UH Economic Report: The Impact of Civil Unions on Hawaii’s Economy and Government

May 24, 2010 Report by Sumner La Croix, Professor, Department of Economics, University of Hawaii-Manoa and Kimberley Burnett, Assistant Specialist, University of Hawaii Economic Research Organization, University of Hawaii-Manoa.

Summary

On 29 April 2010, the Hawaii State Legislature passed HB 444, a measure that allows
same-sex and opposite-sex couples to enter into civil unions. This report provides
quantitative and qualitative measures of the impact of civil unions on the Hawaii
economy, Hawaii businesses, and the State of Hawaii’s budget.

More specifically, we examine the effect of civil unions on tourism arrivals to Hawaii; state government revenues and expenditures; employer provision of health insurance to civil union partners and their dependents; and the family with civil union partners. We conclude that the legalization of civil unions in Hawaii will have only a very minimal impact on any aspect of Hawaii’s economy and state government operations.

Background

Five states—Connecticut, Iowa, Massachusetts, New Hampshire, and Vermont—and the
District of Columbia allow same-sex couples to marry.1 Five more states allow same-sex
couples to enter into a domestic partnership (California, New Jersey, Nevada, Oregon,
and Washington) or a civil union (New Jersey) that provides couples with substantially
the same set of rights and responsibilities provided to married couples under state law.2
The marriages, civil unions, and domestic partnerships provided to same-sex couples in
these ten states provide fewer rights and responsibilities than traditional opposite-sex
marriages because they are not recognized by the U.S. government. Partners in these
relationships are denied rights granted to spouses of veterans, federal employees, and
military personnel; they are not eligible for federal housing, food stamps, or social
security benefits provided to spouses; and they are not treated by the federal government
as spouses for tax purposes, bankruptcy, inheritance, student loans, and agricultural loans.

1) California recognizes same-sex marriages performed in California between May 15, 2008 (when the
California Supreme Court issued a decision legalizing same-sex marriage) and November 4, 2008 (when
California voters approved Proposition 8 which amended the California Constitution to prohibit same-sex
marriage).

2) Several rights provided by the state to married couples are often not provided to same-sex couples by civil
unions and domestic partnerships. The California Supreme Court recently noted eight differences between
the rights granted by the state to domestic partnerships and to married spouses. See In re Marriage Cases,
43 Cal.4th 757 (2008), footnote 24.

La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 2 of 12.
The Hawaii civil union legislation (HB 444) follows New Jersey in providing civil
unions, rather than domestic partnerships, to same-sex couples who are both at least 18
years of age. Hawaii couples who would like to enter into a civil union would be
required to apply for a license.

A civil union differs from an otherwise equivalent
domestic partnership by its requirement of a ceremony after the license has been issued
and its status as a vital event recorded in a state registry that is not accessible by the
general public. The Hawaii civil union legislation follows Nevada in allowing oppositesex
partners to choose this relationship. Our report focuses on the economic impact of
same-sex civil unions.

Three states which now allow same-sex couples to marry had previously allowed samesex
couples to enter into a civil union. These states are Connecticut, New Hampshire,
and Vermont. This allows us to draw upon their experiences with civil unions as well
experiences from New Jersey, a state that currently provides civil unions.3 We draw
upon these experiences to answer a critical question: How many same-sex couples in
Hawaii will choose to become civil union partners? The answer to this question is
particularly important, as the size of the impact of civil union legislation is often related
to the number of couples choosing this relationship.

Vermont’s 2000-2009 experience with civil unions provides a good benchmark for
Hawaii, as there are many similarities between the two states. Vermont is a small, rural
state, with 638,000 people. Like Hawaii, Vermont has a state income tax, a state sales
tax, a large tourism industry, an agricultural sector in transition, and great natural beauty.4

In April 2000, the Governor of Vermont signed legislation authorizing civil unions,
effective 1 July 2000. The Vermont Secretary of State reports that between July 2000
and August 2006, the Secretary of State’s office registered 1,286 civil unions of Vermont
same-sex couples and 8,058 civil unions of out-of-state same-sex couples. The 2,572
Vermont residents who entered into civil unions during the relationship contract’s first
six years represented just 6/10th of 1 percent of the state’s 2005 population between the
ages of 18 and 65.

