• Same-Sex Marriage and the Affordable Care Act: the Supreme Court’s Recent Decisions Require Employers to Review Employee Benefit Plan Offerings.
  • July 16, 2015 | Author: Gabriel S. Marinaro
  • Law Firm: Smith Haughey Rice & Roegge, P.C. - Ann Arbor Office
  • The two recent Supreme Court decisions in Obergefell v. Hodges and King v. Burwell will require employers to review their employee benefit plans and consider whether any changes need to be made in light of these decisions. This client alert briefly summarizes these rulings and key takeaways for employers in administering their employee benefit plans.

    Summary of the Holdings:

    In a five-to-four decision in Obergefell v. Hodges, the Supreme Court held that same sex couples have a constitutional right to marry, thereby requiring all states to allow same-sex marriages and recognize same-sex marriages performed in other states.

    In a six-to-three decision in King v. Burwell, the Supreme Court held that premium tax credits used for purposes of making health coverage more affordable are available to eligible individuals regardless of whether they purchase health coverage through the federally-facilitated health care exchanges or state-run exchanges.

    Employee Benefits Considerations after Obergefell v. Hodges

    The Supreme Court’s decision in Obergefell v. Hodges will not have a dramatic impact on employee benefit plans. The main reason for this is that employers were already required to make changes to their retirement and certain health and welfare benefits to align with the Supreme Court’s 2013 decision in U.S. v. Windsor. The decision in Windsor and the subsequent IRS and DOL guidance required retirement plans and cafeteria plans (including flexible spending accounts) to reflect the federal law’s recognition of same-sex marriages under a “place of celebration” standard. The place of celebration standard requires that, for federal purposes, certain employee benefit plans must recognize same-sex spouses if the marriage was performed in a jurisdiction recognizing same-sex marriage, regardless of where the couple is domiciled.

    Although the Windsor decision and the subsequent IRS and DOL guidance addressed the federal law considerations for certain employee benefit plans, state laws still impacted the state tax treatment and coverage of same-sex spouses. For employers operating in states that did not recognize same-sex marriage, including Michigan, employers had to deal with different tax consequences under state law and federal law in connection with their employee benefit plans. After Obergefell, employers will have a more simplified tax compliance regime, with both state and federal tax laws now the same regarding same-sex spouses. Furthermore, employers with fully insured group health plans in states that previously banned same-sex marriage will need to immediately review their plans and contact their insurance carriers to determine what steps need to be taken to permit same-sex spousal coverage now that state insurance laws can no longer permit coverage for “spouse” to only include opposite-sex spouses.

    It’s unclear whether sponsors of self-insured group health plans subject to ERISA are required to extend coverage to same-sex spouses. However, a decision not to extend such coverage in the self-insured context may increase an employers exposure to discrimination lawsuits where the plan’s definition of “spouse” is contrary to federal and (now) state law. Employers may also be considering whether to continue offering domestic partner coverage in light of the Obergefell decision. Employers often offered domestic partner coverage as a mechanism to offer coverage to same-sex partners when a state did not recognize same-sex
    marriage.

    Health and Welfare Benefit Plan Considerations after King v. Burwell

    The King v. Burwell decision was being closely watched by large employers (i.e. employers with 50 or more full-time employees and full-time equivalents) because of the potential implications regarding a large employer’s exposure to penalties under the Affordable Care Act’s employer mandate. Generally, the employer mandate penalizes certain large employers if they do not offer group health coverage to their full-time employees (or such coverage is unaffordable or does not provide minimum value) and a full-time employee enrolls in coverage through the exchange and is eligible to receive a premium tax credit. If the Supreme Court invalidated premium tax credits for employees enrolled on federally-facilitated exchanges, this would not only have had a serious impact on the continued viability of federally-facilitated health care exchanges, but it would have also potentially impacted large employers subject to the employer mandate because employees who elected coverage through a federally-facilitated exchange would be ineligible for a premium tax credit (which would in turn have exempted such an employer from the penalties under the employer mandate).

    With the Supreme Court ruling that the premium tax credit is available to individuals enrolling in coverage offered through either a federally-facilitated health care exchange or a state-based exchange, large employers must continue their efforts to comply with the many employer-related ACA items in 2015 and 2016, including:
    • Tracking and determining full-time status for employees with variable hours;
    •  Reviewing group health plan offerings and costs to determine affordability and whether the coverage meets minimum value requirements;
    • Drafting employee communications to describe design changes, including implementation of any measurement methods;
    • Preparing for and building systems to compile information needed for the new ACA reporting requirements under Code Sections 6055 and 6056.