Obergefell v. Hodges, the Supreme Court (SCOTUS) decision supporting nationwide marriage equality for same-sex couples was a historic ruling, and for those of us that support and promote diversity, it was a very positive development in the LGBT population’s fight for civil rights. Of course, the ruling will most directly affect same-sex couples in states that previously prevented them from legally marrying. However, employers will also feel the effects of the ruling in differing ways.
Analysts and benefits consultants believe that the Obergefell ruling will likely boost health insurance coverage among same-sex couples. According to The Henry Kaiser Family Foundation’s 2014 Employer Health Benefits Survey, only thirty-nine percent of firms that offered health insurance allowed same-sex domestic partners to enroll. Following the SCOTUS decision, in the states that previously banned recognition of same-sex marriages, these individuals will now be eligible to obtain coverage as dependents on their spouse’s employer-sponsored plan if spousal benefits are available. The Supreme Court’s ruling does not require employers to offer coverage to same-sex spouses. However, under the Patient Protection and Affordable Care Act (PPACA), group health plans offered by insurance companies to opposite-sex couples must also be offered to same-sex couples, and insurers cannot discriminate based on an individual’s sexual orientation. Self-insured companies technically are under no legal obligation to include same-sex partners unless they outsource insurance functions to payers, who are covered by the previously mentioned PPACA rules. However, if the employer offers benefits to opposite-sex spouses, the ruling will make these companies vulnerable to discrimination suits if they choose to deny benefits to same-sex couples. Furthermore, even if these self-insured companies claim that their denial is due to a religious objection, a high risk of these suits will still exist.
The more favorable tax treatment of spousal coverage may also help boost health insurance coverage among same-sex couples. Previously, even if an employer offered domestic partner benefits to these couples, the tax treatment of these benefits created a potential disincentive for enrollment. Federal and state tax laws allow the employer to exclude the value of its contribution for coverage for spouses from the employee’s gross income. However, for domestic partner benefits (both for same and opposite sex partners), tax laws require employers to report their financial contributions for this coverage as taxable income. Additionally, employees may not use pre-tax dollars, which reduce taxable income, to pay for this kind of coverage. Therefore, in the states in which same-sex couples could not be previously recognized as legal spouses, even if same-sex domestic partner benefits were available, they essentially experienced a tax penalty for their health insurance coverage. Furthermore, these rules also increased payroll tax expenses and administrative costs for the employer.
Nevertheless, although the Obergefell ruling might help increase coverage numbers by eliminating the tax penalty for married, same-sex couples, there is evidence that the additional payroll and administrative costs, along with the ruling, will motivate some employers that currently offer domestic partner benefits to eliminate them and replace them with spousal coverage. For example, a New York Times article reports that before the ruling, Verizon, Delta Air Lines, IBM, and Corning, rescinded domestic partner benefits and replaced them with spousal benefits in the states where same-sex marriage was legal.
If the changes discussed above result in an overall increase in the number of spousal dependents, which is likely if the employer previously offered spousal benefits only, the Obergefell ruling will probably increase these companies’ health insurance costs. However, if the company previously covered unmarried same-sex domestic partners, the expenses associated with health insurance may decrease due to the elimination of the additional payroll tax expenses and administrative complexities.
Finally, due the increasing costs of providing health insurance, many employers have been reducing the availability of spousal benefits to save money. These companies have either eliminated spousal coverage completely or imposed surcharges on spouses that are eligible for coverage with their employers. Consequently, the Supreme Court’s ruling may accelerate this trend.
To summarize, the Obergefell ruling will affect employers that currently offer spousal and/or domestic partner health insurance coverage. Therefore, at a minimum, these companies should review and update their benefits policies and packages in states in which they operate that previously did not recognize same-sex marriage. Overall, for multi-state employers, the introduction of a uniform rules should reduce both the administrative complexity and expenses associated with offering health insurance. However, the increases in numbers of covered spouses may result in higher health insurance costs for some organizations.