Under the Patient Protection and Affordable Care Act (PPACA), children of employees can be covered under the parent’s group health plan until the child turns age 26. This provision is effective January 1, 2011 for most group plans. The Department of Labor has just issued regulations concerning this requirement which provide important guidance to employers as they plan for this change. The following Questions & Answers address some of the major issues that many employers are facing.
Q. Does this affect all employer-sponsored group health plans?
A. Yes, all employer-sponsored group health plans will need to comply with this requirement, provided the plan provides dependent coverage. This requirement applies to both fully insured and self-insured (or self-funded) group health plans. (In Minnesota, fully-insured plans have been required to permit coverage of adult children up to age 25. However, self-insured plans could limit coverage to those under 19 unless a full-time student under age 23. This new requirement affects all plans equally.)
Q. Does the adult child need to be a dependent of the employee?
A. No, the adult child does not need to be a tax dependent of the employee, nor does the adult child need to reside with the employee or even live in the same state. The adult child may be married and may be employed. There is no requirement that the adult child be a student, full or part-time.
Q. If the adult child is employed and could have coverage through that employer, must the parent’s plan offer coverage?
A. his depends on whether the parent’s plan is a “grandfathered health plan,” that is, the plan was in existence when the law was signed, March 23, 2010. Grandfathered plans can exclude an adult child from coverage as a dependent on the parent’s plan, if the adult child has coverage from an employer. Non-grandfathered plans must cover the adult child if the parent has dependent coverage and enrolls the adult child.
Q. Can a plan charge an additional premium for coverage of an adult child?
A. No, there can be no extra charge or change in benefits for the adult child. It is permissible for the plan to charge a different premium amount based on the number of dependents covered but not based on the age of the dependents.
Q. Does this coverage include the spouse of the adult child, or a child of the adult child?
A. No, there is no requirement for the plan to cover the spouse or the child of the adult child.
Q. Is there a taxable cost to this coverage for the parent?
A. No, the premium paid by the employer, or by the employee through a cafeteria plan, will not be a taxable event to the employee for any coverage through the year the adult child turns age 27. Thus, a plan could chose to continue to provide coverage through the end of December even though the adult child turned 27 in March.
Q. How will the adult child be notified of this possible coverage?
A. The newly-eligible adult children must be notified by the employer and have at least 30 days to enroll in the plan prior to the start of the new plan year, generally January 1, 2011. The employer can send the notice to the employee and it can be included in the general open enrollment materials.
Q. If an adult child had “aged out” and is now on COBRA, can the adult child re-enroll in regular coverage?
A. Yes, the adult child can return to dependent coverage under the plan, despite the fact that there had been some coverage under COBRA. When the child turns 27 and “ages out” of coverage again, the child will have the option of once again electing COBRA coverage.
Q. If an adult child turns age 25 in May, 2010 and thus “ages out” of the current plan, must the plan drop coverage now and offer COBRA coverage only to have to re-enroll the adult child in January?
A. A plan may decide to offer adult children now, rather than having to terminate coverage, initiate COBRA coverage, and then re-enroll in the plan in January. Many insurance carriers have indicated that they would be willing to offer this option to group plans. In Minnesota, Aetna, Blue Cross and Blue Shield, HealthPartners, and United have agreed to implement this provision before the required date. For self-insured plans who currently only cover dependents to age 19 or 23 if a full-time student, implementing this provision early would avoid the administrative hassles of terminating coverage for all the graduating students this spring, only to reinstate it in January.