With the rise in healthcare costs and increase in healthcare legislation, employers are faced with difficult decisions when it comes to their benefit offerings. Depending on the family demographics of an organization, offering benefits to domestic partners can be a way to promote a culture of inclusion and attract and retain talent. Employers can voluntarily choose to offer benefits to domestic partners even if their state doesn’t mandate it. Benefits offered to domestic partners can generally be the same as those for married couples and can include: bereavement and sick leave, long-term care, accident or life insurance, or most commonly; medical, dental and vision insurance.
It is important to understand that the term domestic partner is not used consistently and to be aware of your state and local laws along with their terms and definitions regarding domestic partnerships. For the purpose of this article, the term domestic partner or partnership will refer to an interpersonal relationship between two individuals who are at least 18 or older, same-sex or opposite-sex, who live together for at least six months, have financial interdependence, are not blood related and are not in a marriage or civil union with anyone else.
There are many considerations that should be made prior to offering domestic partnership benefits including legal and tax ramifications.
5 factors employers should consider include:
- Employer Cost. Employers offering medical benefits for domestic partners typically will not see an increase in cost as not very many employees take advantage of these benefits. However, there is always a risk that any employee or dependent enrolled in the plan can become a high claimant as a result of a chronic condition and can have a significant impact on the overall cost of the health plan.
- Tax Implications. Under federal tax law, the portion of an insurance premium that an employer pays is not taxed as income for the employee, legal spouse and children. Domestic partners are not considered a spouse under federal law. As a result, if a domestic partner is covered under an employer plan, the employee will pay tax on the insurance premium including the portion of the insurance premium that the employer contributes to the policy.
- Insurance Fraud. In an effort to eliminate unnecessary healthcare costs, many employers conduct annual dependent eligibility audits. For the purpose of proving a domestic partnership, most employers offering coverage require employees to sign an affidavit that states their relationship meets the requirements of a domestic partnership at initial enrollment along with providing some sort of documentation to prove financial interdependence such as a bank statement or lease.
- Providing benefits to some employees but not all could lead to a discrimination lawsuit. This is why it is especially important for employers to understand the definition and terms associated with domestic partnerships. If a company were to only offer domestic partnership benefits to unmarried same-sex couples but not unmarried opposite-sex couples they could be opening themselves up to a discrimination lawsuit.
- COBRA Administration. Domestic partners are not recognized as qualified beneficiaries for the purpose of COBRA and therefore, are not entitled to individual coverage under COBRA. That said, the qualified beneficiary who elects COBRA coverage may also elect to continue coverage for a domestic partner who was on the plan the day before the qualifying event. Employers can design their plan to provide continuing coverage but would need to have this approved by the insurance carrier for fully insured plans prior to implementing and are strongly advised to seek legal counsel regarding the language in their benefit offerings.
Employers who are offering or wish to offer coverage to domestic partners are encouraged to reach out to their Benefits Consultant for assistance with administration and compliance.