The number of companies offering domestic partner benefits continues to grow, but many workers remain eligible-and often, even those who do qualify decline them.
In a certain sense, Michelle King and her partner of four years are in an enviable position. King's employer, Cardinal Health, makes available to its workers in same- or opposite-sex relationships a full slate of benefits, just like their married colleagues. By comparison, a 2008 survey by the Ohio Department of Insurance (ODI) and the National Association of Insurance Commissioners found only 47 percent of domestic partners had plans allowing coverage of their partner.
That was the good news. The bad news was that King-like nearly everyone who has both a domestic partner and an employer willing to provide partner coverage-knew choosing benefits would also mean setting her paycheck up for a hit. Partner benefits are treated as taxable income by the Internal Revenue Service. Benefits for married couples are not.
"It was kind of a hard decision for us to make, and for me to make personally, because it impacts my take-home pay. It isn't much, but I'm on a budget, and every little bit counts," says King, a senior analyst in audit/financial controls at Cardinal Health.
In the end, King and her partner-unnamed in this story because she is not "out" at her workplace-agreed it would be best for the partner to make use of only the dental and vision insurance coverage provided through Cardinal Health. (While King's partner's employer offers health insurance coverage, the benefits are "very bad," she says.) Since opting in late last year, King's partner, who knew she would need dental care, has used the benefits "quite a bit," King says. "So that's been great." Less great: King's take-home pay dropped 2.5 percent to pay the taxes on those benefits.
As King's experience illustrates, and as researchers have observed, domestic partners, either gay or straight, are less likely to have access to health coverage. Even when health care is available, partnered employees find it more costly than do their co-workers with opposite-sex spouses. And while the number of employers providing domestic partner benefits continues to rise, many eligible workers have chosen to opt out, thanks in no small part to the tax burden levied on them. As the implementation of domestic partner benefits by U.S. employers becomes increasingly mainstream, there has been a greater interest by stakeholders-employers, employees, civil rights advocates and others-to address the inequities in how such benefits are treated.
The City Tries Again
At his state of the city address earlier this year, Columbus Mayor Michael Coleman announced plans to return domestic partner benefits to the legislative agenda. Partner coverage has had a rocky history in Columbus: In 1998, a city council vote to approve domestic partner benefits unleashed a fire-storm of debate, with protesters threatening a citizen referendum. Ultimately, the city-with the backing of partner benefit supporters, who feared a successful referendum would hinder future efforts to provide domestic partner coverage-repealed its decision. In 2003, Columbus again looked at domestic partner coverage, but budget concerns put the issue on hold.
The city plans to extend benefits to both gay and unmarried straight couples, says human resources director Chet Christie. Columbus anticipates 100 to 1,000 employees will sign up for the benefits. "It's a big ballpark, but nevertheless, it's the ballpark," says Christie. Columbus spends almost $106 million annually to provide employees and their dependents with health, disability and life insurance, as well as other benefits. It expects that amount to rise less than 1 percent once it makes domestic partner benefits available, he says.
While ahead of the times in the 1990s, "We are shamefully below what has now become a common practice for employers," Coleman said in the address. Indeed, more than 250 cities, counties and other local government entities provided domestic partner benefits as of July 2009, according to Lee Badgett, research director for the University of California Los Angeles Law School's Williams Institute on Sexual Orientation Law and Public Policy. Locally, the Franklin County Board of Commissioners began to offer domestic partner benefits for same- and different-sex couples Jan. 1, and Columbus City Schools started to provide domestic partner benefits-solely for same-sex partners-in August.
For its part, Columbus-which quietly switched to a new carrier for supplemental insurance in 2004, providing employees a means to buy health insurance for their partners at a cheaper group rate-hopes to have a domestic partner policy in place by year's end. In contrast to the contentious debate it faced years ago, at present, the city hasn't seen organized opposition so far. "We have received not one comment, not one call, not one e-mail, not one letter-other than from some folks who said, ‘What the hell took you so long?' " says Columbus City Councilman Andrew Ginther, who backs bringing the benefits to same- and opposite-sex partners.
Public entities aren't alone in offering domestic partner benefits. According to a 2007 report by human resources consulting firm Mercer, roughly one-third of U.S. employers with 500 or more employees offered domestic partner benefits. By contrast, three employers did so in 1992.