If Hawaii residents have the same propensity to enter into civil unions as Vermont
residents, then the State of Hawaii’s Department of Health would register 2,292 civil
unions of Hawaii same-sex couples between July 2010 and August 2016.5 This would
translate to 382 civil unions per year, with more civil unions occurring towards the
beginning of the period. A cross-check of this estimate comes from U.S. Census data

3)  We could also draw upon experiences from the four western states with domestic partnerships that offer
rights and responsibilities that are substantially the same as those of marriage. The two main differences
between domestic partnerships and civil unions are that (1) a civil union is valid only upon completion of a
solemnization by a licensed person and (2) a domestic partnership is registered in a public registry.

4) Unlike Hawaii, Vermont has a large (declining) manufacturing sector and the ethnic composition of its
population is overwhelmingly Caucasian.

5) This assumes that many Hawaii same-sex couples, like Vermont same-sex couples, will not immediately
choose a civil union relationship. It also assumes that the “backlog” of existing couples that ultimately
decide to enter into a civil union will clear within six years.

La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 3 of 12.
which indicate that 3,262 self-declared same-sex couples resided in Hawaii in 2005
(American Community Survey, 2005).

If 50 percent of the 3,262 same-sex couples entered into civil unions between July 2010 and August July 2016, this would amount to
1,631 same-sex civil unions. If, however, legalization of civil unions causes more samesex
couples to become more public about their relationship, then the estimate derived
from the Vermont experience could be more plausible.

For the rest of this report, we use an average of the two estimates for the number of civil unions (1,962).
Impact of Civil Unions on Tourism Arrivals to Vermont and Hawaii

There are two main channels by which legalization of civil unions in Hawaii could affect
visitor arrivals to Hawaii.

First, tourism flows could be affected by the change in the character of the destination,
e.g., that it has become more supportive of same-sex couples and gay, lesbian, and
bisexual residents. However, the passage of civil rights legislation for gays and lesbians
in such cities as Los Angeles, Seattle, San Francisco, Boston, and New York City has not
been associated with declines in visitor arrivals or the growth rate of visitor arrivals in
these cities.

The rise of a more visible gay community in Singapore has also not been
associated with declines in visitor arrivals or the growth rate of visitor arrivals. The
absence of bad news associated with gay and lesbian civil rights legislation is significant,
as each of these cities hosts over ten million tourists annually.

To date, there is also no evidence that the legalization of same-sex marriages
(Connecticut, Iowa, Massachusetts, New Hampshire, Vermont, and the District of
Columbia) or the recognition of same-sex marriages performed in other states (New
York, Rhode Island, and Maryland) or the recognition of civil unions and domestic
partnerships (California, Nevada, New Jersey, Oregon, and Washington) have adversely
affected tourism arrivals to any of these states.

Second, the legal recognition of civil unions in Hawaii will motivate some same-sex
couples residing in other states that recognize civil unions or their domestic partnership
equivalent (California, New Jersey, Oregon, Washington, and Nevada) to visit Hawaii for
their civil union or domestic partner commitment ceremonies rather than to have them in
the dreary Oregon rain or Washington sleet or Nevada heat. Many will be accompanied
by relatives and friends. Similarly, some civil union ceremonies for resident same-sex
couples will bring off-island relatives and friends to Hawaii for the ceremony, just as
family and friends accompany opposite-sex couples for their wedding ceremonies.
How many more visitors should Hawaii expect if it legalizes same-sex civil unions?

6) In 2007, the number of visitor days from visitors coming to Hawaii to get married totaled
1.17 million days. In 2007, the number of visitor days from visitors coming to Hawaii
for a honeymoon totaled 3.82 million. Over 43 percent of the visitors coming to Hawaii
to get married and over 49 percent of the visitors coming to Hawaii for honeymoons were
from the United States. Consider that civil unions are currently legal in states with 19
6 All visitor data are from the 2007 Annual Visitor Research Report, DBEDT, State of Hawaii. Population
data are from the U.S. Census.
La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 4 of 12.
percent of the U.S. population. If Hawaii received even 1 percent more visitors from
these states consisting of same-sex couples coming to Hawaii for a civil union or a civil
honeymoon, then 9,500 additional visitor days would be generated.

