Oregon Insurance Ruling Requires Addition of Domestic Partner Benefits to Health Plans

As noted in our earlier July 2007 Advisory Bulletin, in 2007 the Oregon Legislature passed a law that added sexual orientation to the list of protected classes that employers may not discriminate against. At that time we noted there did not appear to be any impact on employer-provided health insurance plans. In a somewhat controversial maneuver, Oregon's Insurance Commissioner has decided otherwise. On Dec. 13, 2007, the Oregon Insurance Division issued a bulletin that requires group health insurance policies issued on or after April 1, 2008 to treat spouses and domestic partners equally.

Background

Earlier this year the Oregon Legislature passed House Bill 2007, which (i) creates a system for registering same sex domestic partnerships and (ii) provides that any “privilege, immunity, right or benefit” granted by statute, administrative rule or other state law to a married person must also be extended to a domestic partner. A related new law, Senate Bill 2, prohibits employment discrimination based on sexual orientation. Both provisions are generally effective Jan.1, 2008.

Following passage of the new laws, the Oregon Insurance Division issued a draft bulletin in October 2007, announcing its view that HB 2007 effectively requires all group health insurance policies issued on or after Jan. 1, 2008 to provide the same rights to domestic partners as spouses. The interpretation caught most people by surprise and many in the insurance industry wrote the Insurance Division to voice concerns. In light of the concerns, the division reconsidered the draft bulletin.

On Dec. 13, 2007, the division issued a new bulletin (INS 2007-6) that interprets HB 2007. The new bulletin retains the view that HB 2007 requires equal treatment for spouses and domestic partners in all health insurance policies issued in Oregon. The one significant change in the new bulletin comes in the form of an extended deadline—the new requirement will apply to health insurance policies issued or renewed on or after April 1, 2008. Stated another way, the division will not apply its interpretation to policies issued or renewed before April 1, 2008 if the policy form was approved prior to 2008.

Analysis

The new bulletin does not answer all the questions that practitioners raised in connection with the draft bulletin. First, federal law (the Employee Retirement Income Security Act of 1974, known as ERISA) broadly preempts state laws that attempt to regulate most private employer benefit plans, including group health plans. However, ERISA authorizes individual states to regulate the insurance industry, including the issuance of health insurance policies. Thus, states are able to indirectly regulate most private employer health plans by regulating what insurance companies must include in their policies. The Legislature recognized ERISA preemption and drafted HB 2007 to state it does “not require the extension of any benefit under any employee benefit plan that is subject to” ERISA.

This broad deference to ERISA led many to conclude that HB 2007 did not apply to ERISA plans. Because ERISA does not apply to governmental entities, practitioners generally viewed HB 2007 as a law that targeted health plans sponsored by governmental employers. In spite of the language of HB 2007, the Insurance Division's bulletin addresses this point by simply stating that its interpretation applies without regard to whether an insurance policy will be issued in connection with an ERISA plan or a non-ERISA plan. And although the bulletin states the division's opinion, it does not articulate the underlying reasoning or the apparent conflict with the language of HB 2007.

Another question stems from the fact that HB 2007 says it applies only where a state law extends a right based on spousal status. There is no state law that requires an employer to offer spousal benefits, or an insurance company to offer spousal coverage in its group health insurance policies. Rather, the inclusion of spousal coverage seems to be a matter of contract between the employer and the insurance company. However, if spousal coverage is present, then certain rules apply to the extent of the coverage. Nevertheless, the Insurance Division takes an expansive view in the bulletin and concludes that because there is some regulation of spousal coverage when it is offered, if there is spousal coverage there must also be domestic partner coverage.

What are the practical implications of the Insurance Division interpretation?

1. After March 31, 2008, all group health insurance policies issued in Oregon will include domestic partner equivalence. No other policies will be available for Oregon employers. Policies issued or renewed between Jan. 1 and March 31, 2008 need not comply until they are next renewed. Thus, for most employers, who operate on a calendar year basis and renew on Jan. 1, the change will be reflected in their health insurance policies beginning Jan. 1, 2009.
   
   
2. Once the change becomes effective for an employer's health insurance policy, the employer will need to offer the same policy coverage for both spouses and domestic partners. The coverage must be based on the same terms and rates under the insurance policy.
   
   
3. Although the insurance policy coverage must be equivalent, ERISA preemption should still apply to an employer's decision regarding who pays for the coverage. This means an employer could have different employee contribution levels for coverage for spouses and domestic partners. For example, if an employer pays for all or part of an employee's spouse or family coverage, it does not appear that the employer must pay the same level for domestic partner coverage. In contrast, non-ERISA plans (mainly government and church employers) will probably need to have the same premium payment policy for spouses and domestic partners.
   
   
4. The Tax Code continues to differentiate between a spouse and a domestic partner. For example, if an employer pays the health insurance premium for a spouse, the amount is tax free to the employee. But an employer's payment for the premium for a domestic partner will constitute taxable income to the employee, unless the domestic partner separately qualifies as a “dependent” under the Tax Code. With respect to paying for coverage through a Tax Code section 125 cafeteria plan (sometimes called a flex plan), the Tax Code distinction continues. As a result, employees can pay for spousal coverage on a pre-tax basis, but the same treatment is not available for a domestic partner (again, unless the domestic partner qualifies as a dependent under the Tax Code).
   
   
5. The change will not apply to self-insured plans, since they are not subject to insurance regulation. For this reason a self-insured plan of a private employer need not provide domestic partner coverage. The Insurance Division's bulletin clarifies that this is the division's interpretation, even though virtually all self-insured plans utilize stop-loss insurance.
   
   
6. Under the Insurance Division’s interpretation, whatever proof the insurer requires to cover a spouse also applies to domestic partner status. For example, if an employee may cover a spouse by simply stating that the person is his or her spouse, then the level of confirmation applies for covering a domestic partner. As a result, many insurance companies may update their enrollment forms to reflect new, uniform standards.
   
   
7. While certain religious organizations will not be able to obtain a health policy without domestic partner coverage, many such organizations are permitted to discriminate in employment on religious grounds for most positions. Thus, qualifying religious employers can continue to exclude from employment individuals who do not meet criteria related to the religious organization's beliefs.
   
   
8. Employers should review their procedures and policies related to domestic partners of employees in all aspects of employment. Although the Insurance Division's bulletin gives an April 1, 2008 extension for health insurance purposes, SB 2 and HB 2007 generally become effective Jan. 1, 2008. Although the Oregon Family Leave Act has for many years defined a family member to include a domestic partner, other programs could be affected. For example, under the new laws, a bereavement leave policy would need to apply equally with respect to the death of a spouse or domestic partner.