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Little Impact From Gay Marriage Ruling

The Massachusetts court sanctioned gay marriage, but many companies already offer such benefits. There's little cost involved.

January 30, 2004
Related Topics: Benefit Design and Communication, Discrimination and EEOC Compliance, Diversity, Compensation

L ast November, a controversial Massachusetts Supreme Court ruling that recognized the right of same-sex couples to marry in that state garnered headlines and sent political shock waves across the nation. Gay-rights supporters hailed the decision as groundbreaking. In contrast, political and religious conservatives denounced it as threatening to the nation’s moral fiber, and President Bush hinted that he might support an amendment to the U.S. Constitution to override it. Meanwhile, companies in Massachusetts and elsewhere were left to wonder what effect the ruling and its broader fallout might have on their employee-benefits strategies. After all, the Massachusetts court’s ruling explicitly requires employers in the state to offer the same health coverage and other benefits to married same-sex partners as they now do to heterosexual spouses.

    Human resources consultants and workplace-benefits analysts who’ve studied the Massachusetts ruling, however, tend to see it less as a harbinger of change and more as a parallel development to what already is a rising national trend in the corporate world. Since the early 1980s, nearly 6,000 employers across the nation have extended medical coverage and other benefits to an estimated 125,000 same-sex domestic partners of their employees, according to the Human Rights Campaign, a gay and lesbian rights group in Washington, D.C. Employers offering such benefits include at least 198 members of the Fortune 500, including giants such as Microsoft, Ford and Time Warner. Research shows that they’re motivated not by liberal ideology but by the belief that the benefits help their recruiting, retention and corporate image-building and because studies show that such coverage typically adds only about 1 to 2 percent to companies’ health-care costs.

    The Massachusetts ruling is likely to add some momentum to an existing trend, consultants say, because it may encourage nationwide companies that do business in Massachusetts to provide the same benefits to same-sex partners in other states to maintain parity, and to expand the range of benefits. "Domestic-partner benefits is a trend that’s grown steadily," says Ilse de Veer, a consultant in the Norwalk, Connecticut, office of Mercer Human Resource Consulting. "It really took off during the tight labor market in the 1990s, to the point where in high tech and some other industries it’s pretty much become the norm. Companies have had to add it for competitive reasons."

    "This is an area where the companies have been really out ahead of the government," says Ken McDonnell, an analyst for the Employee Benefit Research Institute, a Washington-based policy think tank. "They didn’t wait for somebody to tell them to do this, because they saw it was in their interest."

    It wasn’t until 2000 that Vermont became the first state to legally recognize gay and lesbian civil unions as the equivalent of marriage. (Three Canadian provinces and the countries of Belgium and the Netherlands allow gays to marry.) New Jersey and California both passed legislation in 2003 granting legal status to domestic partnerships, and guaranteeing partners the same rights as heterosexual married couples. There are at least 600,000 same-sex couples living together in the nation, about half of one percent of all American households, according to the 2000 U.S. Census. (Gay-rights advocates say the actual number is probably much higher.)

    But those developments came roughly two decades after the Village Voice newspaper became the first U.S. business to offer domestic-partner benefits, in the early 1980s. In 1992, Lotus Development Corp. in Cambridge, Massachusetts, now a unit of IBM, became the first publicly traded company to give coverage to domestic partners. By 2000, according to a study by the Society for Human Resource Management, about 21 percent of companies with more than 5,000 employees offered partner benefits.

    Today, as Massachusetts prepares to become the second state to allow gay unions, numerous companies in the state already offer benefits to partners of gay and lesbian workers. One such outfit is the nation’s fourth-largest defense contractor, Raytheon Corp., which is headquartered in Waltham. The company publicizes its "inclusive culture" on its corporate Web site, and has offered partner benefits since last year. "Raytheon strives to be an employer of choice, and in reaching that goal, recognizes the benefits of a culturally diverse workforce," says company spokesman Steven Brecken, who declined to disclose the number of employees who use partner benefits. "In providing same-sex benefits to domestic partners, our company has assured that all of its employees are provided for and treated equally across our businesses."

"Domestic-partner benefits is a trend that’s grown steadily. It really took off during the tight labor market in the 1990s, to the point where in high tech and some other industries it’s pretty much become the norm. Companies have had to add it for competitive reasons."

    In other states, same-sex couples are also pressing for domestic-partner benefits. In Alaska, for example, that state’s supreme court is considering a lawsuit by Dan Carter-Incontro, a retired employee of the city of Anchorage, in which he asks that his longtime partner, Al Carter-Incontro, receive the same benefits to which heterosexual spouses are entitled. The two men were wed in Vancouver, British Columbia, in July 2003, but Alaska, whose voters passed an initiative in 1998 banning gay unions, does not legally recognize their marriage.

