On May 13, 2010, the Departments of Labor, Treasury and Health and Human Services (the Departments) issued interim final rules (the Rules) to implement Section 2714 of the Public Health Services Act regarding the mandated expansion of eligibility for adult dependent children. Section 2714 was added by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (referred to as the Affordable Care Act). As discussed in an earlier Legal Alert, group health plans (other than HIPAA-excepted benefits, such as certain limited scope dental and vision plans) that offer dependent coverage must offer coverage for adult children until age 26, regardless of whether the adult child is married or financially dependent on the employee. Although this concept appears simple, trying to put the rule into practice highlights ambiguities in the mandate.
What Are the Highlights of the New Rule?
- Plans will no longer be able to condition a child’s eligibility on financial support, marital status, employment status or student status. However, these conditions may still be imposed on other dependents, such as grandchildren or on HIPAA-excepted benefits (such as stand-alone dental and vision).
- Until 2014, grandfathered plans can exclude adult dependents who have employer-sponsored coverage available from a non-parent (such as from their own employment or their spouse’s employment).
- Expanding coverage for adult children prior to the date required by law will not affect a plan’s status as a grandfathered plan.
- Plans cannot require higher premiums/surcharges or limit available coverage options for children who are under age 26, unless such higher premiums or limitations apply to all dependents regardless of age.
- A notice of the enrollment right and a 30-day opportunity to enroll must be provided no later than January 1, 2011, for calendar year plans. Employers utilizing the annual enrollment period to satisfy this requirement should ensure that the required notice is prominently displayed in the materials and that the enrollment period extends for at least 30 days.
To Which Dependents Must Coverage Be Extended Until Age 26?
Currently, most group health plans, whether insured or self-insured, impose requirements for an employee’s child to be eligible for coverage, such as requiring the child to be unmarried, be financially dependent on the employee, reside with the employee and, if more than age 19, be either disabled or a full-time student. For plan years beginning on or after September 23, 2010 (i.e., January 1, 2011, for calendar year plans), the availability of coverage for dependent children cannot be conditioned on any factor other than age (under 26) and the relationship with the employee.
There is, however, a special rule that allows grandfathered plans to exclude an adult child if that child has other employer-sponsored coverage available (this exception expires effective January 1, 2014). Employers have been wondering if they could exclude coverage, or impose rules for determining which plan had the responsibility to make coverage available, for an adult child with coverage available from another working parent. The Rules make clear that, if both parents have employer coverage available, neither plan can exclude the child based on the fact that coverage is available under the other parent’s plan. As we anticipated, this limited exclusion for a grandfathered plan can only be based on the availability of employer-sponsored coverage under a non-parent plan (e.g., a plan of the dependent’s employer).
Interestingly, the Rules do not define the term “child,” so it is not clear if these rules apply to step-children, foster children or children in the custody of the employee, other than biological and adopted children. However, the Rules do provide that coverage does not have to be extended to grandchildren or spouses of adult children. For administrative ease, many plans may prefer to make coverage available until age 26 for any child the employee is permitted to enroll, but whether this is required should become more clear in the months ahead.
Can the Plan Vary Benefits or Premiums Based on Age?
When analyzing the requirements of the Affordable Care Act, some suggested that plans might be permitted to impose a surcharge or limit benefits or benefit options available to adult children. The Rules clarify that plans cannot charge more for dependents who exceed a stated age limit (such as age 19) and cannot limit the available benefit packages under the plan based on age. In other words, plans may not make a distinction with respect to cost or coverage between dependents of different ages.
What Enrollment Rights Apply To a Newly Eligible Adult Child?
The Rules provide a transitional rule that requires each plan to give a written notice and offer a 30-day enrollment period to any child (1) whose coverage ended or who was denied coverage (or was not eligible for coverage) because the availability of coverage ended prior to age 26 and (2) who becomes eligible for coverage on the first day of the first plan year on or after September 23, 2010. This enrollment right applies even if the plan would not normally offer an open or annual enrollment period. Coverage must be effective as of the first day of the first plan year on or after September 23, 2010 (i.e., January 1, 2011, for calendar year plans).
The notice and opportunity to enroll must be provided prior to January 1, 2011 for calendar year plans. Employers that prefer to include this notice as part of the regular annual enrollment materials for 2011 may do so, as long as the statement regarding this enrollment right is prominently displayed in the enrollment materials, and provided there is a 30-day opportunity to enroll. If an employer’s annual enrollment period is typically less than 30 days, it may want to expand the enrollment period for everyone so as not to have to track different deadlines for different individuals.
In addition, a newly eligible adult child that enrolls under this one-time special enrollment period is a special enrollee (and not a late enrollee), with the same rights as others who enroll during a special enrollment period (such as upon birth or marriage). This means that the employee enrolling a newly eligible adult child must be permitted to change benefit options and the special enrollee cannot be subject to a longer pre-existing condition exclusion period than those who enroll when first eligible.
What if the Dependent Child Previously Aged Out of Coverage and Elected COBRA?
If a child elected COBRA after losing coverage due to age, the plan must allow that child to reenroll as an eligible dependent of the active employee as noted above, and COBRA would no longer apply as of January 1, 2011, (for calendar year plans). If that child later loses coverage due to attainment of age 26, the child would be entitled to a new 36-month COBRA period.
Can a Plan Extend Coverage Before Required To Do So By Law?
Many insured plans, and some self-insured plans, would like to allow adult children who would otherwise have lost coverage under the plan in 2010 due to age or student status to remain on the plan, particularly in light of the new IRS guidance allowing the provision of tax-free coverage to children under age 27. Although this will likely require a plan amendment, it will allow plans to avoid tracking full-time student status and offering COBRA to dependents in 2010 who will become eligible to participate on January 1, 2011. The preamble to the Rules also provides that the Departments expect that soon-to-be-issued regulations will make clear that if a grandfathered plan makes coverage available to an adult child prior to the required date, that voluntary expansion of coverage will not adversely affect the plan’s status as a grandfathered plan under the Affordable Care Act.
Plans that voluntarily expand dependent coverage before it is required can limit the expansion only to individuals who were previously enrolled in the plan. However, once the mandate begins to apply (e.g., on January 1, 2011, for calendar year plans), the plan is required to offer the special enrollment period as noted above for other adult dependents who become eligible to enroll under the Rules.