Fiscal impact of extending insurance to domestic partners is minimal, HR expert says
As legal and cultural definitions of what constitutes a family changes, Bay Area businesses have been at the forefront of a nationwide trend of extending employee benefits to nontraditional households.
One of the most popular practices is extending health insurance benefits to an employee’s domestic partner (DP). Currently 37 percent of Fortune 500 companies and about 4,000 California government agencies and businesses offer some form of domestic partner health plan, originally intended for same-sex couples.
Tim Biddle, head of the San Francisco office of human resources consulting firm The Segal Co., a subsidiary of The Segal Group Inc., spoke with Biz Ink reporter David Speakman about issues businesses face when considering domestic partner health plans.
How is “domestic partner” defined? Does it apply to all unmarried couples?
There is no single, prevailing definition of a domestic partner. However, there are several requirements that are common to almost all definitions. The partners must be in a relationship of mutual caring, support and commitment. They must be dependent upon one another for economic support. Examples include sharing financial responsibility for a lease, mortgage or other loans or using a joint checking account. And they must maintain the same permanent residence.
Some companies that offer domestic partner benefits include opposite-sex couples, but many include only same-sex couples. Some require that, where a registry is available, the couple must register as domestic partners. And, some insurance plans require that domestic partners must have lived together for a length of time — typically, from six to 12 months — before qualifying for benefits.
What are the advantages for a company offering DP benefits?
Companies that offer domestic partner benefits are putting their nondiscrimination policies into practice. Actions speak louder than words, and employees and prospective employees frequently are a company’s most important audience. Domestic partner benefits can help a company attract and retain highly qualified employees. And, if your competitors are offering these benefits, you will be at a disadvantage if you don’t follow suit.
What is the nationwide trend regarding DP benefits?
The Bay Area led this trend, but it definitely has taken on national proportions. According to the Human Rights Campaign, 5,750 companies nationwide offer domestic partner benefits. This may seem like a small number, but it includes 185 Fortune 500 companies. Eleven state governments and 184 local jurisdictions offer domestic partner benefits, and hundreds of nonprofit and academic institutions do so, as well.
How will a choice to offer DP benefits affect smaller businesses, which already have a hard time finding an insurance carrier?
As more and more employers are requesting domestic partner coverage, the insurance industry is responding. Today, it is much easier for employers to find insurance plans inclusive of domestic partners. Competition demands it and actuarial statistics indicate that claims for domestic partners are no more expensive than those of spouses. In fact, the practice of levying surcharges has virtually been eliminated in most areas. In San Francisco and Portland, Maine, laws are in effect requiring insurance companies that provide spousal coverage to [also] provide the same coverage to domestic partners.
What additional costs are there for DP benefits and who pays for them?
The majority of insurance companies now include qualified domestic partners in their plans at the same premiums as spousal/family coverage. Employers that offer such coverage typically require employees to pay the same percentage of the cost of coverage as married couples do.
What are the tax liabilities for employees enrolled in DP programs?
Any benefit provided by employers that is not specifically excluded from taxation by law is considered taxable — and domestic partner benefits are not typically tax-qualified. Thus, the employee must pay income tax on the fair market value of coverage. Because the value is considered income, it also is subject to withholding, FICA, FUTA and Medicare. However, it’s worth noting that in California, domestic partner benefits have been excluded from state income tax by AB 25.
In general, the taxable nature of domestic partner benefits appears to be a significant disincentive to use them. We assume that if a domestic partner has access to coverage elsewhere, he or she will take advantage of the other plan.
What lessons have we learned in the five years since DP benefits have increasingly become an accepted business practice?
Domestic partner benefits have almost none of the disadvantages that people assumed might occur and offer many advantages. Employees like them and companies that offer them are viewed as “employers of choice.” There’s been almost no backlash. Some boycott attempts actually have backfired on the organizers by generating widespread support for the organization being boycotted.
Domestic benefits have not created significant burdens for employers, either. There is some administrative complexity in setting them up, but no greater ongoing burden than with any other benefit. And, enrollment has remained very low — less than 2 percent of eligible employees take advantage of domestic partner benefits.
Perhaps the best indication of the success of domestic partner benefits is the fact that very few employers that initiated such plans have dropped them.