the Reserves, because they couldn’t tolerate employees disappearing for 6 months or more at a time.

12

Maybe this is key - my colleague is a scientist in the pharma industry, so a white collar job where I assume employment contracts would be the norm. This would set out the terms of employment, which (presumably) do not speak to the number of kids you might have.

13

I think, actually, that employment contracts are rare for white collar employees. Union members get contracts, executives get contracts, but everyone else usually doesn’t. That’s one of the things that at-will employment implies – an employer can fire you for any reason it wants, as long as it isn’t violating any laws. Of course, this can benefit the employee if they want to get up and go – no penalties for quitting early. But that’s not a big worry in this economy…

14

Correct. The HR people and employment lawyers go to great lengths to ensure that there is nothing that can be construed as being a contract as this confers rights on the employee. Hence my company, for example, has a “Terms of Employment”, which the lawyers have ensured is not a contract.

15

First to the question of whether it would save the company money to do this. In practice it probably would, but in theory the company would have an easier way to do it. The company is free to set the employee contribution to insurance premiums for spouse and kids. Some companies (maybe most) set this so once you are covering 2 dependents, additional dependents are no additional cost to the employee. However, kids are the least expensive people on insurance. So avoiding covering kids is not usually a major priority. And companies are not obligated to structure their premiums that way. They could charge per-dependent.

In my HR experience, it would make a heck of a lot more sense to approach this by restructuring premiums than by letting go more qualified workers and keeping less qualified workers, especially for any kind of skilled work. Insurance is a big expense, but it can be passed on to employees, and it’s not that big that it outweighs employee qualifications.

Also, I wouldn’t be so sure it would be legal, even if you managed to thread the needle of sex discrimination, age discrimination, disability discrimination (which does include having a disabled family member) and states with family status (married or parental) discrimination. Health insurance is also governed by ERISA, and doing just about anything to treat employees in the same job category unequally in any way jeopardizes the tax-exempt status of employer and employee health insurance costs.

If this were to happen, I think it would be most likely in a small company that knew of specific high-cost employees and was able to target them. As a general principle for a large company, it doesn’t make much HR sense, even if they could get away with it. There is a sense in which being older and higher in the organization goes along with a lot of things that make those employees more costly to the company, and having dependents is probably highly correlated with those factors.

md2000, there is a federal Pregnancy Discrimination Act. It comes down to saying pregnancy needs to be treated like any other serious but temporary health condition (NOT same as a disability), such as a broken leg. So you can’t fire someone for being pregnant if you wouldn’t also fire someone for having an injury or other temporary condition that prevented them from working. The Family and Medical Leave Act also provides the right to return to your job after pregnancy. Leave under the FMLA can be unpaid, however. Also, the FMLA doesn’t cover as many employers and employees as most other discrimination laws in the US. You are correct that severance isn’t mandated, although the payment of unemployment insurance premiums is.

Bottom line, my take is that this is unlikely to be happening on a large scale because kids aren’t the cost driver in health insurance, it is easier to restructure premiums than risk a bunch of lawsuits, and having the right employee in the job is usually worth more than the differential in insurance costs, especially if we are just talking about a couple of healthy kids. Small employers “conveniently” laying off known high-health-care consumers I believe happens more often.

16

Or even not hiring them in the first place.

I know one hiring manager who kept an ashtray in the office, and would invite interviewees to feel free to smoke if they wanted. But anyone who did smoke would only be hired if they were way better than other applicants. The employer was specifically avoiding hiring smokers because of increased health care costs (and higher absenteeism, longer breaks, etc.).

17

In Canada, human rights legislation covers maternity leave. You get up to 1 year on UIC (unemployment insurance) and the employer MUST give you the same or equal job on your return. This covers EVERYONE, which doesn’t sound from your answer like the case in USA.

It is illegal to discriminate on the basis of marital status in Canada.

In most Canadian jurisdictions, without an explicit employment contract, or union contract, there is an implied contract. Dismissal without cause is illegal under human rights grounds; and under any other reason (shortage of work, don’t like the colour of your tie, want to hire college grad to replace you) it requires separation pay. Calculating that is an art in itself; ranges from 1 to 3 weeks for basic workers to betweena week and a month for each year of service (max 24 months) for people whose profession means they will have difficulty finding a similar job.

Of course, there is no health care cost to add to that. Most benefits are supplementary health like prescription benefits, glasses, and retirement savings. Everyone has the same health care employed or not, pre-existing condition or not, and there is no burden for conscientious employers.

18

No, the situation in the US isn’t the same as it is in Canada. But your post left the impression that in the US it’s OK to say “Pregnant? You’re fired!” In most US jobs, that’s not legal. However, it is true that in some US jobs, mainly for small employers, that is not against the law.

In several states it is legal not to hire smokers, or even to fire someone who smokes, and some companies have done just that. One well-known example was a company that sells wellness programs to other companies. Smoking is not a protected class under federal law. When smoking is protected by state/local law, it is often the phrase “legal, off-the-job activity” that can’t be grounds for discrimination.

I’m not particularly defending the US system, I’m just explaining it.