The Impact of the Obergefell Decision on Employer Health and Welfare Benefits
The U.S. Supreme Court recently ruled in Obergefell v. Hodges that states must recognize the right of same-sex couples to marry and must also recognize any same-sex marriage legally performed in other states. As a result of this decision, employers should review their current health and welfare benefit programs to determine if any action must be taken to maintain compliance with current laws.
Obergefell holds that states violate the 14th Amendment to the United States Constitution by not recognizing same-sex marriage. This same reasoning applies to state and municipal government sponsored employee benefit plans. Therefore, in light of this ruling, governmental plans that provide spousal coverage are required to cover same-sex spouses the same as opposite-sex spouses.
Recommendations: Governmental plans should review health and welfare benefits to ensure that any spousal benefits are also extended to same-sex spouses. If spousal benefits are not currently extended to same-sex spouses, employers should work with applicable insurers or administrators to implement an open-enrollment window to allow participants to add same-sex spouses with the effective date being the later of (i) June 26, 2015 (the date of the ruling) or (ii) the date of the marriage.
Private Plans – Insured
Insured plans of private employers are subject to the state's insurance regulations in the state where the plan sponsor is situated. Historically, if the plan sponsor is situated in a state that recognized same-sex marriage, then insured plans issued in that state covered same-sex spouses on the same terms as opposite-sex spouses. However, if the state did not recognize same-sex marriage, the insurance codes did not mandate same-sex spousal coverage, although many insurers issued riders to those employers who wished to cover same-sex spouses. Given that the Obergefell decision now requires all states to recognize same-sex marriages, it is likely that we will see revised guidance and/or regulations in those states that did not previously recognize the marriage of same-sex couples that mandates coverage for same-sex spouses going forward. In addition, employers who provide benefits to opposite-sex spouses, but refuse to provide the same benefits for same-sex spouses, could face potential legal challenges under Title VII and/or state discrimination laws (see discussion below).
Recommendations: Employers with insured plans should contact their insurance carriers to determine next steps. Many insurers have already issued notices opening up a limited period of enrollment in which participants can enroll same-sex spouses with the date being retroactive to the date of the Obergefell ruling (June 26, 2015) or the date of marriage, whichever is later.
Private Plans – Self-Funded
Self-funded private employer plans are governed by the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and state insurance regulations are generally preempted. ERISA does not define "spouse" or otherwise mandate who must be covered under self-funded plans. Furthermore, the Obergefell decision does not mandate that self-funded ERISA plans extend benefits to same-sex spouses. With that said, private employers who refuse to extend benefits to same-sex spouses on the same terms as the plan provides coverage to opposite-sex spouses by claiming ERISA preemption could face litigation alleging sex discrimination. Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination with respect to compensation, terms, conditions or privileges of employment because of race, color, religion, sex or national origin, applies to employer-provided benefits. The Equal Employment Opportunity Commission ("EEOC") recently announced that lesbian, gay, bisexual and transgendered individuals may bring valid sex discrimination in employment claims under Title VII. While this may not be supported by the language in Title VII, employers who ignore this issue run the risk of having to defend an EEOC charge of discrimination and a possible litigation claim brought by the employee or the EEOC. Also, employers must consider whether state civil rights laws may protect same sex spouses. Plans that provide benefits for opposite-sex couples, but exclude benefits for same-sex couples, will be at increased risk for legal challenges on these grounds.
Recommendations: Private employers sponsoring self-funded ERISA governed plans should review their plan documents and policies to determine whether same-sex spouses are afforded coverage under the plan on the same terms as opposite -sex spouses. In the event they are not, while ERISA does not mandate same-sex spousal coverage, private employers should strongly consider amending their plans to include same-sex spouses or they risk potential discrimination claims under Title VII. Employers should notify employees of their intent to extend coverage to same-sex spouses and open up a designated enrollment window in which employees can enroll their same-sex spouse in the plan with the effective date being June 26, 2015 or the date of the marriage, whichever is later.
Other issues to consider:
- Imputed Income: As a result of the Obergefell ruling, employers will no longer be required to impute state income tax for benefits provided to same-sex spouses. (The 2013 Supreme Court's decision in United States v. Windsor resulted in same sex spousal benefits no longer being treated as imputed income for federal tax purposes.) As of the date of this alert, the following states have issued new guidance on the taxation of same-sex spousal benefits post-Obergefell: Alabama, Georgia, Kentucky, Louisiana, Michigan, Nebraska, North Dakota, and Ohio.
- Domestic Partners: The Obergefell decision only applies to legally married same sex couples, not to domestic partners. Furthermore, employers who provide domestic partner benefits may want to reevaluate their benefit plans to determine if they want to continue to provide domestic partner benefit coverage now that same-sex marriage is legal in all states.
- Proof of Marriage: Employers should review their administrative policies to ensure that if the employer is going to require proof of marriage (e.g. marriage certificate) for same-sex spouses, that its policy also requires the same level of proof for opposite-sex spouses.
In light of the Obergefell decision, some of the steps employers should take with respect to their health and welfare benefits include:
- Review health and welfare policies to determine what changes, if any, are required.
- Determine the effective date of any changes.
- Implement a special enrollment period, if necessary.
- Formally amend plan documents and update Summary Plan Descriptions ("SPDs") and other plan summaries or materials.
- Develop an employee communications strategy.
- Work with insurers and/or third party administrators for any design changes.
- Work with payroll vendor to stop imputation of income.
We will likely see additional guidance issued by both the state and federal governments on this issue and the impact on employer benefit plans. It is imperative that employers and plan sponsors work closely with their legal counsel to stay abreast of future changes and guidance to ensure their health and welfare plans are compliant with the current laws.
If you have any questions regarding the impact of the same-sex marriage ruling on your employee benefits plans, please contact Kristi Gauthier at email@example.com or (480) 684-1300; Ed Hammond at firstname.lastname@example.org or (248) 988-1821; Nancy Farnam at email@example.com or (248) 530-6333; or Doug Ellis at firstname.lastname@example.org or (412) 394-2367; or another member of Clark Hill's Labor and Employment Practice Group.
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