    Equality, however, doesn’t seem to be companies’ major motivation in providing partner benefits. In a 2000 survey of nearly 600 companies by the human resources consulting firm Hewitt Associates, 22 percent said they provided partner benefits. Of those, two-thirds said they did so primarily as a recruiting and retention tool, while only about 30 percent were striving to comply with a corporate nondiscrimination policy. Another 17 percent were complying with local laws in Los Angeles, San Francisco and other cities that require government contractors not to discriminate against gay and lesbian employees. Only 6 percent said that they offered the benefits to be fair.

    An HRC survey of gay and lesbian employees at a Fortune 100 information technology firm confirms the value of partner benefits as a retention tool, according to Daryl Herrschaft, deputy director for HRC’s WorkNet project. More than 90 percent of those polled said that partner benefits increased the likelihood that they would stay at the company.

    However, companies also like the corporate image boost that fairness provides, consultants say. Mercer’s de Veer, for example, says that corporate recruiters have told her that recent college grads--even if they’re not actually gay themselves--often ask whether such benefits are available, as a sort of litmus test of whether the company has a tolerant workplace. "I’ve had companies say that they lost applicants because they didn’t have it," de Veer says.

    The threatened boycotts by religious conservatives out to punish companies offering partner benefits never really materialized, McDonnell says. Instead, companies generally have received positive feedback for their inclusive policies, he notes.

    Companies also like the fact that they can extend partner benefits for relatively little additional cost. In the Hewitt survey, 85 percent of the companies that offered partner benefits said that it added only 1 percent to their overall health-care costs. Other research has shown the expense to be similarly low, in the 1 to 2 percent range. When companies began offering domestic-partner benefits, they were concerned that HIV-positive partners might drive up health-coverage costs. "Insurance companies actually tacked on a surcharge for coverage," McDonnell says. They soon discovered that it wasn’t necessary. There weren’t that many HIV-positive partners enrolled in company plans, in part because HIV patients usually want to stick with their own doctors. Beyond that, the estimated $150,000 lifetime cost of care for an HIV patient is dwarfed by the expenses incurred by premature infants, patients who need organ transplants and others with serious health problems. Those conditions can cost insurers four to five times as much, according to an article in the National Underwriter, an insurance publication by Andrew Sherman, senior vice president in the Boston office of the Segal Co., a benefits consulting firm in New York.

    The cost of providing partner benefits also remains low because in practice, relatively few employees use the benefits. Studies by the Segal Co., Towers Perrin and Hewitt Associates in the 1990s found that only 2 percent or less of companies’ workforces signed up. A major reason, consultants say, is that employees--unlike their heterosexual married coworkers--generally must pay federal taxes on their partners’ benefits, since the federal government doesn’t recognize same-sex marriages. However, an employee can deduct the benefits if the partner is a dependent who relies on the employee for at least half of his or her income. "Most of these guys, if they’re adequately employed, they’ll utilize their own benefits instead," says Mark Hamelburg, a lawyer in Mercer’s Washington Resource Group. His colleague Ilse de Veer, however, notes that when employers correctly describe the tax rules, a quarter to a third of the eligible workers will declare their partners as dependents and apply for the benefits.

    Sherman says that the new legislation may prompt more companies to offer domestic partner benefits to employees. "We’re certainly telling our clients that it’s a good idea to have equity, rather than separate policies," he notes. That may only accelerate the existing trend. Even before the ruling, in an October 2003 survey by Mellon’s Human Resources & Investor Solutions, a Pittsburgh-based consulting firm, a third of companies said they were considering adding partner coverage. Because Massachusetts will require companies to offer essentially the same benefits to same-sex spouses as to opposite-sex ones, companies may start expanding the list that they offer to gay and lesbian partners everywhere, consultants say. In the Hewitt survey, only slightly more than half of companies extended benefits such as life insurance coverage or family and medical leave to domestic partners, and only about a fifth offered other benefits such as access to prepaid legal-expense plans and relocation expenses.

    On the other hand, one unintended effect of the Massachusetts law may be to take partner benefits away from some employees who presently are eligible. Boston-based John Hancock Life Insurance Co., for example, extended partner benefits to gay and lesbian employees because they legally were unable to marry, according to company spokes-person Melissa Simon. Now that gay marriage is becoming legal, the company, which provides partner benefits to 44 of its 5,000 employees, will consider offering coverage only to same-sex partners who are married.

Workforce Management, February 2004, p. 66-67 -- Subscribe Now!

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