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San Francisco's Mandate Forces Domestic-partner Benefits Mainstream

June 1, 1997
Related Topics: Medical Benefits Law, Benefit Design and Communication, Discrimination and EEOC Compliance, Featured Article
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Tom Ammiano has been a popular man with the national media lately. And no wonder: Ammiano, as a member of the San Francisco Board of Supervisors, helped draft a landmark ordinance forcing employers that do business with the city to offer registered domestic partners -- either same-sex or heterosexual couples -- the same benefits they offer married couples. "ABC, CBS, CNN, Fox... they've all been here," crows Ammiano.

HR professionals take note: There's good reason for all the fuss. San Francisco's new mandate, which is taking effect this month, has caused employers across the nation to consider offering the full range of benefits -- from health insurance to pension plans -- to couples in nontraditional partnerships. A few years ago these were uncharted waters. Only a handful of employers offered benefits to domestic partners and most of them were either on the West Coast or in the northeastern United States. But the trend is slowly moving inland and attracting the interest of more corporations. Should you be studying it in case a local government where you do business matches San Francisco's mandate? Will your own employees or public pressure force you to take action? Should you worry about losing business by offending conservative customers? A look at the reasons that the practice is spreading and the experiences of companies that took the plunge reveals some vital lessons.

San Francisco starts a trend.
Like it or not, this is clearly a trend that's here to stay. San Francisco's mandate has employers all over California nervous, says Conley Baker, a San Francisco-based regional manager for the Employers Group, a 5,000-member association of California companies. "There's a feeling among our members that this is only the beginning, that many municipalities around the state will be doing this," he says. And the trend has reached far beyond California. Many U.S. cities already offer or might soon offer benefits to the domestic partners of their own workers. And New York City recently ordered its lawyers to draft a mandate like San Francisco's for private employers that do business there.

In addition, among those cities that aren't yet requiring the extension of benefits, there's a growing number of municipalities around the country that now offer registration for same-sex domestic partners, likely the first move toward making domestic-partner benefits more feasible. Even the Midwest is beginning to feel the winds of change. "Things change slowly here," says Loralia Van Sluys, a researcher at consulting firm Hewitt Associates based in Lincolnshire, Illinois. But, she says, "We've definitely had a lot of questions because of what San Francisco did."

Of course many companies, such as Disney and IBM, wanting to do everything they can to lure and keep top-notch talent, started offering such benefits even before San Francisco's mandate hit the news when it passed last November. Indeed, by some estimates, as many as 300 corporate em-ployers already offer domestic-partner benefits.

Pockets of resistance remain.
Many San Francisco firms began providing the benefits upon passage of the new law and in advance of it officially going into effect. The San Francisco 49ers, for example, already has a plan in place for its 220 employees and team members. But not all companies have embraced the concept so readily. There's considerable resistance to the idea, even in corporate San Francisco. United Airlines, for example, showed reluctance to rush into setting up a domestic-partner benefits program under the mandate. The airline has settled its dispute with the city, agreeing to make a good-faith effort to extend domestic-partner benefits nationwide within two years in exchange for a 25-year lease on a plot it needs at the San Francisco airport, but not before prolonged wrangling with city officials.

Why this reluctance? Although the ordinance as written only applies to couples registered as domestic partners, United says it can't very well offer the benefit in San Francisco without offering it to all of its 80,000 employees worldwide, regardless of whether or not they can register yet where they live. Also balking at first was Pacific Telesis. After negotiating with the city, it signed a shorter lease -- exempting it from the mandate -- of two years on an antenna site for its mobile phone business. The company says it may eventually offer domestic-partner benefits, but is waiting to see guidelines that are expected this summer from the San Francisco Human Rights Commission, which is charged with administering the ordinance.

In other states in the Union, attempts to extend domestic-partner benefits to city employees -- never mind a San Francisco-style mandate covering private employers -- have been greeted with outrage. In March, Chicago's City Council Finance Committee approved a plan to extend health benefits to the partners of gay and lesbian city employees, but not until after a five-hour shouting match with angry religious groups who came to the hearing on the day of the committee's vote. Some Illinois state legislators are attempting to overturn the measure. In Philadelphia, when Mayor Ed Rendell ordered domestic-partner benefits for his appointees, the city's Catholic cardinal sent an open letter to parishioners asking them to organize protests.

Such resistance is misplaced, says Ammiano. In fact, he says, despite the early initial uproar among San Francisco's city contractors, most have come to realize they have nothing to fear. "When there was trouble, it was usually just due to misinformation," he says. "Misinformation that the cost is big, when it's not, that there would be a public backlash, that kind of thing."

Companies that already offer domestic-partner benefits generally agree with Ammiano. Boston-based Blue Cross/Blue Shield of Massachusetts started offering domestic-partner health benefits in January after seeing that the costs of coverage it provided to some 30-odd customers were manageable. "We had been offering domestic-partner coverage to our accounts, so we had that data to draw on, and we found no difference between these and extending benefits to spouses," says company spokesperson Susan Leahy.

That's quite a change from the late 1980s and early 1990s, when such employers as California's Stanford University in Palo Alto and the City of Berkeley were getting insurance for their domestic-partner benefits programs. "In the early days, employers were generally getting hit with surcharges for [domestic-partner] coverage, because the insurers were sure that costs would go up," says Van Sluys of Hewitt Associates. Now that some data have been assembled, she says, such surcharges have disappeared.

