United States: What Recent Supreme Court Rulings Mean For Employee Benefits

The U.S. Supreme Court recently issued two rulings that impact employer-provided benefits: King v. Burwell upheld subsidies for individuals who obtain coverage through the federal exchange, and Obergefell v. Hodges struck down state laws prohibiting same-sex marriage.

King v. Burwell

In King v. Burwell, the Court held that the Patient Protection and Affordable Care Act ("ACA") allows the federal government to provide subsidies for health care coverage regardless of whether the coverage was purchased on a state exchange or through the federal government's exchange.

A fundamental goal of the ACA is providing affordable and quality health care coverage to Americans. The key provisions under the ACA to attain this lofty goal are (i) insurance reform requirements, including guaranteed issue and community rating requirements, (ii) the individual mandate requiring individuals to maintain health care coverage or pay a penalty to the IRS, and (iii) government subsidies to make health coverage more affordable to low wage earners. Without these key provisions working in unison, the Court admonished that the individual insurance market would be destabilized and "likely create the very death spirals that Congress designed the [ACA] to avoid."

While efforts to repeal or otherwise challenge the ACA are expected to continue, the Court's ruling in King v. Burwell does not change the employer mandate. Applicable large employers continue to be at risk for an assessment of IRS penalties if they are not offering affordable, minimum value health coverage to full-time employees. Accordingly, applicable large employers should move forward with previous decisions regarding strategies for offering coverage and avoiding potential penalties as well as preparing to satisfy the ACA reporting requirements that take effect this year.

Obergefell v. Hodges

The Court struck down all state bans on same-sex marriage in Obergefell v. Hodges. As a result, employees with a same-sex partner may legally marry in any state, and those that were married in a state that had previously legalized same-sex marriage will have their marriage recognized as legal in all 50 states.

Although the Court's ruling did not expressly require employers to provide equal treatment for employees in same-sex marriages as compared to opposite-sex marriages, employers should consult with their attorneys before continuing any employment practice involving inequality on the basis of same-sex marital status. The Equal Employment Opportunity Commission ("EEOC") is actively investigating employers that are not providing equal treatment for employees with same-sex spouses; treating such inequality as sex discrimination in violation of Title VII of the U.S. Civil Rights Act. Similar investigations and civil actions are anticipated at the state level as well. Employers no long have the defense that they are domiciled in a state with a constitutional or statutory ban on same-sex marriages. Moreover, employee morale and public relations likely will influence employers' decisions regarding equal treatment of employees with same-sex spouses.

From the perspective of employer-provided benefits, the Court's ruling raises the question of what benefit changes need to be implemented. For employers currently providing equal benefits to same-sex spouses, the decision may have little impact, other than changes in state tax withholding and reporting requirements. For example, an employer in Nebraska, Ohio or Wisconsin that is currently imputing state income taxes to an employee for the value of the employer-provided health care coverage to his or her same-sex spouse should stop imputing that income and continue to monitor guidance from the state tax departments on any retroactive effect of Obergefell decision. For an employer that is not currently providing equal benefits to same-sex spouses except where specifically required by federal or state law (e.g. in the case of qualified retirement plans, such as 401k, 403b or pension plans), such employer now must consider if it will provide equal benefits to same-sex spouses. As discussed in the preceding paragraph, employers should carefully review with their advisors any decision to continue unequal benefit policy for employees with same-sex spouses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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