Complete Story
07/07/2015
U.S. Supreme Court Issues Two Major Rulings Impacting Employers
By Paul Routh and Bob Dunlevey of Dunlevey, Mahan & Furry
The U.S. Supreme Court issued two major rulings the week of June 22, 2015 that impact personnel policies and employer sponsored benefit plans.
King v. Burwell
The Court announced the King decision on June 25. This case involved the premium subsidies under health care reform. By way of background, health care reform provides government subsidies to low and moderate income individuals who get their coverage through a health care exchange or marketplace. Congress envisioned that the states would establish and run their own exchanges or marketplaces. However, as a backstop, the law provides that the federal government would step in and run the exchange or marketplace if the state failed to establish its own exchange or marketplace.
As it turned out, 36 states opted not to set up their own exchanges or marketplaces. Thus, the federal government started running the exchanges or marketplaces in those states. However, the statute clearly stated the government subsidies were only available to those who got health coverage through an exchange or marketplace established by a state. In any event, the Internal Revenue Service issued regulations saying the premium subsidies were available to individuals who got coverage through the exchange or marketplace even if that exchange or marketplace was run by the federal government.
Several lawsuits were filed saying the Internal Revenue Service did not have the authority to issue regulations saying the premium subsidies were available under all of the exchanges or marketplaces (including those operated by the federal government). The Plaintiffs said the subsidies were only available if the exchange or marketplace was run by a state as opposed to being run by the federal government. The Defendant (i.e. the government) said it really didn’t matter if the exchange or marketplace was operated by the state or federal government. The federal government said the Internal Revenue Service has the right to issue regulations saying who is entitled to the premium subsidies.
The Court ruled that the premium subsidies are available under both state and federally operated exchanges or marketplaces. The ruling, however, was not based on the Internal Revenue Service’s regulations. Instead, the Court ruling is based on the Court’s interpretation of the statute. That is, the Court looked at the intent of the law and decided that Congress wanted the premium subsidies to be based on the person’s income and not whether or not the person got coverage through a state or federally operated exchange or marketplace.
Although the end result is the same, it is important to note the basis for the Court’s decision. If the Court had simply ruled it was within the Internal Revenue Service’s authority to issue regulations saying the premium subsidies were available to everyone, the law’s future would have remained uncertain. Based on this logic, the Internal Revenue Service, under a different administration, could change its position. However, since the Court’s decision was based on what it perceived was Congress’ intent, only Congress can change the rules. In other words, it will literally take an "act of Congress" to modify the rules governing the premium subsidies.
This is a link to an article that discusses the case and explains how the Court’s decision cements health care reform’s near term future. The "take away" is that employers need to realize Obamacare is the law of the land and they must comply with the rules as they are currently written – it is not going away.
Obergefell v. Hodges
The second major Court decision was released the following day on June 26. In a 5-4 decision the Court held the U.S. Constitution requires all states to license and recognize same sex marriages. Note that the ruling applies to the various states and their instrumentalities but not to private employers. Nevertheless, the ruling will impact employers, especially in those states like Ohio which did not recognize same sex marriages.
Employer sponsored health and welfare plans will be impacted by the Court’s ruling. The Court’s 2013 Windsor decision required federal laws (e.g. ERISA and the Internal Revenue Code) to treat same sex and opposite sex spouses the same. Since qualified retirement plans are governed by both ERISA and the Internal Revenue Code, the Obergefell ruling will have little impact on qualified retirement plans.
The Obergefell ruling does not require employers to offer health coverage. In fact, health care reform specifically provides that employers need not offer health coverage to spouses. As a result, it is up to the employer whether or not to offer health coverage. However, all insured group health plans have to comply with state insurance laws and, as previously mentioned, all states have to recognize same sex marriages. Therefore, employers sponsoring fully insured group health plans will have to check with their insurance company to determine if the applicable state law requires the carrier to provide health plans that offer spousal coverage. If that is the case, then an employer with a fully insured health plan will have to treat same sex and opposite sex spouses the same under the fully insured group health plan.
