DOMA Ruling Means Cheaper Health Benefits for Some Same-Sex Couples

Many same-sex couples will see cheaper health benefits thanks to the DOMA ruling.

Michael Knaapen, left, and his husband John Becker outside the Supreme Court Wednesday. (Charles Dharapak/AP)

Michael Knaapen, left, and his husband John Becker outside the Supreme Court Wednesday.

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The Supreme Court's decision to strike down the Defense of Marriage Act doesn't just mean federally recognized unions. It also means a financial windfall for many same-sex couples nationwide.

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DOMA denied more than 1,000 federal benefits to same-sex married couples, meaning that the new decision opens the door to all sorts of opportunities for same-sex couples. Chief among those, according to one benefits expert, is how employee health benefits are taxed. With the DOMA decision comes tax-free health benefits for employees' domestic partners – a perk already given to heterosexual married couples.

"If my employer subsidized $10,000 of my medical insurance and my partner's portion was equal to $5,000, I would be liable for tax on that $5,000, but not on the $5,000 that the employer's paying on behalf of me," explains Bruce Elliott, manager of compensation and benefits at the Society for Human Resources Management. "There's going to be an initial tax savings for the employee" because of this ruling, he adds, because many employees with same-sex spouses will no longer have to pay tax on their spouses' benefits.

 

A 2007 report from left-leaning think tank Center for American Progress and the UCLA's Williams Institute found that employees with partners pay over $1,000 more in taxes each year than their married peers. According to M.V. Lee Badgett, the study's author, today's savings would still be around $1,000.

While this improves the financial position of employees in same-sex relationships, the situation for employers is murkier. Elliott says the ruling won't likely drastically alter employers' benefit costs, though adding new employee spouses to benefit pools could raise or lower firms' insurance costs, depending on the well-being of those partners.

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No matter how the court ruled, employers would still have paperwork headaches to face, says one benefits expert.

"There are administrative complications either way, given the overall still-unsettled nature of this," says James Klein, president of the American Benefits Council, a group that advocates for private employee benefits. With DOMA gone, couples in states that recognize same-sex marriage will now be able to receive the same benefits as heterosexual couples, he says, but couples in states that do not recognize same-sex marriage will not be eligible. Large businesses that operate in multiple states will have to keep track of who lives under what jurisdiction, he says.

"Now arguably there's going to be a third category – there's going to be the tax treatment that goes to opposite sex couples, there will be the tax treatment that goes to same-sex couples in states that recognize same-sex marriage...and then you'll have a third category of domestic partners who are not recognized as spouses," he says.

Then again, the situation under DOMA also required different tax treatment for different groups. Hundreds of U.S. employers, both large and small, signed on to an amicus brief against DOMA in February, arguing that treating same-sex couples differently hurt recruiting efforts, as well as employer-employee relations. Nike, Apple and Starbucks were among the nearly 300 firms that joined in filing the brief.

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In providing health benefits to domestic partners, many U.S. companies have done so regardless of the federal government's standing on the issue. According to the Human Rights Coalition, a group that advocates for gay rights, 62 percent of Fortune 500 companies offer domestic partner health benefits.

There are plenty of other benefits that couples stand to see in light of the DOMA decision, but it will be a matter of watching many other court cases, predicts Elliott. The Americans with Disabilities Act (ADA), Family and Medical Leave Act (FMLA), and Employee Retirement Income Security Act (ERISA) are all laws that could be impacted by the DOMA ruling, he says, and the biggest legal fights will likely come in states that don't recognize same-sex marriages.