Many employers offer group health plan coverage to domestic partners of their eligible employees. This extension of coverage is purely voluntary and not legally required, either presently or even next year under the mandates facing large employers under the Affordable Care Act (“ACA”). However, for a variety of reasons related to employee morale, recruiting and retention efforts, it is increasingly common to see plan eligibility provisions extend to either same-sex spouses, and/or to unmarried same-sex or opposite-sex partners of eligible employees. The definitions of eligible domestic partners vary from employer to employer, as do the required types of substantiation required to evidence the committed or financially interdependent nature of the relationship.

If extension of domestic partner coverage is desired by an employer, the governing plan documents must be reviewed. Those plans’ eligibility provisions should be revised, and sufficiently-detailed administrative provisions related to any newly required procedures must be added (i.e., required completion of affidavits related to domestic partnership status). Also, various tax issues must be addressed.

In general, in light of the federal Defense of Marriage Act (“DOMA”), which defines a “spouse” as only a person of the opposite sex who is a husband or a wife, the Internal Revenue Code (“Code”) does not currently offer tax advantages to same-sex spouses who participate in employers’ health plan. Currently, unless a domestic partner happens to qualify as a tax dependent of the employee under the Code, the employee must be taxed on the fair market value of the health coverage that has been obtained on behalf of that domestic partner. Employers therefore have to build tax imputation systems into their health plan administration.

However, the ultimate survival of certain applicable tax-related portions of DOMA is now in question. On March 27, 2013 the U.S. Supreme Court heard oral arguments in United States v. Windsor, and a decision on that case is expected by late June, 2013. If the U.S. Supreme Court holds that certain tax provisions within DOMA are unconstitutional, it would appear that major changes would immediately confront employers offering group health plan coverage to same-sex spouses. Specifically, affected employees with same-sex spouses would be newly eligible for tax-free employer-paid health benefits, and revisions would need to be made to plan documents, tax reporting systems, and plan administration systems. Employers are well advised to closely watch the pending decision in this case.

Beth covered this and other similar topics, within a series of practical, real-world examples of benefits compliance challenges facing employers, at the 18th Annual Akerman Labor & Employment Law Seminar in Hollywood, Florida on April 18, 2013. It was great to see so many employers within the healthcare industry at that seminar.