Examining Windsor’s Impact On Health and Life Insurance

In a previous post, found here, we discussed the landmark Supreme Court ruling in Windsor and its impact on qualified retirement plans.   However, the impact of the Windsor is not limited to qualified retirement plans, but applies to a wide variety of benefits packages, including employer-sponsored health and life insurance.

Windsor’s impact on employer-sponsored insurance will vary from state to state. For employers sponsoring insured health plans issued in a state that does not recognize same-sex marriage, the decision of whether to offer coverage to same-sex spouses will be at the employer’s discretion. However, if an employer-sponsored health plan is issued in a state that does recognize same-sex marriage, the employer will be required to offer coverage to the same-sex spouse of an employee.

In regards to employer-sponsored life insurance policies, the rules are much the same. If a life insurance plan is provided by a carrier subject to the laws of a state which does not recognize same-sex marriage, it is unlikely that any language designating an employee’s “spouse” as the beneficiary will be interpreted to include a same-sex spouse. However, in states recognizing same-sex marriage, it is likely that such language will be interpreted to include same-sex spouses.

Self-funded health plans, unlike insured plans, are generally subject to ERISA. Self-funded ERISA plan sponsors generally have broad discretion to determine the classes of individuals who are eligible for benefits under the plan. This general rule was recently confirmed by the recent decision in Roe v. Empire Blue Cross Blue Shield in which the court held that it is allowable for an ERISA plan to provide coverage to opposite-sex couples and not same-sex couples. The court explained that this is because the employer has autonomy to define “spouse” as it sees fit.

The Windsor ruling also had a large impact on the taxing of benefits provided to same-sex spouses. Prior to this decision, any employer-sponsored health insurance benefits provided under a plan to a same-sex spouse were required to be imputed to the employee as taxable income. Post-Windsor, this is not the case. While the value of benefits provided to same-sex spouses under such plans may still be subject to state income taxes, depending on the state’s stance on same-sex marriage, the Windsor ruling does not allow these benefits to be subject to any federal income taxes.  Additionally, prior to Windsor, life-insurance policies for same-sex couples were not allowed to use the estate tax marital deduction. This meant that same-sex couples were often subject to estate taxes that opposite-sex couples were not. This is no longer the case, and same-sex couples now qualify for the federal estate tax marital deduction, aiding them in avoiding a burdensome federal tax on life insurance benefits.

In response to the Windsor decision, employers should review their policies concerning these plans for compliance with state and federal laws. Employers whose policies do not cover same-sex spouses, in states where same-sex marriage is not recognized, should also be sure to consider all relevant nondiscrimination laws before coming to a final decision concerning whether or not to modify their policies to offer same-sex coverage.

About Jim Hamilton

I am an employee benefits partner with Bose McKinney & Evans LLP. My broad-based practice covers health and welfare arrangements, insurance, executive compensation and federal and state taxation. Among other areas, I have specific experience with PPACA, HIPAA, COBRA, ERISA and numerous other state and federal laws affecting employee benefit plans.
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