Section 3 of the federal Defense of Marriage Act Act (DOMA) was declared unconstitutional by a three-judge panel of the First Circuit for the Federal Court of Appeals in Massachusetts v. U.S. Dept. of Health and Human Services. The First Circuit covers Maine, Massachusetts, New Hampshire, Puerto Rico and Rhode Island. The Court discussed equal protection and federalism grounds for its decision and acknowledged the Supreme Court would need to finally decide the matter. Meanwhile, a critical issue for each employer, is the practical effect of this decision on its benefit plans, particularly an employer’s self-funded group health plan.

The case arose when seven same-sex couples lawfully married in Massachusetts and three surviving spouses of such marriages brought suit in federal district court to enjoin pertinent federal agencies and officials from enforcing DOMA to deprive the couples of federal benefits available to opposite-sex married couples in Massachusetts. Thus, the ultimate resolution of the case has significant implications concerning the availability of federal programs and benefits to same-sex couples lawfully married under state law.

Section 3 of DOMA added the following definition to the United Stated Code:

Definition of ‘marriage’ and ‘spouse’ "In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.

Under this section, and because of the preemption provisions of the Employee Retirement Income Security Act (ERISA), employers could design their ERISA-covered, self-funded group health plans to exclude the same-sex spouse of an employee, while covering the opposite-sex spouse of another employee, even if the same-sex couple was lawfully married under state law. In doing so, employers generally would not be subject to state or local discrimination laws. Additionally, even if such a plan were to permit same-sex spouses to participate, it could deny continuation of coverage rights under the federal COBRA law to such a spouse. By contrast, a fully insured plan that is insured by a policy subject to the laws of a state, such as New York, which requires equity between same-sex and opposite-sex couples may not exclude same-sex spouses if it covers opposite-sex spouses. (And, if such a state also has a COBRA-like requirement under its insurance laws, the same-sex spouse would be entitled to state continuation of coverage rights.) This is because ERISA generally does not preempt state insurance laws.

The First Circuit’s ruling comes not long after President Obama announced support for gay marriage, and his administration stated last year it believed DOMA to be unconstitutional. States with laws permitting same-sex marriage are growing – see Massachusetts, Connecticut, Iowa, Vermont, New Hampshire and New York. Washington D.C. also permits same-sex marriage, and Washington state and Maryland may be next. Moreover, the Court of Appeals for the Ninth Circuit struck down Proposition 8 which denied marriage to same sex partners.

So, the trend seems to be in favor of broader legal protections for same-sex marriage. The cases from the First and Ninth Circuits are likely headed to the Supreme Court and, of course, the result cannot be predicted. However, employers should review their plans and these developments to minimize legal risks for their plans.