Estimating the Cost Impact of an Equal Benefits Policy to the Economy ²²

The data and examples from the previous section show that an individual employerâs benefit costs might rise if partners are covered, with the rise being closely related to increased enrollment.Ê If inclusion of partners were universal in the United States, however, the increase for employers could actually be smaller than that, as this section will show.Ê

This seemingly paradoxical result stems from analyzing the net effect on all employers.Ê Say Tina and Susan are domestic partners, and Tinaâs employer provides health coverage to spouses.Ê If all employers with spousal coverage decide to cover partners as well, then Tina could add Susan to Tinaâs employer plan.Ê But if Susanâs employer also provided health benefits, then the net change in the number of people covered by all employers is zero, since Tinaâs employer gains a person and Susanâs loses one.Ê If Susan had been uninsured, though, the net change is one new person covered by an employer. In other words, the only new people added with domestic partner coverage are those who were previously uninsured.Ê

This example suggests that the crucial variable in assessing total costs to employers will be how many uninsured people have employed domestic partners with employer coverage for spouses.Ê In 1997, 32 million adults were uninsured.Ê Estimating the number of those uninsured who have same-sex partners who are employed and receive health insurance is not easy, since data on gay people is sparse.Ê But an estimate can be constructed with some reasonable assumptions.Ê

Suppose that 5% of the U.S. adult population is gay or lesbian and that 50% of those workers have a domestic partner.²³ Ê Then we would expect to find approximately 809,275 uninsured domestic partners.Ê Since only 53% of people had health insurance through their own employer in 1997, only 53% of those uninsured people would likely benefit from their partnerâs coverage, so roughly 429,000 partners would now get insurance through an employer.²⁴ Ê Dividing that by the number of employees with health insurance (76.6 million) suggests that employers would experience an average net increased enrollment of 0.6% from covering same-sex domestic partners.Ê This 0.6% enrollment increase would probably result in a smaller increase in total health care costs, since employers often pay less than the full premium for family coverage.

The size of the estimated enrollment increase is sensitive to the assumption of the proportion of gay people and how many have partners, but the exercise shows that the number is not likely to be large.Ê Even if 10% of the workforce was gay or lesbian, the net increase in enrollment would be around 1.1%.Ê New enrollment would be lower if some employees chose not to sign their partners up for fear of disclosing their sexual orientation or if the employee cost share for coverage were too high.Ê New enrollment would be higher, though, if the proportion of people with partners were higher.

Conclusions

The experiences of employers who offer domestic partner coverage suggests that employers covering partners are most likely to see an enrollment increase of 1%, even when both same-sex and opposite-sex partners are covered.Ê A smaller number of employers might see a 2% increase.Ê

When used to predict cost increases, these enrollment estimates generate cost increases that are roughly the same.Ê Since employers who now cover both same-sex and opposite-sex partners commonly experience an increased enrollment of approximately 1%, the likely cost increase is approximately 1%.Ê This finding stands up even when assuming that partners are just as likely to have children as are married employees.Ê If partners are less likely to have children, then the cost increase would be less than 1%.

Even a universal requirement that companies offer equal benefits to spouses and to same-sex partners would result in only a small cost increase.Ê Using fairly high estimates of the lesbian and gay population implies an enrollment increase of only 0.6% per employer and a cost increase that is roughly the same.

It is important to put the kind of cost increases resulting from this analysis into perspective for a given employer.Ê One way of thinking about it is to note that this size of cost increase is comparable to the changes typically faced by employers in any given year.Ê Employers are likely to confront increases in benefits costs from changes in health insurance premiums, from changes in employeeâs marital status or births, or from changes in administrative costs.Ê From this broader perspective, a 1% increase in costs is not large.Ê

And in the larger context of low unemployment rates and enormous competition for labor, employers who offer domestic partner benefits could recoup some of the higher benefits costs through lower hiring and training costs.Ê Exceeding or at least meeting the benefits package offered by labor market competitors is crucial for employee retention.Ê As offering domestic partner benefits becomes more common, competitive pressure will push more employers into taking the plunge.

Employers have little to fear from covering domestic partners, as this report demonstrates.Ê Equalizing benefits comes at a low cost to employers, even though the value of benefits to employees may be very large.Ê

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NOTES:
22. Reprinted from Money, Myths, and Change:Ê The Economic Lives of Lesbians and Gay Men, M. V. Lee Badgett, University of Chicago Press, forthcoming in 2001.
23. The assumption that 5% of the workforce is gay and that half of gay people have partners falls within the range of estimates of those values.Ê See a discussion of such values in James Alm, M. V. Lee Badgett, and Leslie A. Whittington, ãWedding Bell Blues:Ê The Income Tax Consequences of Legalizing Same-Sex Marriage,ä National Tax Journal, June, 2000, pp. 201-214.
24. The calculation is 32,371,000 (uninsured adults) x .05 (proportion of gay people) x .5 (gays with partners) x .53 (workers with own employer-provided coverage) = 428,916.Ê U.S. statistics from Robert L. Bennefield, ãHealth Insurance Coverage: 1997,ä Current Population Reports, P60-202, U.S. Bureau of the Census, Dept. of Commerce, 1998, pp. 1-8.Ê