Assuming that each visitor spends $152 per day, this would generate $1.4 million. Visitors who come to
Hawaii to enter into a civil union are likely to spend additional resources on their
ceremonies and celebrations. Using data from The Wedding Report (published by a
wedding industry research group), Christopher Ramos, Associate Professor Lee Badgett,
and Brad Sears estimated that additional wedding expenditures by same-sex couples
would amount to at least $2,181, or one-tenth of the expenditures of an opposite-sex
couple. If 1,000 couples visited Hawaii each year to engage in civil unions, then there
would be additional spending of $2.2 million dollars. Honeymoon couples are also likely
to generate additional spending. “Multiplier effects”—additional spending generated by
recipients of visitor spending–would lead to additional expenditures (See the analysis in
the next section for estimates of these impacts).

Impact of Civil Union on Hawaii State Government Revenues

Opposite-sex Hawaii couples who choose to marry often find that they are subjected to a
marriage tax penalty, i.e., their joint state and federal income tax obligations increase.
Politicians regularly pledge that they will eliminate the marriage tax penalty, yet
inevitably learn that when the state income tax is a progressive tax,7 the marriage tax can
only be eliminated by creating other inequities in the tax code.8

If HB 444 were to become law, then Hawaii’s personal income tax code would treat
parties to civil unions like married couples. Because the Hawaii income tax is a
progressive income tax, some individuals choosing to become civil union partners will
jointly pay in state income taxes, i.e., they will be subject to a civil union tax penalty. So
under what circumstances will a couple choosing to become parties to a civil union pay
more state income taxes?

Married and civil union couples are more likely to pay a “civil
union” tax penalty in Hawaii when (1) both parties are working, (2) their incomes are
similar, and (3) they both earn incomes that are taxed at less than the maximum marginal
tax rate.

Alternatively, if only one party is working, the two parties’ incomes are very
different, and one party is already being taxed at the highest marginal tax rate, then the
civil union couple will likely receive a civil union subsidy, i.e., the couple’s joint tax bill
falls due to their decision to enter into a civil union. In Hawaii, most same-sex couples
entering into a civil union are likely to pay a civil union tax due to the high percentage of
individuals in same-sex couples (77 percent) who are employed (American Community
Survey, 2005).

Our very tentative conclusion is that enactment of civil union legislation
is likely to increase state income tax revenues due to a civil union tax penalty. But any

7) An income tax is progressive when income taxes paid by individuals (or married couples) increases as a
percentage of income when their incomes increase. The federal income tax is progressive and most state
income taxes are progressive.

8) Public finance economists have convincingly demonstrated that a progressive income tax —such as the
Hawaii personal income tax—cannot ensure that couples with equal incomes pay equal taxes AND that a
couple’s tax bill will not rise solely as a consequence of their marriage. For a good discussion of the
marriage penalty, see N. Gregory Mankiw, Principles of Economics, 5th ed., Thompson Learning Inc., pp.
257-259.

La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 5 of 12.
increase in income tax revenues is likely to be very small and difficult to estimate with
any precision.

Civil unions will, however, generate additional revenue from the issuance of civil union
licenses. At $60 per license (the current fee for a marriage license), an estimated 1,962
civil unions for Hawaii residents will generate $117,720 between 2009 and 2015 and an
estimated 4,000 to 8,000 civil unions for out-of-state visitors will generate $240,000 to
$480,000 over the same six-year period.

Civil unions will also generate additional excise tax revenue from the additional spending
on civil union ceremonies and celebrations by resident and visiting same-sex couples.

Using average spending for U.S. visitors of $152 per person per day, the 9,500 additional visitor days generated from civil unions ceremonies would produce an additional $1.4 million in direct visitor spending. Using the implicit multiplier from the Hawaii State Input Output study (1.94), total spending on civil union ceremonies is estimated at approximately $2.7 million.9 The additional $2.2 million in expenditures on celebrations
discussed in the section above would generate approximately $4.2 million in additional
visitor spending. Therefore, the total impact from civil union ceremonies and celebrations
would be approximately $6.9 million. Using a gross excise tax rate of 4.35%, this would
generate excise tax revenues of approximately $300,000 annually.10 We note that the
additional income would also generate additional state income tax revenues.

