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How ban on gay marriage hits health insurance

The federal Defense of Marriage Act, or DOMA, now being reviewed by the U.S. Supreme Court, prevents gay couples from enjoying many of the same health insurance benefits as their straight counterparts. Benefits experts say overturning the 1996 law that defines marriage as the union of one man and one woman could bring conclusion for some and confusion for others joined in same-sex unions.

Because DOMA denies them marital status under federal law, same-sex couples face multiple disparities in health insurance that cost an average $1,069 per year in additional taxes, according to a 2007 study by the Center for American Progress and the Williams Institute.

Take a couple we'll call Lori and Dawn, for example.

  • Any benefits Dawn receives under Lori's employer-sponsored health plan are treated as income for Lori and are subject to federal income tax. Lori's employer also is taxed on this amount, in the form of higher payroll taxes.

  • Lori can't use pretax dollars to pay for Dawn's coverage.

  • If Lori has a flexible spending account (FSA), health reimbursement arrangement (HRA) or health savings account (HSA), Dawn is ineligible for tax-free reimbursement for medical expenses unless she qualifies under Internal Revenue Service rules as a health care dependent.

Some federal benefits denied under DOMA

The increased tax hit might be considered the good news, because many federal insurance protections and benefits are completely off limits because of DOMA.

After Dawn and Lori wed, for example, Dawn must wait until the next open enrollment period to be added to Lori's health plan at work; a new opposite-sex spouse may be added immediately, under the Health Insurance Portability and Accountability Act, or HIPAA. If Lori leaves her job, her former employer can deny Dawn access to continued health coverage provided through the federal Consolidated Omnibus Budget Reconciliation Act, or COBRA.

Also due to DOMA, partners and spouses of federal employees cannot receive coverage via the Federal Employees Health Benefits program for civilians or the Tricare program for military personnel.

Plus, same-sex couples can be denied spousal coverage under Medicare and Medicaid. DOMA's impact on these "safety net" programs also can result in unexpected penalties, such as a lifetime of increased Medicare premiums for failing to enroll at age 65 in the program's medical insurance plan. A person in a traditional marriage can put off enrollment -- and paying the premiums -- if covered by a spouse's employer-sponsored health insurance.

Critics maintain that all the extra money paid by same-sex spouses would be better spent on long-term care insurance, to keep the couples from turning to Medicaid for long-term care needs.

State same-sex marriage laws sow confusion

Though DOMA is a federal law, its sting is perhaps harshest at the state level. The legal recognition of same-sex unions in 12 states and the District of Columbia has created a state-by-state crazy-quilt of overlapping definitions of what is permitted and prohibited based on gender, marital status and jurisdiction.

"There are a lot of complications that exist primarily because of the bifurcation of state and federal laws," says Michael Babikian, president and CEO of insurance seller Transamerica Brokerage in Los Angeles. "In fact, even the Internal Revenue Code is inconsistent; there are places where it is 'spouse' and other places where it is 'husband and wife.'"

Todd Sandstrom, a plan design specialist with Longfellow Benefits, a Boston-based employee benefits firm, says in Massachusetts and other states that recognize same-sex marriage, DOMA essentially creates two classes of workers.

"Employers here have the opportunity to offer health coverage, but if they wish to not offer same-sex benefits, they always have DOMA to back them up," he explains. "But anyone in Massachusetts who works for a federal or federally subsidized employer will never have the opportunity to offer their partner employer health benefits if DOMA stands."

States say 'I do' to marriage differently

While Sandstrom estimates that most Massachusetts employers do offer health benefits to same-sex partners -- "It's good leverage to obtain and retain valuable employees," he says -- the issue is far more complicated in other states.

"The states that presently accept gay marriage are all different," he says, explaining that some, but not all, extend marriage rights to same-sex couples joined in civil unions or another alternative, domestic partnerships.

Given the current confusing legal landscape, economics professor M.V. Lee Badgett, director of the Center for Public Policy and Administration at the University of Massachusetts Amherst, says health insurers and major employers alike should welcome an end to DOMA.

Badgett points out that members of the Business Coalition for DOMA Repeal, an offshoot of the same-sex advocacy group the Human Rights Campaign, include insurers such as Aetna, Massachusetts Mutual and Prudential Financial and major employers such as Alcoa, Bristol-Myers Squibb and Marriott.

"They don't like the uncertainty of having different state laws to address," she says.

The big questions

If DOMA stands, "Things stay roughly the way they are" from a benefits perspective, says Sandstrom.

But if DOMA falls?

"While it will make things easier in (Washington, D.C., and) the states that recognize same-sex marriage, it may create more confusion for people in civil union and partnership states because: 1. They're not married; and 2. The feds aren't going to recognize them either way," says Badgett.

"If they get married in a same-sex state and go back home, even though their employer might not recognize their marriage, will the federal government? Federal agencies and the Department of Justice will still have to figure out what to do about civil unions."

Sandstrom agrees: "It's going to take months and months to sort out all of this and get people on the same page. It could take a decade for the word 'spouse' to mean the same thing everywhere. It's going to take a very, very long time."

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