Supreme Court Rules on Same-Sex Marriage

In Obergefell v. Hodges, the Supreme Court ruled that the Fourteenth Amendment requires a state to license a marriage between two people of the same sex and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out of state.

The Supreme Court decision does not address employer group health plans. Up until now, ERISA permitted employers to define eligibility in the SPD. Title VII of the federal Civil Rights Act prohibits employment discrimination based on sex. The EEOC has interpreted that law to prohibit discrimination in the terms or conditions of an individual’s employment based on sexual orientation. Many expect the EEOC to take the position that an employer group health plan that covers opposite-sex spouses but not same-sex spouses violates Title VII. Based on Obergefell v. Hodges, the lower courts may affirm such an allegation. If so, employers will need to amend their plans to cover same-sex spouses, but probably not immediately. The EEOC’s position is not yet tested by the courts, but will more than likely be followed. The EEOC may issue guidance, stating that it will not impose violations until the first day of the plan’s next plan year. That is, an employer could wait until the effective date following the next open enrollment period to remove the exclusion on same-sex spouses, but should be prepared to add coverage sooner if the EEOC takes an aggressive stance.

If the plan covers legally married spouses, that would include a same-sex spouse married in any state or jurisdiction recognizing same-sex marriage (which now includes all 50 states). If an employer does not want to cover same-sex spouses, any legally married spouse definition does not work; it would need to affirmatively exclude spouses of the same sex. But this strategy will probably not be legally permissible for long.

Tax-exempt employers or privately held businesses with religious objections could assert the right to not implement such a rule using the same arguments as Hobby Lobby.

Many employers, particularly those based in states like Michigan that did not recognize same-sex marriage, had offered domestic-partner (DP) benefits just to same-sex DPs, reasoning that the couple could not get married. After Obergefell v. Hodges, that rationale is null. Further, it may actually be discriminatory to offer DP coverage only to same-sex DPs. In other words, employers may need to offer DP coverage to both same-sex and opposite-sex DPs or not offer the coverage at all. The timing is unclear, but employers could phase out DP coverage as of the end of the current plan year. Another, less desirable, option is to grandfather the current DPs for coverage. Adverse tax consequences for DP coverage where the DP is not the employee’s tax dependent continue unchanged. Spousal health coverage can be provided tax free, but DP coverage is generally taxable.

If an employer amends its health and flex plans to cover same-sex spouses when it previously did not, the employer could offer a special midyear enrollment opportunity (e.g., for the employee to add the spouse as a dependent under the medical, dental, and vision benefits and perhaps to increase his/her medical FSA annual election as the result of a newly eligible dependent). Alternatively, the employer could amend its plan to not permit midyear additions and not allow changes until the first day of the next plan year.

If you have questions, call ASR Health Benefits at (616) 957-1751 or (800) 968-2449.