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Hardly a week goes by without some new development affecting the ability of gay and lesbian partners to marry or establish other legally recognized relationships. Given the recent flurry of activity, it is time to reflect on what we know – and don’t know – about providing health benefits to same-gender spouses and domestic partners. The Massachusetts Supreme Judicial Court triggered the latest rash of developments when it issued its groundbreaking decision in the fall of 2003, ruling that same-gender couples must be allowed to marry in Massachusetts.¹ Since then, the battle has moved to many other states, spawning more court decisions, enactment of new state laws and constitutional provisions, and renewed calls to amend the U.S. Constitution to ban same-gender marriage. This article will provide some background information and useful tips for employers trying to determine how all these developments affect their HR and benefits policies.

Whether any specific employer extends health benefits to same-gender spouses is likely to depend on many different factors: the health plan’s governing documents, employee expectations, the legal framework (including an analysis of the marriage laws of the state(s) where the employer is located, where the marriage took place, and, if different, where the recently married employee now resides), the employer’s recruitment and retention strategy, the availability of domestic partner benefits as an alternative, and the employer’s overall guiding philosophy on equal opportunity in general and same-gender marriage in particular.

Federal Law as the Backdrop
Because health benefits offered by private sector employers are governed by the federal law known as ERISA (Employee Retirement Income Security Act of 1974), federal law provides the primary backdrop.² However, ERISA itself does not limit who may be treated as a “spouse” for health benefits purposes. Instead, the key federal law is the 1996 federal statute entitled the Defense of Marriage Act (DOMA).³ DOMA does two things: (1) It provides that no state shall be required to give effect to a law of any other state with respect to a same-sex “marriage,” and (2) it defines the words “marriage” and “spouse” for purposes of federal law, thus limiting federal recognition (including under the tax code) to opposite-gender spouses.

DOMA means, in effect, that private sector employer-sponsored health plans are not required to provide benefits to same-gender spouses, but may do so if they choose.⁴ However, a same-gender spouse may receive tax-free health coverage under the federal tax code only if he or she qualifies as an eligible “dependent” under federal tax laws. This is currently the way the federal tax code treats domestic partners – only a domestic partner who is the employee’s tax dependent is eligible to receive tax-free health coverage. When coverage is provided to non-tax dependents, income must be imputed to the employee (based on the fair market value of the coverage) and the associated income and employment taxes must be paid (by the employee and/or the employer, as applicable).

The Impact of State Law
While federal law determines the federal tax consequences of providing health coverage to same-gender spouses and domestic partners, health plan sponsors and administrators cannot ignore state law in this area, for two primary reasons.

First, some employer-sponsored plans provide insured coverage and will be affected by state laws regulating insurance carriers and HMOs. A prime example is the new California law that requires health insurance carriers and HMOs to provide coverage to domestic partners on the same terms and conditions as the coverage provided to spouses. And, while insurance carriers and HMOs in Massachusetts appear to be waiting for direction from plan sponsors, at some point in the future, employers located in Massachusetts may have a difficult time finding insured products that do not cover same-gender spouses.

Second, many health plans, in their plan documents and summary plan descriptions (SPDs), define the term “spouse” by reference to “applicable law” or “applicable state law.” (Another common variation is to define the term “spouse” as someone to whom the employee is “legally married.”) This deference to state law is customary, and indeed necessary, because it is the states, not the federal government, that license marriages and determine who is legally able to marry in the United States. Plans using definitions like these may have no choice but to provide coverage to a same-gender spouse, at least when the marriage is indeed legally valid and the employee insists upon coverage.

Validity of Same-Gender Marriages
Determining when a same-gender marriage is legally valid is not always an easy task. So far, Massachusetts is the only state to officially license same-gender marriages, but that is likely to change over time due to ongoing litigation in other states.  Indisputably, a same-gender couple residing in Massachusetts and married in Massachusetts on or after May 17, 2004, has a legally valid marriage, at least in Massachusetts, at least for now.⁵ It is less clear whether a same-gender couple that resides in another state, travels to Massachusetts to get married and then returns home, has a legally valid marriage. Its validity is likely to hinge on the interpretation of both Massachusetts law and the laws and constitution of the state in which the couple resides. Only a court of law can provide a definitive answer, and courts across the country are just beginning to grapple with these issues.

Massachusetts is definitely ahead of the pack when it comes to licensing same-gender marriages, and that result was reached through litigation challenging the state’s marriage licensing statute on state constitutional grounds, not through legislative action. The opposite approach is much more common. The overwhelming majority of states have enacted specific laws or constitutional amendments banning same-gender marriages; many of these also express the state’s refusal to recognize such marriages from other states.⁶  Indeed, only a handful of states (at last count, Connecticut, New Jersey, New Mexico, New York, Rhode Island and Washington, D.C.) have no explicit law or constitutional provision banning same-gender marriage.⁷ Litigation is pending in several states (e.g., California and New York) challenging the constitutionality of the state’s ban on same-gender marriage. Many observers expect that at least a few states will follow in Massachusetts’ wake in the near future.

