On May 10, 2010, the Departments of Health and Human Services, Treasury and Labor issued regulations interpreting the provision under the Patient Protection and Affordable Care Act (PPACA) that requires group health plans and insurers to offer dependent coverage to children until they reach age 26. In interpreting this requirement, the regulations also significantly affect the way in which group health plans can define which minor dependent children are eligible for coverage. These regulations will be effective for plan years on or after Sept. 23, 2010, so employers should begin considering how they will affect their health plan designs.
PPACA and the subsequent Reconciliation Act provide that a group health plan providing dependent coverage for children of employees must continue to make that coverage available for an adult child until the child turns 26 years of age. PPACA further authorized the issuance of regulations to define those dependents to whom coverage must be made available.
These regulations clarify how these new coverage rules apply to adult children. Specifically, the regulations provide:
- That coverage must be available to a child of an employee until that child attains age 26 (as of the child’s birthdate, coverage under the health plan may be terminated, subject to COBRA rights).
- A health plan is not required to make coverage available for the child of a child receiving dependent coverage.
- The terms of the health plan coverage that apply to dependent children cannot vary based on age (except for children who are age 26 or older).
- If a child previously was covered under the plan, but lost coverage as the result of attaining the Plan’s limiting age for dependent children (and that age was less than 26 years) or if the child was never able to enroll in the Plan due to exceeding the limiting age at the time the employee became eligible to enroll in the Plan, a 30-day special enrollment window must be provided as of the first day of the first plan year to which the PPACA requirement applies (i.e., the first plan year beginning on or after Sept. 23, 2010). In connection with this special enrollment opportunity, the Plan must provide written notice to the employee and/or the child explaining the availability of the special enrollment window.
- Because this enrollment window is treated as a special enrollment, the dependent child must be offered all benefit packages available to similarly situated individuals and the employee-parent of the child would also be permitted to enroll in any benefit package available to similarly situated employees under the Plan.
- As long as the child enrolls within the 30 day special enrollment window, coverage would be effective as of the first day of the first plan year beginning on or after Sept. 23, 2010.
- While grandfathered group health plans are generally subject to these rules for plan years beginning on or after Sept. 23, 2010, for plan years beginning before Jan. 1, 2014, a grandfathered group health plan is not required to make dependent coverage available to an adult child who has not attained age 26 if the adult child is eligible to enroll in an eligible employer-sponsored health plan other than a group health plan of a parent.
In an effort to avoid the administrative inconvenience of dropping dependent children from coverage and then adding them back during the special enrollment window, some employers (and a number of group health issuers) are considering or have already agreed to apply these new dependent eligibility rules prior to the required effective date. The regulations clarify that amending a group health plan to comply with the new age 26 requirement prior to the required effective date will not cause the Plan to lose its grandfathered status under PPACA.
In a previous IRS notice (Notice 2010-38) the Internal Revenue Service clarified that coverage of a dependent through the entire calendar year in which the child turns 26 would not be taxable to the employee (and premium for that coverage could be paid on a pre-tax basis under a Section 125 plan). This will allow group health plans to keep age 26 children on the plan through the end of the calendar year without creating additional administrative burdens.
The provision in the regulations that is likely to have the most significant affect on group health plans is an expansion of PPACA to prohibit a plan from defining a dependent child for purposes of eligibility for coverage other than in terms of the relationship between a child and the participant. For example, a plan may not deny or restrict coverage for a child who has not attained age 26 based on the presence or absence of the child’s financial dependency (upon the participant or any other person), residency with the participant or with any other person, student status, employment or any combination of those factors. As a result, plan provisions that define dependent eligibility for minor children based on residency with the employee or financial or tax dependence on the employee will no longer be permitted. Denying coverage to step-children, grandchildren or children who are not the natural or adopted children of the participant may still be permitted; however, if a step-child, grandchild or child under guardianship is generally treated as an eligible dependent under the plan, it appears that the plan may not condition eligibility on the child’s residency with or dependence on the employee.