Furthermore, the Human Rights Campaign (HRC), a lesbian, gay, bisexual and transgender (LGBT) advocacy group, found that an increasing number of Fortune 500 companies have added coverage for employees' domestic partners. According to HRC, 293 of the Fortune 500 reported offering partner health insurance benefits in 2009.
(An aside: Domestic partner can be defined by an employer or local or state law, but commonly refers to an unmarried adult in a committed relationship with another adult. Under the common definition, the two, who may be of the same or opposite sex, cohabitate and share responsibility for each other's welfare. Medical coverage for both a partner and the partner's children is the most common domestic partner benefit; other health-care coverage, such as dental or vision, also is typical. Less frequent but still available
to some are COBRA-equivalent benefits; voluntary benefits, such as dependent care; ancillary benefits, such as tuition or adoption assistance; and bereavement leave, according to Mercer.)
Cardinal Health and Nationwide were among the employers to receive a perfect score in the HRC's 2009 Corporate Equality Index, which measures how large, private-sector businesses in the United States treat their LGBT workers, customers and investors. Both offer health insurance, dental, vision and dependent health coverage. They also provide a COBRA-like benefit; FMLA-like (Family Medical Leave Act) leave; bereavement leave; employee assistance and other benefits to married and partnered workers.
"Basically, all the offerings for our employees and spouses we also offer to domestic partners," says Monica Foster, vice president of benefits for Cardinal Health. "That includes the benefits such as medical, dental, vision and life insurance. We have a very robust healthy lifestyles program. We offer health assessments to our employees [and] we give premium reductions for getting health assessments. We have an on-site wellness center, which offers a clinic and a pharmacy. All of our policies include domestic partners, which include things like bereavement and FMLA-type plans."
Cardinal Health started to offer domestic plans in 2003 "because it was the right thing to do," says Foster. "We had the belief that all employees, their domestic partners and their spouses were entitled to it, and the cost was not an issue or a consideration."
About 3 percent of Cardinal Health's employees participate in its domestic partner plans. Cardinal Health doesn't track whether straight or gay couples are the benefits' biggest users, says Foster.
Gregg McConnell, Cardinal Health manager of indirect procurement, contracts and purchasing, heads up the company's Equality Network Employee Resource Group (formerly known as the Gay Lesbian Bisexual Transgender and Advocates). He says when he started at Cardinal Health three years ago, "I don't know that they were as progressive then as your [JPMorgan] Chases and your Nationwides-it's been a little bit of a catch-up game, but now we're starting to step out on that edge and be a leader."
Nationwide's traditional benefit plan options traditionally had limited coverage to those who qualified for the Internal Revenue Code tax preferences for employee benefits, says Jack Towarnicky, associate vice president of benefits planning for Nationwide Mutual Insurance Company. He says that changed in the late 1990s, when Nationwide reviewed its associate population and noted that workers' households often included not just spouses and children, but also grandchildren, adult non-student children, same-sex and opposite-sex partners, siblings, parents and others.
So, Towarnicky says Nationwide, mindful that "associates' needs were more varied than the limits incorporated in the Internal Revenue Code and the Federal Defense of Marriage Act," introduced something new: household members coverage. Household members can participate in much of the same health and welfare coverage options available to associates, including medical, dental, life and accident coverage. That said, differences remain. For instance, some of the health maintenance organization options offered by Nationwide do not extend coverage to all household members.
Nationwide also expanded its pension plan survivor benefit provisions so a participant could name anyone-a son or daughter, a spouse, a domestic partner of the same or opposite sex-as a beneficiary. In addition, it revamped employment and time-off policies to better suit the needs of its associates, Towarnicky says.
About 600 people-less than 1 percent of the total number of employees and dependents covered by Nationwide-have signed up for household benefits, which are available to anyone who has been living with a Nationwide employee for at least six months, says Towarnicky. "Of that group, just over 40 percent qualified for the tax preference-probably adult, non-student children who were financially dependent on the associate parent-and just under 60 percent did not qualify for the tax preference."
Such a broad definition of who can make use of the benefits provided by Nationwide "is not just cutting edge, but bleeding edge," says Towarnicky, who has made use of the household member program to provide coverage to his adult children. "It's so diverse out there, and we want them [employees] to say, ‘This is who my family is.' We didn't want to get caught up in a debate about it."
