Understanding The Total Cost of Adding A Domestic Partner to Benefits
At News Corp, Dow Jones, Storyful, Realtor.com, IBD, and NCS – you can include a domestic partner as a covered dependent under our medical, dental, and vision plans. The plans define a domestic partner as an individual with whom you reside. This person is considered your sole domestic partner with an intention to remain so indefinitely. And you must currently share responsibility for each other’s common welfare and financial obligations. If you meet those criteria – you may add them to coverage via our enrollment website. But prior to doing so it is important that you take into consideration the three key ways doing so could increase your health plan costs. And factor this in when calculating the additional costs to you for adding your domestic partner to benefits versus their encountering their own coverage options.
The first is the easiest – that is simply calculating the difference between your current premium (paycheck deductions) and the premium you would pay by adding on a partner. This can be calculated right on this website under the “New Hire Information” tab at the top of this page. Scroll down the page a bit and you will find the “Which Plan Is Right For You” calculator. But since this is a domestic partner – note the additional premium you will pay will be taken on an after-tax basis. More on that below.
Now things get a little more complicated:
If you are in the Aetna POS Plan – adding a dependent means they will now have their separate “Individual Deductible” and “Out of Pocket Maximum” to pay through. This means you would have a $600 deductible for yourself to satisfy – after which the plan pays 20% of costs, and your partner would have a $600 deductible as well. Hence the $1,200 “family” deductible. Of course this is moot if you don’t actually incur $600 of costs beyond the normal plan copays. But it’s something to be aware of as a potential cost.
If you are in the Aetna CDHP or Basic Choice plan – then you will now have the full “family” deductible and out of pocket maximums applied to you. Meaning for the CDHP as an example instead of having to incur $1,500 in cost before moving to the 20% coinsurance you would have $3,000 to get past. Keep in mind though that it is just one deductible so anything you or your partner incur will count against that same deductible and out of pocket maximum. And as with the POS plan – if you aren’t incurring thousands of dollars in healthcare costs this isn’t something that necessarily needs to be factored in.
This is the one that sneaks up on most people: – Imputed Income
If there was one thing we have heard over the years was a surprise to most people who sign up a domestic partner – it’s the imputed income. Employee health and retirement benefits are one of the very few areas where an employer can provide something of value to an employee and that form of compensation is not taxed. That is part of what makes employee benefits so valuable to people. So even though you are in receipt of a multi-thousand dollar health insurance policy – you don’t pay taxes on it. That said – IRS rules do not recognize the coverage of a domestic partner as a tax free event. So when you cover a partner – the IRS treats that compensation in the same way it does your normal salary. You must be taxed on the cash value of the extra insurance you now have to cover your partner. So what happens behind the scenes is that the value of that policy is applied (imputed) to your income. You are taxed on this now larger value and then the amount is subtracted from your income. So you have been taxed on a higher amount of income than you are actually being paid via salary. This can reduce your net pay in a way that might come as a surprise.
Let’s illustrate^ this:
Coverage as a Single Employee Earning $85,000 per year enrolled in the Aetna CDHP | Domestic Partner Coverage for this employee enrolled in the Aetna CDHP |
Your current bi-weekly paycheck deduction: $49.04 | Adding a Spouse / Partner to coverage increases that by another $49.04 (total $98.08) – with the additional premium being taken on an after tax basis. |
The full premium value of this policy is: $272.02 | The full premium value of this policy is:
$612.04 |
That means the taxable portion of this payment is $612.04 – $49.04 (which was taken after tax) – $272.02 (the value of single coverage) = $290.98 | |
Effective tax rate for someone earning $85k = 24% | Imputed income tax amount $290.98* 24% = $69.84 – this is how much would be taken out of your net pay for the purpose of paying tax on this benefit. |
So what this means is that this employee’s income would be reduced by an additional $49.04 in premium deductions as well as $69.84 tax payments for a total of $118.88 per paycheck. If you annualize these bi-weekly amounts by 26 you will get a sense of the total impact of signing up your domestic partner into coverage. This amount could still be a steep discount to purchasing insurance on the open market. But it could be a point of consideration if your partner has a health insurance option with their own employer.