Gay Marriage Licenses now being Issued: Are Employers Ready?
June 17, 2008
Officially, California county clerks began issuing marriage licenses to same-sex couples on June 16, 2008. In light of same-sex marriages sanctioned by California State law but not under federal law, employer must be prepared for new health plan enrollment requests. Absent information from health insurance carrier/HMO service organizations (Issuers), employers are in a difficult position. There are few clear answers especially with regard to health plans. The following is a list of questions and answers based on what we know today.
Questions and Answers
1. Question: I am newly married and would like to enroll my new spouse under my health plan (Health Insurance Portability and accountability Act (HIPAA) special open enrollment.) Can I do so?
Answer (expanded): If it is a same-sex marriage you will need to check with your Issuer before providing a complete answer. If the new spouse qualifies as a tax dependent of the employee under federal law, you may enroll the dependent, treating the spouse as a newly-acquired dependent. If the spouse does not qualify as a tax dependent, I recommend you defer the question to the Issuer absent its announcement of an official position.
If you are subject to California small group rules, we expect Issuers will allow enrollment in compliance with the Court’s decision, but take no action until the Issuer publishes its position. If you are large group, you must get your answer from the Issuer. It’s our understanding that Blue Shield will treat same-sex spouses as legally married and therefore eligible. Aetna will limit coverage to Domestic Partners only at the present time. Blue Cross has not yet published its position.
2. Question: If I enroll my spouse on the plan, what are the tax consequences?
Answer (revised): Under federal law the value of the coverage will be imputed to the employee. California legislation, as you know, provides relief from state income tax for Registered Domestic Partners (RDPs). Spouses, by definition, are not Domestic Partners, even if they were RDPs prior to marriage. Absent legislation, the law would impose a tax on the fair market value of the coverage for same-sex spouses. It is also important to note thatuntil the legislature acts, we expect the Franchise Tax Board to take a non-enforcement position with regard to this tax. The Court’s decision may make the existing provision unenforceable per se.
3. Question: My new spouse has dependent children. May I enroll them now as my dependent children under the plan?
Answer: Under all insurance contracts, dependents must be dependents of the employee and meet the terms of the contract’s dependent child definition. Potentially these children may qualify as “step children,” a commonly accepted class under most insurance contracts. Or they may qualify as a child related to the employee by marriage, but only if the Issuer takes the position to acknowledge the same-sex marriage. Again, the answer will be up to the Issuer. If accepted, then, the Issuer would also recognize the dependents immediate open enrollment right by underwriting rule rather than under HIPAA. As a federal law, HIPAA’s definition of spouse cannot include same-sex spouses.
4. Question: Can I make pre-tax contributions with regard to my new spouse (and children)?
Answer: No. Pre-tax arrangements (Premium Contribution Plans, Cafeteria Plans) are sanctioned by the Internal Revenue Code (IRC) to permit this. The IRC will not recognize same-sex marriage. It would violate the federal In Defense of Marriage Act (DOMA).
5. Question: What are the penalties if I, as an employer, were to allow pre-tax contributions for my employee’s same-sex spouse and/or the spouse’s dependent children?
Answer: On audit, the Internal Revenue Service (IRS) would disqualify the pre-tax plan/cafeteria plan, thus making all the pre-tax contributions made under the plan for all participants, for all years the practice exists. The IRS would assess penalties for under withholding income tax (on the total amount of all pre-tax contributions) and under reporting income by the same amount, and add interest on all amounts from the date of the violations.
6. Question: Would the answers be the same under California law?
Answer: Yes. California had adopted the federal rules with regard to pre-tax contributions.
7. Question: Will the same-sex spouses have COBRA rights?
Answer: No. Neither state nor federal law will (as yet) recognize the person’s status as a qualified beneficiary.
8. Question: Does it make a difference if I sponsor a self-funded health plan?
Answer: No, with regard to the answers to Questions 2-7; Question 1 requires a different analysis. As Plan Sponsor, you have the right to amend your self-funded plan to provide benefits to same-sex spouses. The coverage would be imputed income to the employee based on the fair market value of the coverage. The rules under IRC Section 125 prohibit pre-tax contributions for same-sex spousal coverage. If you are considering an amendment to your plan, I recommend you seek the position of the stoploss insurance carrier before amending the plan.
9. Question: Will this affect an employee’s rights to continue premium payments under FMLA or CFRA?
Answer: The California Family Rights Act (CFRA) appears to have the duty to honor request for leave to “care for one’s spouse,” whether they are opposite sex or same sex thus allowing the employee to continue employee contributions for health care during the leave. Some consultants speculate that an employee could exercise rights under CFRA (maximum 12 weeks) for taking care of a same-sex spouse and then assert other leave rights under FMLA (12 weeks) resulting in a 24 week leave in a 12 month period.
10. Question: Are there privacy and discrimination issues regarding enrollment in a health plan?
Answer: The California Supreme Court decision has ruled that the California Constitution forbids discrimination based on sexual orientation to the same extent as bias based on race, sex, or religion. California’s non-discrimination rules appear in the Fair Employment Housing Act (FEHA). The FEHA prohibits discrimination on the basis of marital status or sexual orientation compatible with the Court’s decision. Some writers have speculated that employers may violate the privacy rights of individuals by asking for marriage proof or distinguishing between opposite sex and same-sex couples for eligibility purposes. It is important to note that federal civil rights laws do not include these additional protections.
This is an early analysis of the potential treatment of enrollment and departure issues involving same-sex spouses. In the coming weeks, Issuers will make their own rules regarding the ability to enroll a same-sex spouse or dependent children in California. Regardless of the decisions Issuers make, the federal rules will remain intact.
I will keep you informed as this matter develops.
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