The calculations get more complicated when we take into account the fact that some employees have children, as will some partners.Ê In this second example presented in Table 3, the company now has another tier of coverage for families. Because this scenario is more complicated, Table 3 only presents calculations for a 1% enrollment rate.Ê Figuring out the added cost from the 12 employees with partners requires knowing which coverage category people with partners started in (individual, individual-plus-one, or family) and which category they will end up in.Ê

Very little information exists to estimate the number of partner households that have dependent children.Ê While conventional wisdom suggests that lesbians and gay men are predominantly childless, some recent studies show that lesbians may be as likely as heterosexual women to be parents and to have children in their households.¹⁸ Ê And while gay men are less likely to be parents or to be raising children than are heterosexual men, many gay men are parents.Ê Similarly, some unmarried opposite-sex couples are also likely to contain dependent children, although they are less likely than married couples to have children.Ê The presence of children in domestic partner households will influence the employerâs costs, but we do not know precisely which categories those households are currently in and which categories they would move to with domestic partner coverage.Ê

To estimate the highest-cost scenario for the company, we will assume that all employees with partners start in the individual category and then move into one of the other categories. And although domestic partner couples are less likely than married couples to have children overall, as the previous paragraph suggests, the most conservative (that is, costly) assumption to make is to assume that domestic partners are just as likely as married couple households to have children. Table 3 assumes that 600 people have individual coverage, 240 people are in individual-plus-one, and 360 people are in the family category.Ê Since 240 out of 600 employees who include family members (or 40%) are in the individual-plus-one tier, then we will assume that 40% of the 12 employees with partners, or 5 people (rounding up from 4.8), will end up in the individual-plus-one coverage tier.Ê We will also then assume that since the other 60% of employees with family members enrolled are in the family tier, or 7 (rounding down from 7.2 so our total is still 12).Ê

With that, we simply need to plug in the changes in premiums from the individual category, multiply that times the number of changes in the category, include taxes, and add it all up.Ê

As Table 3 shows, even assuming the most costly scenario for employers still results in a modest cost increase that is close to the enrollment increase, or 1.2% of the old total health care costs of $12,240,000.Ê The costs for a real employer would almost certainly be lower.Ê If some people with partners had their own children who were eligible in the old pre-partner plan, then the additional cost of adding a partner for those employees will be less than that shown in Table 3.Ê Some might even start and end in the family category, creating no net cost to the employer when another person is added.¹⁹

The third example adds a final real world complication.Ê Most employers offer health care through more than one plan, and those plans might come with different premiums.Ê As a result, the overall cost estimates would need to be weighted to reflect the current plan enrollment of employees, as in the example below shown in Table 4 for an enrollment rate of 1%.Ê

The calculation in Table 4 assumes, first, that all employees with domestic partners start out in individual coverage and move to individual-plus-one or family coverage in the same way as in Table 3, and second, that employees with partners are distributed across plans in the same proportions as are all employees.Ê So, for example, if 3/4 of employees covering a family member are in the Option 1 plan, 3/4 of employees who have partners are in the Option 1 plan.Ê From there, the calculation is the same, as we multiply the number of new partners by the increased costs for the employer in Table 4.Ê (To see all three examples in an Excel spreadsheet form)

In this complicated case, the employer initially spent $15.6 million per year in health care costs.Ê Adding domestic partners adds $166,535 to this total, for an increase of 1.1%.Ê In other words, including several typical features of employersâ health care benefits and making expensive assumptions suggests that an increase in enrollment of 1% would result in somewhere between 0.7% and 1.2% increase in costs for an employer.Ê If partnered couples are less likely to have children, as is plausible, the cost increase will be in the lower portion of that range.Ê

(5) Offsetting cost savings from better retention.Ê

Another important point is that employers might reduce their costs in other areas as a result of providing domestic partner benefits.Ê In particular, if the employer is able to recruit and retain employees more easily, the savings in hiring costs and in training costs will offset part or even all of the higher costs for health care coverage.Ê This will be especially important if an employerâs competitors for labor are already offering partner benefits.

Those savings could be substantial.Ê An Employment Management Association study found that the full cost of hiring a new employee in 1994 was $3,310 for hiring a typical employee, and was $6,359 for an exempt employee. ²⁰ Ê Losing employees also means losing any investments that the employer makes in training.Ê Again, those costs can be substantial over time.Ê A recent study by the Bureau of Labor Statistics found that the typical private sector employer spent $305 per worker in 1994. ²¹ Ê In effect, losing a worker of ten years means losing over $3,000 in past training.Ê More recent figures would probably suggest even greater benefits to retention, particularly at a time when unemployment is low and employers report difficulties finding new workers.Ê

The prudent employer will take into account both the costs and the benefits of offering domestic partner benefits.Ê As this section demonstrates, the costs to employers are likely to be quite small, and the potential benefits to employers may be larger than expected.Ê A typical enrollment increase of 1% for a plan covering both same-sex and opposite-sex partners would generate health care costs that are around 1% higher.Ê

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NOTES:
18. These surveys are the 1993 Yankelovich Monitor and the 1992 Voter News Service exit polls.
19. Of course, if this happens, the average family size covered in the family category could rise and cause a premium increase for that level. However, the change in average family size would probably be very small, given the small percentage of families whose size will increase.
20. Ruth E. Thaler-Carter, ãEMA Model Defines Cost-Per-Hire as Part of Staffing Performance,ä HR Magazine, December 1997.
21. ã1995 Survey of Employer-Provided Training-Employer Results,ä Bureau of Labor Statistics, U.S. Dept. of Labor, July 1996.