These estimates do not take into account additional spending by in-state couples on instate
civil union ceremonies and/or in-state honeymoons by in-state couples. With
respect to opposite-sex civil union couples, it seems highly unlikely that they would
travel to Hawaii to become bound by a relationship that is not recognized in their home
state (except Nevada) and that precludes marriage of either party. Nor do we expect that
in-state opposite-sex couples would celebrate a civil union relationship that is
demonstrably inferior to a marriage recognized by both state and federal governments.
Impact on Hawaii State Government Agencies

Two states—Vermont and New Jersey—have issued reports on the implementation of
civil unions in these states. The Vermont Commission issued its second and final report,
Report of the Vermont Civil Union Review Commission, in January 2002. The Report
concluded that “Act 91 (Civil Unions) has had minimal impact on state government
operations,” a “negligible impact on state courts”, and that “Act 91 is working as
intended.”

In particular, the Commission observed that five important agencies had
“reported minimal impact [on their operations]: the Department of Health, the Office of

9) The implicit multiplier of 1.94 was calculated by the authors, based on the share of visitor expenditures
reported in the 2005 Hawaii Input-Output study, available at:
https://hawaii.gov/dbedt/info/economic/data_reports/2005_state_io

10) The State of Hawaii General Excise Tax is a 4 percent levy on receipts from sales of all final goods and
services. The State of Hawaii collects an additional 0.5 percent levy for the City and County of Honolulu
that is dedicated to construction of the City’s proposed rail transit system. Our use of a GET rate of 4.35
percent reflects a simple assumption that 70 percent of expenditures incurred by the new flow of civil union
visitors will be on Oahu and 30 percent of expenditures on the Neighbor Islands.
La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 6 of 12.
the Secretary of State, the Department of Banking, Insurance, Securities, and Health Care
Administration, the Department of Personnel, and the Department of Taxes.”

The Final Report of the New Jersey Civil Union Review Commission, The Legal,
Medical, Economic & Social Consequences of New Jersey’s Civil Union Law, was issued
in December 2008. “The State Departments testifying before the Commission
unanimously confirmed that the implementation of the [NJ] Civil Union Act has resulted
in minimal costs to the State” (p. 27). Administrators of these departments found that the
transition was “seamless” and “smooth”.

The main costs to Hawaii’s government would result from changes in forms, computer
reprogramming, and training sessions for employees at the Dept. of Taxation, the Dept.
of Health, and the Dept. of Labor. There is no reason to believe that government
agencies in Hawaii would bear higher costs than Vermont’s agencies to implement
relevant provisions of HB 444.

In fact, there are a number of reasons why Hawaii state
and local officials and agencies should have lower adjustment costs to civil unions: They
can learn from vital statistics forms, tax forms, and real estate forms already produced in
other civil union states; and they can consult with New Jersey officials who have
extensive and recent experience in resolving problems with implementation of civil union
legislation and with California, Oregon, Nevada, and Washington officials who have
recently implemented domestic partnership legislation.

Impact on Healthcare Insurance Coverage
The enactment of civil union legislation in Hawaii is unlikely to lead to a substantial
increase in the percentage of Hawaii’s population covered by health insurance. The
primary channel by which two parties entering a civil union could increase health
insurance coverage is when one party did not have coverage prior to the civil union but is
eligible for and elects to pay for coverage under the civil union partner’s employerprovided
health insurance.

Three factors serve to limit the number of parties receiving
coverage via this channel: (1) the small number of same-sex couples in Hawaii who are
likely to choose civil unions, (2) the high percentage of Hawaii’s population already
covered either by government or private health insurance plans, and (3) the small
percentage of same-sex couples who sign up their partners for health insurance when it is
offered by their employer. Our analysis shows that the number of civil union parties who
are expected to obtain health insurance via this channel is 23 to 46.11

We use a three-part analysis to estimate the number of civil union parties who are likely
to obtain health insurance coverage from their civil union party. First, we use our earlier
estimate (p. 2) that 1,962 in-state same-sex couples will choose to enter into civil unions
between July 2010 and August 2016. For one civil union party to obtain health insurance
via the second party’s employer-provided plan, the second party must already have health
insurance coverage. For purposes of our analysis, this sets a ceiling of 1,962 people who
could possibly obtain coverage by entering into a civil union.