If the employer is sponsoring a self-funded group health plan, ERISA preempts state law so the employer has more flexibility when setting the plan’s eligibility requirements. Many self-funded health plans simply define “spouse” based on state law. So, if the employer wants to exclude same sex spouses, the employer will have to review the self-funded health plan’s definition of spouse to ensure the plan does not define “spouse” by simply referencing state law.
Even employers with self-funded health plans may be on shaky ground if they continue to exclude same sex spouses. Title VII of the Civil Rights Act does not specifically prohibit private employers from discriminating against employees based on sexual orientation or gender identity and the Obergefell decision does not broaden Title VII's protections. But, lesbian, gay, bisexual, and transgender ("LGBT") stereotyping may give rise to a gender discrimination claim. The Equal Employment Opportunity Commission ("EEOC") has issued internal guidance directing its investigators to accept and pursue charges of discrimination based on sexual orientation as a form of sex discrimination. Moreover, various state and local laws specifically bar employers from discriminating against employees based on sexual orientation. It is likely the Obergefell ruling will further spur the EEOC to challenge employers who deny coverage to same sex spouses on the basis of gender bias.
The proposed Employment Non-Discrimination Act would bring LGBT individuals within the protected classes of the Civil Rights laws for private employers and the possibility of enactment in the future appears enhanced by the Court's decision and the current political environment. Federal Executive Order 11246 is being used currently to prohibit discrimination by government contractors on the basis of sexual orientation and gender identity through the OFCCP's interpretive rules of Executive Order 13672 – Prohibiting Discrimination Based on Sexual Orientation and Gender Identity for Government Contractors and Subcontractors.
The Court’s ruling will, however, make plan administration easier. Each state and municipality has its own tax laws. However, all state and city tax laws must now treat same sex and opposite sex married couples the same as do federal tax laws. As a result, the tax treatment of employee benefits will now be uniform across all levels of government. The following is an article about the Court’s Obergefell decision.
The Obergefell decision also validates the Department of Labor's earlier FMLA regulations which modified the definition of "spouse" to include same sex spouse. The FMLA now clearly applies to same sex spouses and same sex parents caring for their children.
Note that the Court’s ruling has no impact on the treatment of "domestic partners." That is, the ruling only applies to same sex individuals who are legally married and does not address same sex or opposite sex domestic partners. Employers who accord benefits for same sex unmarried domestic partners may deem the according of such to the "unmarried partner" no longer appropriate – however those partners may, of course, marry in all 50 states. No clear expression of the law on this point currently exists. This decision is too new to fully understand all of its ramifications and each employer should carefully monitor developments.
Employers Take Action Now!
- Review your HR policies, practices and benefit programs for compliance
- Modify your FMLA policy to ensure coverage for same sex married couples but not necessarily unmarried domestic partners
- Re-interpret your COBRA benefit continuation coverage provisions
- Treat all married couples equally with respect to leave policies, retirement plans and other employer sponsored benefit programs
- If any of your policies or plans specifically reference "opposite-sex marriage," modify such
- If your state's insurance law requires employers to provide spousal coverage, make sure same sex and opposite sex spouses are treated the same
- Review your pension plan's spousal entitlement to joint and survivor annuities and your 401(k) plan default beneficiary programs
- Update personnel/payroll records including W-4 withholding
- Watch for further developments published by Dunlevey, Mahan & Furry and consult with your labor and employment law counsel
Government’s June 30th Deadline for Individual Health Policies
We have reported before that employers may no longer pay for employees’ individual health policies on a pre-tax or post tax basis. The government gave small employers (i.e. those with less than 50 employees) until June 30, 2015 to stop that practice. See this article on the rules.
The penalty for noncompliance is $100 per day (or $36,500 per year) for each employee.
Dunlevey, Mahan & Furry provides comprehensive legal services to discerning businesses throughout the United States. Areas of focus include business, employment and construction law. Visit our website at www.dmfdayton.com.
