Domestic
Partner Insurance: Coming Soon to a City Near You?

In 1996, San Francisco boldly passed a law that required virtually all companies doing business with the city to provide domestic partners equal access to health insurance. The landmark legislation paved the way for 13 progressive cities and counties (such as Seattle; Berkeley, Calif.; and Portland, Ore.) to subsequently adopt their own equal-benefits ordinances.

Yet even with these laws, getting access to domestic-partner insurance plans was a problem -- especially for small businesses of 50 or fewer employees. While many private insurers offer DP plans to large companies, they almost universally don't offer them to small businesses. Passing a law was important because it provided the leverage to approach insurers about offering such plans to small companies.

Surprisingly, New York -- a city where small businesses make up about 97% of the market -- fell short of enacting its own ordinance in 2004. But what has happened since then may prove revelatory for governments that can't muster the political will to pass equal-benefits legislation. Not that political will was lacking in New York: The city has provided domestic-partner insurance to municipal employees since 1998. Six years later the city council voted to require the same of city vendors, passing an equal-benefits law not once but twice--the second time overriding Mayor Michael Bloomberg's veto.

The mayor, who built Bloomberg LP into a multibillion-dollar business before venturing into politics, was convinced the ordinance wasn't legal. According to his lawyers, it conflicted with state and federal laws that say city contracting processes are strictly controlled by the state. Essentially, cities don't have the power to add other considerations (e.g. which companies provide DP benefits) to the bidding process because it disrupts the free market.

Despite his reasoning, Mayor Bloomberg took a lot of heat from gay activists, who saw his veto as nothing less than antigay bigotry. When the city council overrode the veto, Bloomberg refused to implement the law, so the city council sued him. Ultimately, the New York state court of appeals sided with the mayor, ruling that the equal-benefits ordinance was in fact illegal.

So the mayor began asking a different question: In the absence of an equal-benefits law, how do you convince private insurers to make domestic-partner plans available to small businesses? His solution: Go directly to the insurance companies and, well, ask. Anthony Crowell, counselor to the mayor, recalls Bloomberg saying, "If you get a couple insurers to do it, everyone will do it, because a natural market will be created."

The mayor's team approached two of the eight insurers that provided health insurance in New York City at the time, Group Health Inc. and Health Insurance Plan of New York. Marjorie Cadogan, executive deputy commissioner of the city's Office of Citywide Health Insurance Access, remembers thinking it would be a difficult road, but the best incentive for insurers would be peer pressure. "If we could get the ear and attention of some of the bigger insurance players in New York City, market pressure and competition" would get the others on board, she says. "Insurers really work across the market -- if their competitors have a product or an offering that they don't, that's a bit of p market share that they're losing."

The biggest hurdle was to convince insurers that providing DP insurance for small businesses wouldn't be costlier than providing it for firms with more than 50 employees. While insurance rates for big companies are based on actual usage, small groups get a flat rate -- which is more expensive for insurers and could be especially problematic if domestic partners tended to seek more medical care than spouses do.

"At first, it appeared that there could be several incorrect assumptions about the risk pool involved and costs of coverage," says Bill Heinzen, deputy counselor to the mayor, who with Cadogan took part in the initial discussions. Those assumptions included concerns that domestic partners might cost more to cover due to applicants with HIV or AIDS; possible increased use of in vitro fertilization; and even some non-economic religious concerns. "We really had to encourage the insurers to sit down with their actuaries and do some homework," adds Cadogan.

One insurer, Group Health, had the benefit of analyzing data it had collected from having already provided DP coverage to New York City employees. "We did experiential studies on that population and found, in fact, their experience was no different than the non-domestic partner experience," says Steve Kessler, senior vice president for actuarial and underwriting at Group Health. "So that's why we extended coverage."

By October 2005, when Mayor Bloomberg signed an executive order to educate businesses about the value and availability of DP insurance, four insurers had agreed to voluntarily provide domestic-partner plans: Group Health, Health Insurance Plan of New York, Empire Blue Cross/Blue Shield, and Horizon (since merged with another insurer). Over the next 20 months the city engaged in what Cadogan calls a "charm offensive," and by summer 2007 the remaining insurers had fallen in line: Oxford, Aetna, Atlantis, Cigna, and HealthNet.

Matt Foreman, executive director of the National Gay and Lesbian Task Force, was blown away. "We worked for years to get the New York State Insurance Department and health insurance companies to offer domestic-partner coverage to companies with fewer than 50 employees, and got nowhere," he says, referring to his days working at the New York City Gay and Lesbian Anti-Violence Project and the Empire State Pride Agenda.

Cadogan hopes the accomplishment doesn't stop at the border of New York. "I think it's a model that can be used fairly effectively in other parts of the country," she says, "without creating the kind of tension that legislation can."

But passing legislation does have several advantages, says Cynthia Goldstein, who oversees the city of San Francisco's equal-benefits program as a senior contract compliance officer. First, legislation provides a real carrot for employers to offer DP benefits: If they don't, they aren't eligible to bid on contracts with the city. (That's not the case in New York.) Goldstein estimates that roughly 500 companies nationwide offered DP insurance back in 1996; now about 4,700 small businesses that contract with San Francisco provide DP coverage. Equal-benefits ordinances also mandate more extensive benefits, like family leave, bereavement leave, long-term disability insurance, dependent life insurance, and retirement plans.

But whether the push for benefits comes from legislation or a strong-willed politician, the effect on private insurers is the same. They get on board once they realize there's more business to be gained than there is money to be lost. That fact wasn't lost on Denver-based Anthem Blue Cross and Blue Shield in Colorado, which started offering small-group DP plans in the state this summer without either the pressure of a law or wrangling from a bureaucrat. Says Anthem spokeswoman Sally Vogler: "I think 50% of Fortune 500 companies offer same-sex domestic-partner benefits to their large groups--it just simply made sense to us to expand this to small groups."

For Goldstein, Anthem proves there's a market for DP benefits just waiting to be tapped. "I think that if the shareholders of these insurance companies that are still not offering domestic-partner benefits were informed about it, they'd be furious," she says. "They're missing out on profits that they'd like to obtain."