11 See p. 11 for this calculation.

La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 7 of 12.
Second, the ceiling of 1,962 people is derived under the unrealistic assumption that all instate
same-sex civil unions will have one party without health insurance and the second
party with employer-provided health insurance.

When two parties enter into a civil union, the civil union will not lead to an increase in health insurance coverage if (1)
neither party to the civil union has employer-provided health coverage or (2) both parties
have employer-provided coverage or (3) the party with employer-provided health
coverage works for a company or government that provides benefits to domestic partners
without a formal legal relationship with the employee or (4) the party with employerprovided
health coverage works for a company that self-insures its health insurance
program for its employees under the federal ERISA law and, therefore, may not be
required to offer health insurance to civil union partners (who are not recognized by
ERISA). Consider now the types of couples that would probably fall into each category.

1. Neither party has employer-provided health insurance. (1) If both parties are
retired from the workforce and are over 65, then each party receives almost complete
health insurance via enrollment in the federal government’s Medicare program both
before and after they enter into a civil union; their civil union would not affect the
number of people covered by health insurance. A similar reasoning applies if just one
party is retired and has coverage via Medicare. The Current Population Survey of the
U.S. Census for 2008 shows that 90.1 percent of Hawaii’s population over the age of 65
is covered by Medicare.12 In 2008, Hawaii population had 190,067 people over the age
of 65; that is 19.0 percent of the adult (over 18 years) population of 1,002,955.13 (2) If
both parties are working and each works less than 20 hours per week (e.g., two 25-year
old graduate students), then neither party is likely to have employer-provided health
insurance; their civil unions would not affect the number of people covered by health
insurance. (3) If neither party is working, then neither party can claim employerprovided
health benefits.

2) Both civil union parties have employer-provided health insurance benefits. When
both parties have employer-provided health insurance benefits, their civil union will not
change the number of people with health insurance.

It is, of course, possible that after these two parties enter into a civil union, one party will
choose to be covered by the other party’s employer rather than by their own employer.
Some employers even provide supplementary insurance to cover gaps in coverage
obtained from a spouse’s employer. While a switch to a spouse’s insurance carrier is a
common occurrence when an opposite-sex couple marries, it almost never happens when
a same-sex couple marries or enters into a civil union and both parties continue to work
full-time jobs. The limited switching is due to the higher effective price of insurance paid
12 Current Population Survey, U.S. Census Bureau, Table HI05. Health Insurance Coverage Status and

Type of Coverage by State and Age for All People: 2008. Available on-line at
https://www.census.gov/hhes/www/cpstables/032009/health/h05_000.htm.
13 Population Division, U.S. Census Bureau, Estimates of the Resident Population by Selected Age Groups
for the United States, States, and Puerto Rico: July 1, 2008 (SC-EST2008-01), Table 1.
La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 8 of 12.
by the employee to cover a domestic partner rather than a spouse.

This price gap is primarily due to federal, and in some cases, state, policies specifying how employer
provided fringe benefits are treated by federal and state tax authorities. Federal law
allows the employee to pay premiums on employer-provided health insurance for the
employee, spouse, and dependents from the employee’s pre-tax income, but premiums
paid for the employee’s civil union party and the party’s dependents must be paid from
the employee’s after-tax income.

How much would this increase the price paid an employee for employer-provided
health insurance for the employee’s civil union party vis-à-vis an identical employee’s
opposite-sex married spouse? Employers are required to report the fair market value of
the employer’s financial contribution towards health insurance coverage for nondependent
same-sex partners as taxable wages earned for the employee.

