Health Insurance Quotes
End of DOMA means health insurance benefits extended to same-sex married couples
When the U.S. Supreme Court struck down a key provision of the federal Defense of Marriage Act (or DOMA), a world of insurance opportunity opened up for same-sex couples.
The decision means that same-sex couples who are legally married (meaning married in a state that recognizes same-sex marriages) are entitled to the same health insurance benefits as opposite-sex married couples, says Andrew Cray, a lawyer and policy analyst for the LGBT Progress/Center for American Progress in Washington, D.C.
The decision also means that employers no longer have to tax the employee on the value of health coverage provided for the benefit of the same-sex spouse, says Josie Martinez, senior partner and general counsel of EBS Capstone in Newton, Mass., a member of United Benefits Advisors.
Section 3 invalid
In June 2013, the U.S. Supreme Court ruled in United States vs. Windsor that Section 3 of the 1996 law that defined marriage as the union of one man and one woman was invalid. The provision had prohibited the federal government from acknowledging marriages between two people who were the same sex.
DOMA is a federal law. Currently, same-sex marriages are legal in only 13 states and the District of Columbia.
"Thirty-seven states have DOMA-like statutes where marriage is between a man and a woman," Martinez notes. "And states can't be required to recognize the laws of other states."
However, in August, the Internal Revenue Service announced that same-sex couples who legally marry in states that recognize their marriages would be treated as married nationwide, at least for tax purposes.
Before the IRS issued its statement, it wasn't clear what would happen if same-sex couples lived in states that did not recognize their union as legal.
"But the IRS statement clarifies that the tax treatment for same-sex married couples will now be the same as for opposite sex married couples, regardless of where the couples live or work," Clay says.
Pre-tax dollars the issue
Before DOMA was struck down, the employed partner in a same-sex couple could not use pre-tax dollars to pay health insurance premiums for their spouse. So employers had to impute the value of those premiums and withhold taxes, says Christine Tracey, a lawyer and chief operating officer of the Kuveke Group in Ridgefield, Conn., also member of United Benefits Advisors.
The change is significant, Tracey says. That's because the value of the health premiums that the employer pays for the employee and his/her spouse's medical, dental and/or vision coverage can be a "big amount." Not having to pay federal income taxes on that amount could be a significant savings, she says. Most employers pay at least 50 percent of their employees' premiums, which can be as much as $10,000 to $15,000 for coverage.
Martinez says the recent IRS statement means businesses that operate in multiple states won't have to worry about where their same-sex married employees live and will no longer have to impute their health insurance benefits.
Refunds may be possible
In its statement, the IRS says that same-sex couples who paid taxes on their spouse's health insurance premiums can file amended returns for the last three years and could be eligible for a refund. The Treasury and the IRS said they intend to issue streamlined procedures for employers that wish to file refund claims for payroll taxes paid on previously taxed health insurance and fringe benefits provided to same-sex spouses.
The IRS statement is significant for another reason, too, Clay says. It clarifies that same-sex couples must be legally married in order to use pre-tax dollars to pay their health insurance premiums, he explains.
"The IRS statement makes clear that couples in domestic partnerships and civil unions will be in the same position they were before the Windsor decision. And that is they are dependent upon state laws and the will of the employer regarding the availability of family coverage from employers, and they will continue to face an additional tax burden on those benefits."
The DOMA ruling is expected to impact other aspects related to health insurance for same-sex couples. For example, businesses will have to offer COBRA coverage to same-sex spouses. COBRA gives employees the right to pay premiums for and keep the group health insurance they had if they quit or lose their jobs or are no longer eligible for health insurance for some other reason. Some believe that COBRA may not be as important once individuals are able to get health insurance at a lower cost through the health insurance marketplaces that launched on Oct. 1.
Thanks to the Windsor ruling, employees also must be permitted to take family and medical leave (FMLA) should they need to care for a same-sex spouse who is ill.
Same-sex spouses can use HRA, HSA
Employees in same-sex marriages also now should be able to use the pre-tax dollars they contribute to flexible spending, health reimbursement accounts and health savings accounts for their spouse, Tracey says.
Martinez says all the effects of the DOMA decision won't be known for some time. "It's a work in progress and employers are waiting for a host of regulations," she says.
Martinez says that since DOMA, some employers have asked whether it is legal for them to ask employees with same-sex spouses for proof of their marriage before extending benefits to them. Martinez says the answer is yes, but only if they ask employees in opposite sex marriages for their marriage certificates as well.
In addition to Washington, D.C., the states that recognize same-sex marriages are: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington. Several counties in New Mexico and five Native American tribes also issue same-sex marriage licenses.
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