Why Do It
A 2005 study by HR consulting firm Hewitt Asssociates found employee attraction and retention to be the No. 1 reason businesses offered domestic partner benefits. And that seems to be backed up by what employees have told researchers is important to them. A 2006 brief from the Williams Institute found that 48 percent of lesbian, gay and bisexual employees said partner benefits would be their most important consideration if offered another job. Furthermore, 7 percent of heterosexual workers who changed jobs said partner benefits were the most important factor in that decision. Such priorities are no small wonder given that for many workers, employer benefits represent more than one-quarter of their total employment compensation, according to the Partners Task Force for Gay & Lesbian Couples.
For about five years, law firm Vorys, Sater, Seymour and Pease has offered near-identical benefits to its married and partnered employees (with the exception of supplemental life insurance, which it provides only to opposite-sex spouses), says partner Suzanne Scrutton, a 13-year Vorys veteran who spearheads the firm's LGBT efforts. Vorys believes talented workers "want to be a part of an organization that is forward-thinking and embraces diversity," she says. "I have had recruits ask us specific questions about that and whether we offer it and that, along with the emphasis on diversity, according to them, is one of the reasons why they chose Vorys to start their career-and hopefully they're here for a long time."
Ginther expresses a similar sentiment. Traditionally, he says, private-sector jobs pay better than public-sector ones, but public-sector employment has provided superior benefits. By not offering domestic partner benefits when others do, "We are putting ourselves at a huge competitive disadvantage," he says. Though extending domestic partner benefits to Columbus's gay and straight employees may cost the city as much as $1 million, "I don't think we can afford not to do this," says Ginther. "The best and the brightest have lots of other options, and we don't want the best and the brightest to feel that they cannot afford to work for and serve the city of Columbus."
Then there's the issue of fair play. "Our employees work hard, they do the right thing, and they deserve this, whether they're gay or straight." Ginther says. "We're simply doing right by the people who serve us every day."
And it's not just employees who are paying attention to a business's domestic partner policy. Karla Rothan, executive director of Stonewall Columbus, a nonprofit serving Central Ohio's LGBT population, says partnership benefits make a business attractive for consumers, too. "We're often double-income, no kids. We create commerce [and] are loyal to businesses that are nondiscriminatory," she says. Scrutton says Vorys' diversity efforts make a difference to clients. The firm earned an 80 in HRC's index, and "I know that many of our clients are on the list, and it's nice that we're on there together."
Affordability no doubt drives employers' interest, too. ODI Director Mary Jo Hudson cites the Williams Institute: "Its figures show that enrollment increases 0.1 percent to 0.3 percent for domestic partner benefits that just cover same-sex partners. For different-sex partner benefits, it usually rises about 1.3 to 1.8 percent. Costs usually rise at about the same percentage for those mixes." Hudson-an openly gay cabinet member and longtime advocate of LGBT equality- says the relatively low number of people choosing to take up coverage could be due to several reasons. "Some folks don't want to be ‘out' at work," she says. "Both partners may be working, so if they're fortunate enough to have coverage, they'll usually sign up independently. But often, I think, the issue is just the tax issue."
The issue, put plainly, is this: In nearly all cases, the feds consider employer-provided health coverage for domestic partners to be taxable income. By contrast, employer-provided health coverage for different-sex spouses is not considered taxable income. The policy impacts both employees and employers: An employee who opts for domestic partner coverage pays more in income tax than he would if he were married because he is assessed for the fair market value (FMV) of the coverage; meanwhile, employers who offer domestic partner benefits have to calculate taxes separately and pay additional payroll taxes.
For many workers, taxes have made access to domestic partnership benefits prohibitively expensive. A 2007 report from the Williams Institute and the Center for American Progress, a public policy research and advocacy organization in Washington, D.C., found employees with partners paid on average $1,069 per year more in taxes than would a married couple with the same coverage. Furthermore, U.S. employers pay $57 million yearly in additional payroll taxes because of the unequal tax treatment, according to the report.
The 2009 Tax Equity for Health Plan Beneficiaries Act was intended to put an end to the disparity; provisions of the bill were included in the U.S. House-approved health reform bill, but were excised before reconciliation.