In addition, the employee’s financial contribution must be paid from the employee’s after-tax income.
The combined effect of these policies is that the cost of the civil union partner’s health
insurance to the employee is higher relative to a married spouse by an amount equal to
the additional federal and state income taxes, social security tax and Medicare tax on the
full premium. In a 2007 study, Lee Badgett found that employees with domestic partners
“pay on average $1,069 per year more in taxes than would a married employee with the
same coverage.”14 A Hawaii employee earning $80,000 would face a marginal federal
income tax rate of 28 percent, a marginal Hawaii income tax rate of 8.25 percent, a social
security tax rate of 6.2 percent, and a Medicare tax rate of 1.45 percent.15 Since some of
these taxes are deductible against one another, consider an overall marginal rate for the
Hawaii employee of 35 percent. In 2008, the additional cost of a family premium in
Hawaii (which covers a partner and dependents) was $7,213.16 At a 35 percent tax rate,
the additional taxes due would be $2,525.
3. Employer of one party provided health insurance to the employee’s same-sex
domestic partner prior to their civil union. Since 2006, all full-time (more than 20
hours per week) state and county employees in Hawaii have had the option to purchase
health insurance coverage for their “domestic partner” and their partner’s dependents at
the same premiums paid by a married employee to cover a spouse and dependent
children. Thus, if a state or county employee enters into a civil union with their “domestic
partner”, the number of people with insurance coverage is unlikely to change, as the
domestic partner already had the option to be covered by the state employee’s health
14 Lee Badgett (2007), Unequal Taxes on Equal Benefits. Los Angeles: The Williams Institute.
15 Matching social security and medicare payroll taxes would also have to be paid by the employer on the
employer’s share of the premiums paid for the employee’s partner.

16 Data from Table II.D.1(2008) Average total family premium (in dollars) per enrolled employee at
private-sector establishments that insurance by firm size and State: United States, 2008. Available on line
at https://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/state/series_2/2008/tiid1.pdf; and from
Table II.C.1(2008) Average total single premium (in dollars) per enrolled employee at private-sector
establishments that insurance by firm size and State: United States, 2008. Available on line at
https://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/state/series_2/2008/tiic1.pdf.
La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 9 of 12.
insurance plan. In the second quarter of 2008, the Hawaii State Government employed
72,570 people, while the four counties employed 18,530 people. Many of these 91,100
employees were part-time workers and thus were not eligible to participate in the statesponsored
plans. For FY2007-2008, the Hawaii Employer-Union Health Benefits Trust
Fund (EUTF) reported 54,683 employees eligible for medical coverage, 10,600 waivers
(often employees who found a better deal with a spouse’s plan), and 44,082 employees
enrolled in EUTF medical plans. The 36,086 retired state government workers who are
enrolled in EUTF medical plans are also eligible to add a domestic partner.17
As of June 2009, 286 of the Fortune 500 firms provided their full-time employees with an
option to add a domestic partner and the partner’s dependents to the health insurance plan
provided by the firm to the employee.18 Many of these firms employ substantial numbers
of workers in Hawaii, at small franchised retail outlets, large wholesale outlets and
department stores, hotels, rental car operations, airlines, delivery services, health care
providers, real estate services, automobile dealerships, and insurance companies.
Examples of Fortune 500 firms that employ Hawaii residents include Aetna, Alaska
Airlines, Apple Inc., AT&T, Avis Budget Group, Inc., C.B Richard Ellis Group,
Chevron, Continental Airlines, Costco Wholesale Corp., Delta Airlines, Barnes & Noble,
Best Buy Co., Inc., Fedex, Footlocker, Ford Motor Co., Gap, Inc., General Motors Corp.,
Herz Global Holdings Inc., Home Depot, IBM, Kaiser Permanente, Macy’s, Inc.,
Marriott International, McDonald’s Corp., Nordstrom, Office Depot, Inc., OfficeMax,
Inc., Ross Stores, Sears Holdings Corp., Sprint Nextel Corp., Starbucks Corp., Starwood
Hotels and Resorts Worldwide, Tesoro Corp., UAL Corp. (United Airlines), United
Parcel Service (UPS), Verizon Communications, Inc., Walgreen Co., Walt Disney Co.,
Whole Foods Market, Inc., and Yumi Brands, Inc.

