After the U.S. Supreme Court's landmark marriage-equality decision this summer (Obergefell v. Hodges, discussed in here), we now have full equality between same-sex and opposite-sex spouses under federal and state law. That decision affects healthcare benefits for employers with California employees, as summarized below:
Defining the Term "Spouse"
Since federal law does not define spouse for health plan purposes, many health plans historically relied on a state law definition for the term "spouse." In some cases, this resulted in different coverage options for same-sex spouses, depending on the state in which they lived. In other cases, plans were written in a manner to provide spousal coverage only for opposite-sex spouses. After Obergefell, employers should review their health plan documents to make sure they are defining spouse in a way that does not exclude same-sex spouses.
Imputed State Tax Income
The U.S. v. Windsor decision in 2013, and later IRS guidance, confirmed that employers offering health benefits to same-sex spouses can treat those benefits as non-taxable for purposes of federal tax. But Windsor left open the issue whether those benefits were taxable at the state level. Now, after Obergefell, it is clear that health benefits provided to same-sex spouses are no longer taxable to the employee under either federal or state law. Employers should no longer impute income for the cost of health coverage provided to same-sex spouses.
Domestic Partnerships/Civil Unions
Note that Obergefell does not apply to unmarried same-sex partners who are in a domestic partnership or civil union. Before Obergefell, many employers extended health coverage to domestic partnerships and civil unions, particularly in states where same-sex marriage was not legal. Now that marriage equality exists for all spouses, some employers have begun to eliminate coverage for domestic partnerships and civil unions, but employers with employees in California should proceed cautiously in modifying these benefits.
California has robust domestic partner laws that grant registered domestic partners many of the same rights and responsibilities of married couples. For example, since 2004, California law has required that insured health plans offered to California employees must provide health coverage to registered domestic partners on the same basis as offered to opposite-sex spouses.
To be clear, the law doesn't require employers to provide health coverage to registered domestic partners if coverage isn't provided to opposite-sex spouses. The law also covers only "registered" domestic partners (domestic partnerships where the individuals are of the same sex, and opposite-sex domestic partnership where one partner is age 62 or older). But if the insured plan covers spouses, then it must also cover registered domestic partnerships. (Note that employers with self-funded health plans are exempt from this requirement.)
Since Obergefell, many clients have asked whether they must continue to offer coverage to registered domestic partners—especially since they now offer health coverage to all spouses, regardless of orientation. The answer remains, Yes.
There is nothing in Obergefell that changed the domestic partner coverage requirements for insured health plans in California. In fact, the California Secretary of State's website includes a reminder that Obergefell does not invalidate or change any of the California Family Code sections related to registered domestic partners.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.