Hudson calls the removal of the tax equity provision "unfortunate. Because at the end of the day, it doesn't cost the government anything except for a bit of tax revenue that they're not going to see anyway, because people are not going to take up coverage. So really, I think we all lose twice: We lose primarily because we have fewer people covered for health care. And there are national studies that indicate we all pay extra on our health insurance because there are people who don't have health insurance and still require treatment."
HRC has vowed to continue with the effort to change the federal tax law with regard to family benefits. It's aided in its work by the Business Coalition for Benefits Tax Equity, a group representing major U.S. employers that support treating health insurance benefits for domestic partners the same as those for federally recognized spouses and dependents. Cardinal Health, Nationwide and JPMorgan Chase are among the coalition's members.
According to HRC, eliminating the tax on domestic partner benefits would not just relieve employers of the payroll taxes they pay on same- and opposite-sex partner benefits, but also the administrative headache of calculating FMV, updating human resources information systems to account for the different tax treatment among employees and revamping other HR systems to assess taxes on other monetary benefits. McConnell is optimistic that change to the tax structure is on its way. "I think there might be enough push now to make it happen," he says. "Because it really just comes down to basic equality. To treating everybody like you would normally treat them."
Should reform pass, "I would absolutely participate fully," says King, the Cardinal Health employee. "That just levels the playing field, and it decreases the disparity between the straight and the GLBT community here at Cardinal Health. That's one thing that frustrated me as I was getting information about it: You really do almost have to pay for identifying as GLBT and participating in the benefits program. The monetary impact is just frustrating."
In lieu of a change to the federal tax code, a handful of employers have turned to "grossing-up" an employee's salary to account for the tax burden. In a nutshell, under such circumstances, a business will gross-up (or "true-up") an employee's salary for the value of the insurance provided to the domestic partner, thus increasing the employee's gross wages, but keeping take-home pay the same. As of March, HRC reported that three for-profit businesses (Cisco Systems is the best-known among them) and one nonprofit family foundation had implemented grossing-up as a standard for employees enrolled in domestic partner benefits.
Grossing-up could be an effective means for businesses to recruit LGBT talent, says King. "It would be a way to be a leader in the area, to offer that to employees," she adds.
Others at Cardinal Health are less enthusiastic about the concept. Truing-up "is just shifting the burden to the company," McConnell says. "To me, that's not the right answer. To me, the right answer is to go and fix the tax problem." Moreover, he says, as an LGBT person, "It would feel like we were getting pulled out as a group that gets better [treatment] than everybody else, and that's not what we're after."
Hope, Challenges on the Horizon
All hope is not lost for those who would like to see domestic partner coverage easier and less expensive. The state budget enacted last year included a number of reforms that were intended to improve access to coverage; among them was a change to the tax structure that extended favorable tax treatment for the coverage of "qualifying relatives." Qualifying relatives include children, siblings, parents and "an individual other than a spouse who, for the taxable year of the taxpayer, has the same principal place of abode as the taxpayer and is a member of the household, which may include a domestic partner," according to an ODI fact sheet released in October.
"It improves the take-up rate of coverage if you reduce that tax burden," says Hudson. The state leaves it up to individuals to determine who they're going to cover. "But what the law is saying is, ‘Employer, if you cover somebody, an employee doesn't have to pay extra taxes on that.' " Those changes are expected to help more than 21,000 dependents take up coverage. And, of course, the impact of health-care reform looms large. The establishment of insurance exchanges and marketplaces by 2014 "may change how everybody gets coverage in many ways," says Hudson.
And there is yet another challenge on the domestic partner front, she says. Smaller employers, defined as having 50 or fewer workers, are far less likely than large employers to offer domestic partner coverage, she says. "There actually are not any carriers in the state, any insurance companies, that will offer it to a small group," Hudson says. "There's no legal requirement that they do so." In fact, the only way for small employers to offer the coverage is if they buy a separate policy just for the partner.
"There is demand out there. I've had many small employers ask me, ‘Do you know what company will write an insurance plan for me with domestic benefits?' Unfortunately, I don't have a good answer for them yet," she says.
Jennifer Wray is a staff writer for Columbus C.E.O.
Reprinted from theJune 2010 issue of Columbus C.E.O. Copyright © Columbus C.E.O.