Many of Hawaii’s largest private employers also provide some domestic partner benefits.
The following companies offer at least medical insurance to domestic partners of their
employees: Adwalls, LLC, Alexander and Baldwin, American Schoool of Professional
Psychology, Bank of Hawaii, Durus International Corp., Gannett (prior to Advertiser
sale), Hawaiian Airlines, Hawaiian Electric Co., Hilton Hotels, Hyatt Hotels, Industrial
Chemicals and Lubricants, Kaiser Permanente, Matson (non-union employees),
McCoriston, Miller, Mukai, Mckinnon LLP, Oceanic Cable (non-union employees),
Queens Hospital, Servco Pacific, Starwood Sheraton Hotels, and YMCA of Honolulu.

4. Private employer self-insures under ERISA. It is somewhat unclear whether a
Hawaii company that self-insures a health insurance program for its employees will be
required to offer health insurance to the civil union partners of its employees. The reason
is that the self-insured health insurance plan of this company may be governed by
17 We note that most retired state workers are over 65 and are required by the State of Hawaii to register for
Medicare. About 25 percent of retired state workers are under the age of 65 and should be counted
separately in coverage calculations.

18 Human Rights Campaign Foundation, The State of the Workplace for Lesbian, Gay, Bisexual, and
Transgender Americans: 2007-2008. February 2009.

La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 10 of 12.
provisions of the federal ERISA legislation rather than the State of Hawaii’s Prepaid
Health Care Act. Since ERISA is a federal law, the federal Defense of Marriage Act may
restrict provisions governing spouses and health insurance from being extended by
HB444 to civil union parties.

What percentage of civil union couples in Hawaii will have one full-time employee
eligible to elect coverage of a partner once civil union legislation is enacted AND one
partner who is not covered by private insurance or Medicare? The U.S. Census Bureau
estimated that 92.7 percent of the Hawaii population was covered by private or public
health insurance in 2007. 19 For this 7.3 percent of couple partners to receive health
insurance, they would need to be matched with a partner with a full time job who is
eligible to add a civil union partner. Using a sample of all U.S. couples, Michael Ash and
Lee Badgett (2006) have found that “about 90 percent of all couple types have at least
one full-time worker” (p. 588).20

However, some of these full-time employed partners will not be eligible to add a partner to their insurance. In Hawaii, 19.9 percent of workers
worked for federal, state and county governments, and partners of these workers are
already either eligible to draw health insurance benefits or not eligible to draw them after
civil unions (e.g., partners of federal workers. To sum up, we estimate that there will be
143 partners without insurance; each has a 81.1 percent chance of being matched with a
partner eligible to add a civil union partner to employer-provided health insurance
coverage. About 116 partners would be eligible.

Third, how many of the 116 eligible civil union partners will elect to choose coverage
under their partner’s health insurance? The federal and state tax treatment of the
partner’s premium and dependent’s premium (i.e., additional federal and state taxes must
be paid on the employer’s share of the additional premium and the employee must pay
his share of the premium from after-tax dollars) raises the cost of the premium to the
employee by 25-45 percent depending on the employee’s income and corresponding
federal and state marginal income tax rates.

An employee may also be reluctant to choose partner coverage if there is a stigma attached to civil union status by his employer
or other employees. Several studies have found that the take-up rate when such partner
coverage is offered is very low. Lee Badgett, Research Director at the Williams Institute,
UCLA School of Law and Associate Professor of Economics at the University of
Massachusetts, and Mercer Human Resources Consulting have both independently found
“that less than 1% of employees with a same-sex partner sign up for domestic partner
benefits when a company offers them.”21

19 Table 8, Current Population Reports P60-235, August 2008. See also
https://www.census.gov/hhes/www/cpstables/032009/health/h05_000.htm

20 We apply this national data to Hawaii, as we do not have Hawaii-specific data. In so doing, we note that
Hawaii is second only to Massachusetts in the extent of its private and public insurance coverage.

