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Increased costs of domestic partner coverage feared by Pitt not seen in other plans
Monday, September 20, 1999 By Christopher Snowbeck, Post-Gazette Staff Writer
Companies across the country that offer health insurance benefits to domestic partners say the costs of doing so are no greater than the costs of covering married spouses.
What's more, since relatively few employees take advantage of domestic partner benefits when given the chance, any cost increases that come with covering more employee dependents have also been quite small, employers say.
Both arguments run counter to the position forwarded by the University of Pittsburgh, which earlier this month said its primary insurer -- Highmark Blue Cross Blue Shield -- might apply an immediate surcharge of 2 percent to Pitt's base insurance premium if it offers domestic-partner coverage. That would amount to a $308,000 hit, officials said.
The university also argued that it would have to pay an additional $750,000 for every 10 percent of the 3,292 employees now receiving individual benefits who chose coverage for a domestic partner.
"The cost of providing such benefits would be substantial," Pitt said in a statement on the matter released earlier this month.
Ken Service, Pitt's spokesman, refused to comment on how the university's argument fits with the perspectives of industry experts who have studied the issue.
An official at the UPMC Health Plan, for example, said relatively few employees usually opt for the benefit.
"From what we've heard from our actuarial support, there is no significant additional cost for the benefit," said John DeGruttola, chief marketing officer for the UPMC Health Plan, which covers a portion of Pitt's employees.
He said his company has not dealt with clients who have established the benefit, but the UPMC Health Plan likely would not apply a surcharge to an employer that offered it, he said.
Whereas Pitt wonders if it can afford offering domestic partner benefits to employees, others say they can't afford not to.
"It's not something we want to stop offering because we want to be competitive," said Lori Kobayashi, benefits manager for Fore Systems, which has provided benefits to domestic partners for at least the past six years. A few dozen of Fore's 2,500 employees take advantage of the option, Kobayashi said.
Domestic partners are not part of the company's definition of covered dependents, Kobayashi said, and employees learn of the coverage practice through word-of-mouth.
"Most of our competitors [offer domestic partner benefits] on the West Coast," she said. "In the Pittsburgh area, it's a very progressive benefit to give employees, but in California it's not."
Across the country, there are more than 2,800 private companies, colleges and universities and state and local governments that offer domestic partner health coverage, according to a report published this month by the Human Rights Campaign, a Washington, D.C.-based gay rights organization.
One of the catalysts was passage of San Francisco's Equal Benefits Ordinance in 1997, which mandates that any company doing business with the city or county of San Francisco must offer the same benefits to the domestic partners of its employees as those offered to spouses.
The San Francisco law led to the adoption of domestic partner benefits by San Francisco-based Chevron. What followed was a domino effect in the oil industry, according to the Human Rights Campaign, as Shell, BP, Amoco and Mobil followed suit.
United Airlines announced this summer that it would extend domestic partner benefits and was quickly followed by American Airlines and US Airways.
According to the Human Rights Campaign, there are 71 Fortune 500 companies that either offer the benefits or have plans to do so, including IBM, AT&T and BankAmerica Corp.
In the case of BankAmerica, the domestic partner benefit is called "extended family" benefits, because employees also have the option of bringing a parent or relative other than a domestic partner into the health plan, said Juliet Don, spokeswoman for the company.
Concerns that covering domestic partners -- particularly same-sex partners -- could expose a health plan to the costs of covering more AIDS patients have proven unfounded, said Terry Thompson, a consultant in Washington, D.C., with Hewitt Associates, a benefits consulting firm. For one thing, it's not clear that there are more AIDS cases in the domestic partner population, she said. Even if there were, any costs tied to treatment of AIDS likely would be offset by other coverage factors, such as the lower incidence of pregnancy and of dependent children in the domestic partner population, she said.
"Five or six years ago, everyone was worried about cost," Thompson said. "Today, the feeling is it doesn't expand your costs. ... It's not disproportionately more expensive because of the particular kind of person you're covering -- I think that's where most employers have come out on the cost issue."
Some of the first plans to offer domestic-partner benefits limited them to same-sex couples, arguing that heterosexual domestic partners had the option to marry in order to receive benefits. But that has changed, with the trend now being that employers who extend the benefits offer them to homosexual and heterosexual domestic partners.
