Domestic Partnerships and Health Insurance Benefits

I wrote earlier about the importance of registering a domestic partnership in a locality that permits one.  Today I will discuss how these registries impact the ability of a domestic partner to obtain health insurance through the partner's employer when available, and how New York law distinguishes between the rights of spouses and the rights of domestic partners with respect to health insurance benefits.

According to findings by the office of Senator Chuck Schumer (D-NY), more than half of Fortune 500 companies now offer health benefits to registered domestic partners.  These employers either accept documentation from domestic partner registries, or they have their own domestic partnership affidavit, such as this example.  Generally these affidavits must be notarized, and the affiant must swear that he or she has not entered into another domestic partnership agreement in the past six months.   If a domestic partnership was previously filed with another partner, then an Affidavit of  Domestic Partnership Termination, such as this one for New York City, must be filed.  The individual must then wait six months before filling out an new domestic partnership affidavit with the new partner.

Even though a domestic partner may be able to obtain health insurance through the partner's company, New York distinguishes between the rights of married spouses and the rights of domestic partners in at least two ways.  I will focus today on regulations regarding small businesses, and the rules concerning the exclusions of these health benefits from taxable income.

New York draws an important distintion between insurance coverage for a small business of between 2 and 50 employees and coverage for the domestic partners of these employees.  The 1992 health insurance reform laws, 1992 N.Y. Laws 501, stipulate that no group of between 2-50 employees can be denied health coverage by an insurer (New York Insurance Law § 4317(a) ).  But according to the Office of General Counsel of the New York State Insurance Department in its informal opinion of March 22, 2005, " an insurer may choose not to provide domestic partner benefits to an employer-employee group with less than 50 employees."  This is because New York Insurance Law § 4305(c)(1) (McKinney 2000 and 2005 Supplement) provides that "(A)ny such contract may provide that benefits will be furnished to a member of a covered group, for himself, his spouse, his child or children, or other persons chiefly dependent upon him for support and maintenance... (italics my own)."  "Dependent" has been interpreted to include domestic partnerships. 

However, if an insurer provides domestic partner benefits for one small group, then it must provide these benefits for all small groups that it insures (N.Y. Comp. Codes R. & Regs, tit. 11, § 360.3 (1998)).  Also, unlike a spouse, should the employee experience a job loss for any "qualifying event," such as a reduction in force, retirement or death, the domestic partner is not eligible under COBRA for continuing health insurance unless the employer voluntarily provides such coverage and that the insurance carrier underwriting the plan permits the coverage.

As to taxation of these employer health benefits for the domestic partner, the Defense of Marriage Act (1996) prohibits the treatment of domestic partnerships on the same footing as spouses for the purpose of federal income tax, regardless of state law.  Spouses are exempts from the taxation on benefits on the federal and state levels.  However, benefits for domestic partners are considered taxable income.  Depending upon the employer and the plan, the employed partner may have to purchase the benefit for the domestic partner with after-tax dollars instead of the pre-tax payroll deduction available to spouses, thus increasing the tax burden.

There have been attempts at rectifying these inequities.  On 21 May 2009, Senator Chuck Schumer introduced the Tax Equity for Health Plan Beneficiaries Act of 2009.  Representative James McDermott (D-WA) introduced the companion bill H.R. 2625 in the House of representatives.  Both bills were incorporated into the Affordable Health Care for America Act (or HR 3962) of 2009.  Eventually, this reform bill was abandoned by the House in favor of amending the Senate's alternative health care bill through the reconciliation process.  The result was Health Care and Education Reconciliation Act of 2010 signed into law on 30 March 2010 by President Obama, a week after the President signed into law the Patient Protection and Affordable Care Act. 

The proposed Schumer legislation would have amended the Internal Revenue Code to:

(1) exclude from an employee's gross income employer-provided accident and health plan benefits extended to a domestic partner or non-dependent, non-spouse beneficiary eligible to receive such benefits under an employer plan (i.e., "eligible beneficiary");

(2) exempt such benefits paid to eligible beneficiaries from applicable employment and unemployment taxes;

(3) allow self-employed individuals a tax deduction for the health insurance costs of their eligible beneficiaries;

(4) allow tax-exempt volutary employee's beneficiary associations to provide sick and accident benefits to the domestic partners and non-dependent, non-spouse beneficiaries of their members; and

(5) allow reimbursement of the medical expenses of an eligible beneficiary from a health savings account (HSA). Directs the Secretary of the Treasury to provide guidance relating to reimbursements from a flexible spending arrangement and a health reimbursement arrangement attributable to an eligible beneficiary as defined by this Act.

It remains to be seen what the effects, if any, of the new federal health care reform will be on the health insurance benefits of domestic partners.

I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.