|
 |
Domestic Partner Benefits Navigating the Hidden Costs July 31, 2000 (SmartPros) Health insurance plans are ever-evolving employee benefits where innovation is continually being tested and definitions redefined. A concept in employee coverage currently gaining notoriety is Domestic Partner Benefits. Providing health coverage for a domestic partner is becoming increasingly important to small companies and large corporations alike. It's a valuable incentive to help recruit and retain talent in a thriving workforce where premium benefits are in high demand. Domestic partner coverage would give the same corporate insurance benefits currently offered to an employee's spouse to an individual who is in a committed relationship with an employee. As of May 2000, five state governments and 92 Fortune 500 companies (including such names as IBM and AT&T) were offering domestic partner benefits to their employees. These companies vary, however, in whether they offer benefits to only same-sex domestic partners or to both same- and opposite-sex domestic partners. While the idea of domestic partner benefits has received favorable media attention, it holds hidden costs for both employee and employer that merit careful attention. Many who are drawn to the social appeal of this benefit may not realize the related cost -- both for employee and employer. Employee and Employer Costs A company provides its employees with health insurance that has a 70-30 percent premium payment arrangement. (The company pays 70 percent of the premium and the employee pays the remaining 30 percent.) Costs to employer and employee are displayed below, noting the cost difference for different levels of coverage. (These rates assume 26 pay periods per year.)
*plus tax incurred on the employer cost difference of $35 monthly
**plus tax incurred on the employer cost difference of $910 annually In this example the employer pays $910 more per year to insure an employee's spouse. When the domestic partner is not a spouse, Section 152 requires the employee to assume the tax burden of the difference paid by their employer to insure the domestic partner. In the scenario above, the employee is thus required to pay annual income taxes on an additional $910.
This tax burden can be prevented, however, if the employee provides more than half of the living expenses for his/her domestic partner. It can also be avoided if the employer is willing to supplement the employee's income for this incurred tax liability.
Employer costs are still being debated. Introducing a new class of covered beneficiaries such as domestic partners will naturally result in increased claims as these new beneficiaries start to utilize the health insurance policy. A University of Iowa study concluded that adverse selection is not a problem, and neither is exorbitant AIDS/HIV-related health care expenses. The study, however, primarily considered AIDS/HIV-related costs, while giving less priority to other issues such as the cost of mental health treatment, for example. Moreover, the impact of the Health Insurance Portability and Accountability Act (HIPAA) on pre-existing conditions exclusions may mean that the true claims costs are higher than what was originally estimated. At the very least, employers ought to expect an initial increase in claims that should, hopefully, level off in time.
Philosophical Expenses
Other costs of domestic partner benefits are philosophical in nature. Activists insist that people in domestic partnerships are committed to long-term relationships, just as in traditional marriage, but that is not always the case. The fact that a domestic partnership is fluid -- easy to go into and just as easy to get out of -- is appealing to those who are hesitant about long-term obligations. Domestic partnerships seem ideal for those who want the companionship of marriage without the legal hassles. For those utilizing the domestic partner relationship for its freedom and fluidity, the light nature of their commitment goes out the window with domestic partner health insurance coverage. There is a loss of personal freedom that comes with the acceptance of this benefit; and those accepting domestic partner coverage should understand the long-term and possibly adverse impact that this benefit could have. Employers are not good-natured fools. They are probably not going to take on the administrative chores of this benefit without some proof that a committed relationship exists -- and that it has not been established solely for the purpose of acquiring corporate benefits. Such proof may take the form of written statements that could later be admissible evidence in litigation involving ownership or compensation.
Domestic partner benefits also go straight to the heart of a corporation's benefits philosophy. It's always been accepted as the norm for an employee to pay for his/her fair share of a health premium and co-pay. The company typically pays the major portion of the premium and other expenses in recognition of the faithful service an employee provides. The tax liability of a domestic partner benefit, however, requires the employee who receives this coverage to pay significantly higher income tax than another employee receiving identical coverage for a legal spouse. This imposed tax liability for an employee benefit is arguably unfair and a company considering offering domestic partner benefits ought to evaluate its benefits philosophy to determine whether or not an employee should be asked to shoulder a tax liability in addition to normal employee contributions and expenses.
Domestic Partner Benefits and Customer Service
There's no such thing as a free lunch -- or a totally cost-free employee benefit. Unfortunately, emotions often hide the costs and business considerations of domestic partner benefits. Insurance professionals need not take moral or political sides on this issue. They must, however, advise any corporate client of possible future cost implications. By carefully reviewing the potential costs and legal considerations, an insurance company can help its corporate client reasonably determine the feasibility of such a benefit. If the client decides to offer domestic partner benefits, the insurer should suggest optimal means of implementation and suggest incremental means by which the client can adequately prepare for additional expenses, which may include administrative modifications such as increases in benefits reserves or adjustments to stop-loss coverage. Assistance should also be provided in devising an employee communications campaign that includes defining employee tax liability, statements of proof and other factors that are often ignored in the sea of rhetoric surrounding this benefit. By providing as much objective information as possible on the costs of domestic partner benefits, insurance companies can make certain that any final decision regarding this benefit is in the best interests of the employees and the employer, and not simply a headline-grabbing media event.
Please send your comments, questions and article proposals to insurancestudenteditor@pro2net.com. 2000, Smartpros Ltd. All Rights Reserved. |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