21 Michael Ash and M. V. Lee Badgett, “Separate and Unequal: The Effect of Unequal Access to Employment-
Based Health Insurance on Same-sex and Unmarried Different-Sex Couples,” Contemporary Economic Policy,

October 2006, Vol. 24, no. 4, pp 582-599.
La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 11 of 12.
Applying the one percent take-up rate to Hawaii civil union partners yields just 1.16 civil
union partner being added. It is, of course, possible that self-selection among civil union
partners and an increasing acceptance of civil unions among the public and employers
would lead to a higher take-up rate. Suppose that 20-40 percent of eligible employees
with civil union partners elect employer-paid health insurance for their partners and
dependents.

This amounts to an additional 23-46 and 16-32 children to be covered by
health insurance plans of private employers. (The State of Hawaii is likely to spend less
on its Medicaid program due to the transition of some family members to private health
insurance coverage, e.g. fewer families would elect to cover eligible children under State
Children’s Health Insurance Program (SCHIP) plans or, alternatively, the partner’s
children would lose eligibility for the means tested SCHIP program once their parent has
entered into a civil union.

Even if we are to change some of our assumptions, it would be
unlikely for more than 75-100 partners to be added to employer-provided health
insurance plans. Given that the U.S. Census reports that 714,000 people in Hawaii had
private insurance coverage—the vast majority through employer-provided plans, the
additional amount of employed-provided health coverage triggered by this legislation is
likely to be very small.

In conclusion, passage of civil unions in Hawaii is unlikely to substantially increase the
percentage of the population covered by health insurance. Additional expenditures by
private employers on employer-provided health insurance are likely to be relatively small
given the small number of civil union partners likely to be covered and the higher share
of health insurance premiums that spouses (and civil union partners) pay.

Impact of Civil Unions on Hawaii’s Labor Markets
Passage of civil unions in Hawaii will provide a strong signal to Hawaii residents, other
U.S. citizens, and foreigners that Hawaii is continuing to become a more tolerant,
cosmopolitan society. The perception and the actualization of Hawaii as a tolerant
society are important for Hawaii’s future economic growth because more tolerant
societies are typically able to retain and attract a wider variety of talented individuals, in
particular entrepreneurial talent. Retention of native-born talent is particularly important
for Hawaii, as many Hawaii-born gay and lesbian people leave Hawaii for the mainland
United States to participate in more inclusive, tolerant societies that offer more
opportunities to them.

Labor economists have identified the “co-location problem” as one of the most
significant problems facing small cities in the United States. The co-location problem
involves the difficulties that two highly educated partners or spouses each encounter in
finding jobs in a small city that satisfy each of their career objectives. The legalization of
civil unions in Hawaii would help to reduce the co-location problem for Hawaii couples.

Civil Unions, Personal Responsibility, and Hawaii’s Economy

Civil unions entail increased responsibilities for the two partners entering into the union.
Each partner has a responsibility to support the other partner during good and bad times.
Each partner is liable for the debts of the other partner.

There is likely to be less reliance on the State of Hawaii’s Medicaid and welfare programs because means tests for these
La Croix and Burnett, Impact of Civil Unions on Hawaii’s Economy and Government, p. 12 of 12.
programs consider resources available to both partners rather than just one partner.

A civil union establishes a responsibility for both partners to support children. It establishes
a legal framework for provision of alimony and child support if the relationship between
the two partners ends. By establishing these responsibilities, civil unions provide a
framework for more responsible, structured personal relationships that will contribute to
social stability and economic growth in Hawaii.

Conclusions
• A reasonable expectation from the experience of other states enacting civil
unions is that the State of Hawaii’s adjustment to the passage of civil union
legislation will be smooth and cost little.

•There is likely to be a small increase in visitor arrivals and spending by same-sex
couples from other states recognizing civil unions who travel to Hawaii to enter
into and to celebrate their civil unions.

• Passage of civil union legislation is unlikely to lead to substantial increases in
the percentage of the state’s population covered by public and private health
insurance or substantial increases in health insurance expenditures by either
public or private employers.
• Passage of civil union legislation is likely to lead to small increases in state
revenues via civil union registration fees, excise taxes, and state income taxes
stemming from new spending on civil union ceremonies and celebrations by
both visitors and residents.

The views expressed in this paper are those of Sumner La Croix and Kimberly Burnett
and are not the official views of the University of Hawaii, the University of Hawaii
Economic Research Organization or the University of Hawaii Dept. of Economics

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