In either case, employers have not seen their health care costs balloon as a result of covering the new population, Thompson said, adding that health plans that cover domestic partners have grown in size on average by less than 1 percent.
Many employers ask domestic partners to sign some sort of affidavit stating they are in a committed relationship, Thompson said. Some companies, however, don't require such proof, Thompson said, just as they don't require married couples to supply marriage certificates.
Fore Systems requires that domestic partners provide proof that they live together and receive bills at the same address, said Kobayashi, the benefits manager.
At the University of Michigan, regulations say that partners must be: of the same sex; not legally married to another individual; not related by blood in a manner that would bar marriage; have allowed at least six months to pass since a statement of termination of a previous same-sex domestic partnership; and have registered the domestic partnership with a municipality or other government entity. Ann Arbor, Mich., for example, allows residents and non-residents to complete a "Declaration of Domestic Partnership," which must be registered with the city clerk.
One limiting factor in registering is that some employees with same-sex domestic partners fear they will be inadvertently outed at work if they sign up for benefits.
There's also an economic explanation: Employees who register their domestic partners for health benefits take a hit on their taxes. That's because the difference in value between the individual's health insurance premium and the premium for covering a domestic-partner couple must be reported as income on the employee's taxes.
"What's absolutely clear is that if your domestic partner is an employee of another company and has benefits there, you wouldn't be better off having them covered under your plan," Thompson said.
At the University of Pennsylvania, the costs of offering domestic-partner benefits have been small, said Carol Scheman, vice president for government, community and public affairs. Penn started offering the benefits in 1994.
"To my knowledge, all of the other [Ivy League] and all the other first-rank, large research universities offer this," Scheman said. "We are competing to recruit the best candidates and this is simply part of a competitive benefits package."
The University of Michigan began offering domestic-partner benefits in 1995 and, like Penn, has seen no cost problems related to the policy, said Pam Gerber, interim director of benefits at the university. Out of 35,000 active and retired faculty and staff eligible for health coverage at Michigan, only 146 have elected to cover domestic partners.
The university did have a problem with the state legislature -- the sort of trouble Pitt officials fear.
In June, the House approved a bill that would cut off state funds to the University of Pittsburgh and other state-related universities if they provide health benefits to unmarried domestic partners. Under the amendment sponsored by Allan Egoff, R-Cumberland, the state-owned and state-related colleges and universities could not provide health benefits to a person living with one of its employees, unless the person was the employee's spouse or child.
Similarly, Michigan legislators passed a law in 1996 to reduce university appropriations by an amount equal to the cost of extending employee benefits to the unmarried partners of university employees. Ultimately, however, the law was struck down by the state attorney general.
As for costs, neither Michigan nor Penn had to pay a special surcharge on premiums to their insurance carrier simply because they extended benefits to domestic partners -- Pitt has said that this, alone, could cost the university $308,000.
At one time, insurers regularly applied surcharges because they were unsure about what sort of claims the new domestic partners would generate for any given health plan, said Andrew Sherman, a consultant in Boston with the Segal Co., a benefits firm based in New York.
"But what we have found with our clients is that any insurance company that originally had a surcharge dropped it within a year or two," said Sherman, who has worked with dozens of companies that offer the benefit.
Sherman said that companies that are "self-insured" -- meaning they take the financial risk of covering their employees' claims -- have had an easier time implementing domestic-partner benefits, since they don't have to deal with the surcharge issue. But employers such as Pitt with "fully insured" health plans -- meaning the insurance company takes the risk -- still must contend with the issue. Oftentimes, though, companies can negotiate with insurance companies to whittle away at any surcharge a carrier might want to impose.
"We have found that the claims that domestic partners actually incurred were the same as or lower than the claims experience of other dependents in the employers' medical benefits program," Sherman said. "Consequently, insurers have been willing to drop the surcharge rates."
Michael Weinstein, spokesman for Highmark Blue Cross Blue Shield, said his company received approval in July 1998 from the Insurance Department to impose a surcharge of up to 2 percent on companies that offer the benefit because the company doesn't have any "track record" in dealing with domestic partners.
Highmark has maintained that it wouldn't necessarily apply the 2 percent surcharge on employers who offer the benefit, but Tom Tomczyk, a benefits analyst with William Mercer & Co. -- Pitt's health insurance consultant -- said Highmark has done so for at least one employer in Pittsburgh. Tomczyk said he could not release the name of the company.
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