Monday, June 29, 2015

An add-on health benefit for same-sex couples who marry

Jay Hancock of Kaiser Health News notes that the Supreme Court decision granting same-sex couples the right to marry in any state is likely to boost employer coverage of same-sex couples:
The logic is simple. Fewer than half of employers that offer health benefits make the insurance available to same-sex partners who aren’t married. Virtually all of them offer coverage to spouses.

By marrying partners with employer health plans, people in same-sex relationships are likely to get coverage in states that banned gay marriage until now, as well as in those that welcomed it. Thanks to rapidly shifting legal ground, 37 states recognized gay marriage before last week’s ruling, up from nine in 2012.
Footnote: as-yet-unmarried gay employees whose employers do currently offer health insurance to partners will, if they marry, be able to get that coverage on a tax-free basis.

Most Americans get their health insurance from employers in large part because the cost of insurance is tax-free both to the employee and the employer. That is not true for insurance offered to a civil union partner or other domestic partner. (A gay friend of mine complained bitterly about this to me years ago, He and his spouse gained this exemption when New Jersey legalized same-sex marriage in fall 2013, at which point they added a civil marriage to their prior church one.)

Gay couples have actually been able to claim this benefit on a federal level since August 29, 2013, even if their state does not allow or recognize gay marriage, by marrying in a state that does sanction gay marriage.  So have their employers.  On that date, responding to The Supreme Court's striking down of the Defense of Marriage Act two months prior, Treasury and IRS put out a notice spelling this out (my emphasis):
The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage...

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law...

Additionally, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.
Same-sex couples have been able to take advantage of this federal rule for two years by getting married in any state. But of course, many for whom marriage has remained impossible in their own state have not gone out-of-state to marry, and many who have not done so will soon marry at home. Presumably, they will now be treated as married under state as well as federal law.

Hancock points out one ironic consequence: those who have obtained domestic partner coverage may now have to get married to keep it:
Weirdly, a constitutional right to same-sex marriage may harm some same-sex couples: those with domestic-partner benefits who don’t want to get married.

Last year Verizon told same-sex partners in states where gay marriage is legal they had to wed if they wanted to qualify for benefits. Now that the high court has placed same-sex and opposite-sex marriage on the same level, other companies are likely to follow, say benefits specialists.
Another potential negative financial side effect of the Obergefell decision lurks for unmarried same-sex couples who don't have access to employer insurance, if both are wage earners or have other incomes. If they marry, their household incomes will be combined for the purposes of determining subsidy eligibility in the ACA marketplaces. In 2015, the Federal Poverty Level (FPL) is $11,770 for a single person and $15,930 for a household of two.  Marketplace subsidies and Medicaid eligibility are determined according to the percentage of FPL that a household's income comprises. Benefits are much richer under 200% FPL and phase out entirely at 400% FPL.  Of course, that's just one aspect of the marriage penalty, which all married couples must take into account.

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