AIDS costs are manageable.
The insurance companies were, of course, mostly afraid of hefty claims from AIDS sufferers. But in fact, the cost of treating an AIDS patient over his or her lifetime isn't as high as people might think. The average lifetime treatment is approximately $119,000, notes New York City-based consulting firm Segal Company. That's a lot compared to the price for treating heart disease of $50,000 to $70,000, but not so much compared to the average cost of treating a prematurely born baby, which averages $500,000 over a few months and much more for a lifetime.

In addition to costs, some companies have been deterred by uncertainty about how many employees would apply for domestic-partner benefits if they were offered. But the experience of most companies shows that sign-up rates are low. "For companies that offer benefits to same-sex partners only, the rate is typically 1 percent and under. That rate makes sense because these are professional couples for the most part and both partners often already are covered," says Van Sluys. Many don't take advantage of the offered benefits also because there are tax ramifications to do so. The Internal Revenue Service has said that an employee whose domestic partner's health insurance is paid for by the employer must recognize the cost of the coverage as additional taxable income. (In the early days of domestic-partner benefit plans, companies were worried that the IRS would force all employees to list these premiums as income if companies extended health benefits to nontraditional dependents. But in fact, the IRS has said in three private letter rulings that the domestic-partner benefits don't affect other employees. Officially, these letters don't have the force of precedent as to other IRS rulings, but are treated by corporations as if they do.)

Because insurance companies were among the first to see that enrollment rates for domestic-partner benefits are low, it's no surprise that they're among the front-runners in offering the benefits to their own employees. One of the few major employers in the Midwest that offers its workers domestic-partner benefits is an insurance company: Principal Financial Group, based in Des Moines, Iowa. Dick Delk, director of human relations operations, says Principal's sign-up rates for domestic-partner benefits have been less than 1 percent of its 17,000-strong payroll. And those enrollees include employees not just in same-sex couples but in a variety of other nontraditional households. In fact, says Delk, same-sex couples comprise only a small part of the total number of nontraditional households in the program.

Another fear some companies have about adding domestic-partner benefits is that the program will be abused by employees in noncommitted relationships. But again, these fears are unfounded. Most companies that offer the option require the partners sign an affidavit attesting to their partnership. That's the path chosen by Armonk, New York-based IBM, which began offering domestic-partner benefits to same-sex domestic partners this January, as well as by San Francisco-based Bank of America and New York City-based Ziff-Davis Publishing.

The pros outweigh the cons.
Having settled issues of cost and risk, the forward-looking HR executive must ask: "What's in it for the company?" Many employers see a clear economic benefit because it gives them one more effective recruiting tool. Says Leahy, "Our recruiters love it. It expands our benefits and puts us in a league with all the large players." For other companies, granting full benefits to domestic partners is a logical extension of their commitment to diversity in the workplace. Cupertino, California-based Apple Computer, for example, started offering limited benefits to all domestic partners, including same-sex and heterosexual couples, in 1993, and added dental and medical benefit offerings to same-sex partners the following year. Although the company also hoped to give its recruiting a boost, says Director of Benefits Sue Cunningham, "Diversity was the larger driving force."

The letters that came in from customers were overwhelmingly supportive, Cunningham says. Still, she's quick to admit, the reaction wasn't universally enthusiastic. Shortly after Apple launched its domestic-partner benefits program, it ran into trouble with a plant it was planning to build in Austin, Texas. The company had won some tax relief for agreeing to build the plant in Austin, but the council in the county where the plant was to be located voted down that tax break based on the domestic-partner benefits program. And the Texas business community in general was none too happy with Apple for bringing such practices to the state, she says.

Apple isn't alone in facing such problems. When Disney launched a domestic-partners' benefits program for same-sex couples in 1996, conservative religious groups in Florida organized protests at the company's Orlando theme park. In fact, concern about public backlash is the most common reason for companies to decide against domestic-partner benefits, says John Egner, a Philadelphia-based consultant at Towers Perrin. When the city's Catholic leaders came out against domestic-partner benefits for city employees, he says, this put a chill on interest among local businesses. "Other Philadelphia employers, particularly those with retail operations, were concerned it might affect their businesses," says Egner.

He thinks, however, that if one company breaks the ice in a particular region, many other employers might follow suit. "I would love to see one of our clients move forward with it. Because if one nonpublic entity goes forward, it would open a lot of doors." It's only a matter of time before the City of Brotherly Love gets its first private domestic-partner benefits package, says Egner. "I'd be surprised if this trend went away."

These days, a domestic-partner benefits program doesn't even stand out in some fields, particularly software. When Cambridge, Massachusetts-based Lotus Development Corp. started its program in 1992, it stood out in the crowd, says the company's current Director of HR Services, Joanne Laipson. But no longer. "It's become so prevalent, especially in our industry, that it's almost a distinguishing factor if you don't have it," she says. Did Lotus face some public backlash at first? You bet. "There was some of that in the beginning. But the whole world has followed us, so maybe we were right."

Workforce, June 1997, Vol. 76, No. 6, pp. 34-41.

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