By M. V. Lee Badgett, Ph.D.

Introduction

From virtually any perspective, the number of companies extending health care benefits to employeesâ domestic partners has skyrocketed over the last decade.Ê In 1990, no Fortune 500 firm offered partner benefits;Ê in 2000, 102 companies, or 20% do so.¹ Ê By one count, 3,572 employers recognize domestic partners for health care benefits.Ê Three cities, San Francisco, Los Angeles, and Seattle, require companies with which they do business to provide equal benefits to spouses and domestic partners.Ê Those programs and the fact that six states² cover their own employeesâ partners show that expanding benefits has become an important public policy concern, as well.Ê But while the expansion of partner benefits suggests an impressive level of change on both the public and private level, clearly the vast majority of the nationâs employees do not yet have access to these benefits.Ê

Employers have recognized domestic partners for many reasons.Ê In some cases, companies cover partners to create fairer compensation packages for gay and lesbian employees.Ê In other cases, employers are acknowledging that employees in unmarried couples face the same work-family life concerns that make benefits important for married employees.Ê Employers also use domestic partner benefits to attract and retain productive workers in a tight labor market.

One of the big stumbling blocks to the adoption of domestic partner benefits, however, is related to employersâ concern about high labor costs from increased benefit spending. ³Ê Aside from wages, health care coverage is one of the biggest sources of labor costs, so that adding more people into a health insurance program would boost employer spending on benefits. ⁴Ê Most of the attention in debates about domestic partner benefits, therefore, is on the health care cost issue.ÊÊ

This report analyzes how much an individual employerâs benefit costs would be likely to increase from providing health care benefits to domestic partners and to partnersâ children. The report also presents a methodology for estimating costs for employers considering domestic partner benefits.Ê This methodology predicts the increase in health care costs for any employer, whether a private sector employer or a government employer.

Evidence from existing plans shows that enrollment rises very little, usually 1% or less and almost always less than 2% when coverage is offered to same-sex and opposite-sex partners.Ê Those partners who sign up do not have higher medical costs than other people already in the plan.Ê Overall, the likely cost increase will be roughly the same size as the increase in enrollment, or around 1% in most cases.Ê

Since a growing number of state and local public policies have begun to require domestic partner benefits for contractors or for public sector employees, a broader perspective on the cost question is desirable.Ê The third section estimatesÊ the cost of a policy requiring all health plans÷public and private÷to cover partners of lesbian and gay employees.Ê Such a policy would increase enrollment by approximately 0.6% and costs by even less.Ê Overall, the evidence shows that offering health care benefits to domestic partners is not a costly proposition for employers.Ê

Estimating the Cost Impact for an Individual Employer

Employers typically move cautiously before extending new benefits to employees, since higher labor costs will hurt a companyâs bottom line.Ê In this case, however, the employer is not adding a new benefit but is simply expanding the number of people eligible for an existing benefit.Ê Therefore the main focus of a cost analysis should be on estimating the added cost from the new people signing up.Ê

To break it down to specifics, the total cost impact will depend on several factors: (1) whether the employer covers both opposite-sex and same-sex partners; (2) how many employees have domestic partners who will sign up for coverage;Ê (3) whether the new enrollees are likely to have higher than average health care costs that will eventually increase premiums for all enrollees; (4) the additional cost of covering those new enrollees; and (5) offsetting cost savings from better retention of employees.Ê

(1)   Covering same-sex partners only or also including opposite-sex partners

One of the biggest factors affecting cost is the employerâs choice of which partners to cover.Ê As the next section will show, fewer employees have same-sex partners than have opposite-sex partners.Ê A recent study found that 65% of employers included both same-sex and opposite-sex partners of employees, and the other 35% covered only same-sex partners.⁵Ê

Covering only same-sex partners addresses a civil rights issue, since gay and lesbian employees are not allowed to marry their partners to make them eligible for spousal coverage, while unmarried heterosexual employees could marry their opposite-sex domestic partners.⁶Ê However, extending benefits to same-sex and opposite-sex partners recognizes the need to treat similar family structures equally, the need to address all employeesâ work-family concerns, and the desire to attract and retain employees through broader benefit eligibility standards.Ê The fact that most employers cover all domestic partners suggests that these larger issues are quite important.Ê

Once an employer has settled on the coverage question, the next step is constructing a formal definition of ãdomestic partnerä that the two parties must attest to meeting.Ê Typically partners are defined as unmarried people who share a committed relationship and are financially and emotionally interconnected.⁷Ê Often a joint residence is required, and sometimes employees must provide evidence of shared bank accounts, leases, or other proof of a shared material life. Most employers require partners to sign a statement or affidavit attesting to their eligibility under the chosen criteria.Ê

Number of new domestic partners who will enrollÊ

Given the general definition of who is to be covered, the number of employees who will enroll domestic partners is related to two separate factors:Ê the number of employees who have domestic partners and the number with partners who will actually enroll.Ê Not all employees who have a domestic partner will enroll his or her partner in an employerâs health care program.Ê Some employees who have domestic partners will probably not sign them up because of the added personal income taxes on partnerâs benefits,⁸ the partnerâs coverage from his or her own employer, or the fear of discovery of a gay relationship.

Direct and reliable data on those two enrollment factors is not available, unfortunately.Ê The federal government does not collect data on the number of couples meeting the kind of criteria commonly used by employers.Ê The closest item on government surveys identifies people who live with an ãunmarried partner,ä a vaguely defined option on the Census and the Current Population Survey.Ê The most recent published data for March 1998 suggest that 4.1% of households have an unmarried opposite-sex couple, and 1.6% have same-sex couples.⁹Ê However, we do not know whether those couples would meet employer standards, and in many couples both individuals might already have health insurance.Ê These government statistics are best interpreted as providing an ãupper boundä or maximum number of partners.Ê The number of unmarried partner couples actually eligible under the usual definitions of domestic partner and the number of those partners who would want to sign up for benefits will be less than the total count.

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NOTES:
1. Figures on number of companies from Human Rights Campaign, ãThe State of the Workplace for Lesbian, Gay, Bisexual, and Transgendered Americans, 2000,ä Washington, DC, 2000.Ê
2. California, Connecticut, Oregon, New York, Vermont, and Washington.
3. In one study, 56% of employee benefit specialists indicated that cost was the main barrier for their employers.Ê International Society of Certified Employee Benefit Specialists (ISCEBS), ãCensus of Certified Employee Benefit Specialists:Ê Domestic Partner Benefits,ä Brookfield, WI, 1995.
4. See ãEmployment Cost Trends,ä Table 1, U.S. Dept. of Labor, Bureau of Labor Statistics, downloaded 8/10/99.
5. Human Rights Campaign, 2000, p. 26 (see note 1).
6. One exception to this generalization exists in Vermont, where residents can enter into a ãcivil unionä with a same-sex partner.Ê Vermont law requires employers in Vermont to treat people in civil unions and in marriages equally with respect to benefits.
7. ISCEBS, 1995 (see note 3).
8. Employer-provided health care benefits are not considered taxable income for an employer and a spouse, but the IRS considers benefits provided for domestic partners to be taxable income for the employee.Ê The added taxes could easily exceed $1000 per year for an employee.
9. U.S. Dept. of Labor, Bureau of Labor Statistics, ãMarital Status and Living Arrangements:Ê March 1998 (update).ä P20-514.