If the U.S. Supreme Court rules that the federal Defense of Marriage Act (“DOMA”) is unconstitutional in Windsor v. U.S., which is expected to be decided this month, will employers that offer health benefits to employees’ same-sex domestic partners cease offering “domestic partner” benefits separately from benefits for employees and their spouses? Currently, one rationale for offering same-sex domestic partner health coverage is based on an equitable argument that, because an employee’s same-sex domestic partner typically cannot be treated as a spouse or dependent for federal tax purposes, a special coverage category is warranted. At the same time, this special status results in an economic hardship in that the employee must pay income tax on the value of coverage provided to the domestic partner. A repeal of DOMA would enable same-sex couples to avoid this economic hardship (at least with regard to federal income taxes). In other words, if DOMA is repealed, the definition of “spouse” for purposes of federal laws will no longer be limited to an opposite-sex spouse. Consequently, same-sex couples will have the opportunity to avoid federal taxation of their benefits by marrying. That could lead employers to conclude that the special category of domestic partner coverage is no longer needed.
On the other hand, employers also need to consider the impact of state law. If the Supreme Court strikes DOMA, that does not mean that state laws necessarily would change (it will depend on the rationale of the Court’s decision). So if a state law prohibiting same-sex marriage stands, an employer that otherwise provided domestic partner coverage may keep that category of coverage in place in order to handle the case of employees living in states where only opposite-sex marriage is legal. Admittedly, if DOMA is repealed, it is likely that such a state would have to recognize an out-of-state same-sex marriage, nevertheless, there could be a number of other employees who may only have coverage for same-sex partners through domestic partner coverage.
Separately, there are employers who offer health benefits to opposite-sex domestic partners (in addition to coverage for same-sex domestic partners). The rationale for providing coverage to opposite-sex domestic partners (presumably providing coverage opportunities for the widest possible constituencies) does not necessarily change if DOMA is repealed.
Some additional considerations for employers in making design decisions in this area include:
- What does applicable state law (perhaps a “mini-DOMA” law) say about same-sex partners and their status for state tax purposes?
- What does state insurance law say about selling insurance that allows for same-sex partner coverage?
- How will the IRS and courts interpret general plan eligibility provisions in light of a decision by the Supreme Court to repeal DOMA? That is, suppose a plan precludes same-sex partners from being treated as spouses under the plan, but DOMA is repealed. Does that repeal effectively override the plan design decision since the couple involved would now include a recognized spouse for federal law purposes?
Employers operating in multiple states, including some where same-sex marriage is permitted and some where it isn’t, will need to consider a variety of additional issues, including whether it makes sense to adopt a “one-size-fits-all” policy across all states with regard to domestic partner health benefits. It may make better sense to have different policies depending on the status of the law in the state in which the employee works or lives, but in either case the employer should be sure to consider the employee relations issues that may be implicated by its decisions.
A repeal of DOMA, should it occur, is not going to mean plan design decisions will necessarily be easy.