Other states have chosen to extend many (in some cases, most) spousal rights to same-sex couples through relationship recognition laws that fall short of actual “marriage.” For example, Vermont licenses “civil unions,” Hawaii recognizes “reciprocal beneficiaries,” while California, New Jersey and Maine each have enacted statewide domestic partner registries. Connecticut is likely to enact a civil union law in the coming weeks.

To Cover or Not to Cover?
Many employers in Massachusetts are now extending health coverage to same-gender spouses even while they grapple with exactly which benefit offerings they will extend. Employers with employees in more than one state are likely to meet with varying demands, depending on where their employees reside. Given our mobile society, it will not take long before one or more same-gender couples married in Massachusetts relocate and ask that their new employer in their new state of residence recognize their marriage and provide health coverage.

Whether an employer recognizes such a marriage and provides the requested coverage will depend on a variety of factors, some unique to each employer.

Some Practical Advice for Employers
Employers should review their health plan documents (including SPDs) and communications materials provided to employees to determine whether the plan’s current language permits, forecloses, or even requires the provision of health coverage to same-gender spouses. Coverage would be foreclosed (absent a change in policy and governing documents) if the plan documents defined “spouse” as an “opposite-gender spouse” or as a “legally married spouse recognized by federal tax law.” Looser definitions such as those discussed earlier (defining the term spouse by reference to applicable or state law) would permit coverage of same-gender spouses and might even be construed to require it.

After this review is complete, employers have two choices. They can sit back and wait for an affected employee to request coverage and then decide what to do; or they can begin the process of deciding what approach they want to take, in consultation with their advisors and legal counsel, and then take the necessary steps to implement that approach.

Employers that choose to provide health coverage to same-gender spouses will need to:

• Determine which same-gender spouses to recognize. For example, employers may want to limit recognition to Massachusetts residents married in Massachusetts, since there is no issue as to the validity of such marriages. Alternatively, an employer may choose to recognize any marriage upon presentation of a marriage license that appears valid on its face.
• Determine which benefits and rights the employer will extend to same-gender spouses. For example, under federal law, plans are not required to provide COBRA continuation coverage to same-gender spouses, but plans may choose to provide COBRA-like coverage under certain circumstances (e.g., when the employee’s job terminates and the employee is eligible for COBRA, but not if the parties divorce). Similarly, plans are not required to provide federally guaranteed special enrollment rights due to a same-gender “marriage,” but plans may be required to provide special enrollment rights when the employee or the spouse loses other coverage.⁸
• Establish an enrollment process, including the evidence required to demonstrate a valid marriage – evidence that should be required of all couples, not just same-gender couples.
• Coordinate their efforts with insurers, HMOs and third-party administrators.
• Calculate the fair market value of the health coverage being provided and set up a mechanism to handle the income tax implications. Employers will need to keep in mind that income tax consequences may differ under federal and state law. For example, coverage provided to Massachusetts same-gender spouses will be taxable under federal law (unless the individual is the employee’s tax dependent) but not under Massachusetts law.
• Evaluate the impact of providing coverage to same-sex spouses on the employer’s domestic partner benefits (if such are provided). For example, will domestic partner benefits be eliminated on the grounds that same-gender couples can now marry? While this is true for Massachusetts couples, employers with employees outside of Massachusetts will need to keep in mind that not all of their gay and lesbian employees will have the option of marrying.
• Revise plan documents, participant communications, and enrollment and other forms as needed to reflect policy choices.

This process may seem like a daunting task, but it is virtually the same one that employers offering domestic partner benefits have had to follow. Given how common domestic partner benefits have become (at the end of 2003, 40 percent of Fortune 500 companies offered them⁹), many employers have clearly concluded that the benefits (no pun intended) outweigh the burdens.

Joanne L. Hustead is a Senior Health Compliance Specialist in Segal’s National Compliance Practice, in Washington, D.C.

1 For more information about the decision in Goodridge v. Department of Public Health, see Segal’s January 2004 Bulletin, “Benefit Implications of the Massachusetts Court Ruling Allowing Same-Gender Marriage,” which is available in PDF format on the following page of Segal’s Web site: http://www.segalco.com/publications/bulletins/jan04MArulingonsamegendermarriage.pdf
2 Federal law governs ERISA benefit plans, but state law (including anti-discrimination laws) will govern non-ERISA benefits. This article focuses on ERISA plans, but employers must also keep in mind the impact of state laws on the provision of other non-ERISA benefits.
3 Public Law No. 104-199.
4 Private sector ERISA plans retain this flexibility even in states with laws or constitutional provisions banning same-gender marriage.
5 Efforts are underway in Massachusetts to change the law through a constitutional amendment.
6 The Human Rights Campaign’s Web site includes a state-by-state listing of relationship recognition laws, laws banning recognition of same-gender marriages, and other laws affecting same-gender couples.
7 See Human Rights Campaign chart of Statewide Marriage Laws at www.hrc.org.
8 Similarly, under federal law employers are not required to provide federal FMLA leave to permit an employee to take care of a same-gender spouse who becomes ill. An employer that voluntarily chooses to extend FMLA-like leave in such circumstances should keep in mind the need to provide federally guaranteed leave when requested for other reasons (e.g., illness of the employee’s child). 
9  Human Rights Campaign, State of the Workplace 2003, at 5.