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May 2, 2010

Regulations Clarify Extension of Dependent Coverage Rule Under Affordable Care Act


One of the most discussed features of the new healthcare reform is the provision extending insurance coverage to adult dependents until the age of 26. As anticipated, regulations concerning the Patient Protection and Affordable Care Act (“PPACA”) and Health Care and Education Reconciliation Act (“HCERA”) are starting to be issued from various government agencies affected by the healthcare reform laws (collectively the “Affordable Care Act”).

On May 11, 2010, the IRS, Department of Labor, and Department of Health and Human Services (“HHS”) issued interim final rules regarding the extension of health coverage for adult dependent children until the age of 26. The rules provide guidance on how the Affordable Care Act provision regarding extended coverage to adult dependents affects health insurance plans and employers.

The new interim final rules require health insurance plans that offer dependent coverage to extend such coverage to adult children regardless of student status, residency status, financial dependence, or marital status until the child reaches age 26. However, the interim final rules do not require coverage to be provided for children of dependent adult children (i.e., the employee’s grandchild). Also, if a health insurance plan does not offer dependent care coverage, the Affordable Care Act does not require dependent care coverage be added to the plan. There is no federal requirement that compels a health insurance plan or issuer to offer dependent coverage at this time.

While the Affordable Care Act does not address coverage issues for adult children of registered domestic partners, the California Domestic Partner Rights and Responsibilities Act grants registered domestic partners the “same rights, protections, and benefits” as are granted to spouses under the law, “whether they derive from statutes, administrative regulations, court rules, government policies, common law or any other provisions or sources of law.” Thus, failure by a California employer to offer insurance benefits to adult dependents of registered domestic partners may run afoul of California law.

Effective Dates

Health insurance plans and health insurance issuers must comply with the new dependent coverage provision for plan years starting after September 23, 2010. For health insurance plans running on a calendar year, the new extended dependent coverage requirement will be effective on January 1, 2011.

The extended coverage provision applies to all plans in the individual market and to new employer plans. The provision also applies to plans that existed prior to March 23, 2010 (socalled “grandfathered” plans) except where the adult dependent child has his or her own employer-based coverage (such as through his or her job), in which case extended coverage need not be provided to the adult dependent.

However, for grandfathered plans, dependent children up to age 26 can remain on their parent’s employer’s health insurance plan even if they have coverage available through another employer-sponsored health plan for plan years beginning on or after 2014.

Mind the Gap

For many individuals under the age of 26 who may not be currently enrolled as a dependent on their parent’s employer’s health insurance plan, there may be a gap in coverage until the provision takes effect. At the urging of HHS Secretary Kathleen Sebelius, many health insurance plans are voluntarily providing coverage to adult children prior to the effective date of the new law. However, there is no requirement to provide the extended coverage before the effective date.

Uniform Cost and Coverage

Under the interim final rules, plans may not vary dependent coverage or costs based on age, meaning a plan may not charge a higher premium for an adult dependent child versus younger dependent children. Similarly, a plan may not limit coverage options based on age.

Written Notice Required

Adult children who were previously dropped or were otherwise ineligible for coverage will be able to re-enroll. Health insurance plans and/or health insurance issuers will be required to provide an enrollment period of at least 30 days (regardless of any other open enrollment periods the plan may have) and notice no later than the first day of the plan year beginning on or after September 23, 2010. The notice must be provided to children who were denied coverage (or were not otherwise eligible for coverage) because the availability of dependent coverage ended before the attainment of the age of 26, and inform them of their eligibility to enroll in the plan. The notice may be provided to an employee on behalf of the employee’s dependent child.

If an eligible dependent child elects coverage during the enrollment period, the coverage must begin retroactive to the first day of the plan year beginning on or after September 23, 2010. Again, children who elect to receive coverage under the enrollment must be provided with all of the benefits available to similarly situated individuals (e.g., other dependent children) who did not lose coverage because of cessation of dependent status.

Penalty for Noncompliance

Plan sponsors that offer dependent coverage, but fail to offer the extended coverage to dependents to the age of 26, as required by the Affordable Care Act, will be subject to a penalty excise tax under the Internal Revenue Code of generally $100 a day per individual affected (subject to specified limitations and exceptions under the law).

What This Means For Employers

Employers should consider the following action items going forward:

  • Determine when the new requirement will take effect for your plan (first plan year after September 23, 2010)

  • Review your coverage levels, associated premium rates, and eligibility factors to determine if any provisions of your plan run afoul of the new dependent coverage requirements

  • Contact your health insurance provider to determine if it is participating in the voluntary gap coverage. (Regulations are forthcoming on whether such a change will affect grandfathered status)

  • Identify all adult dependent children who lost or were denied coverage because their coverage ended before reaching age 26

  • Prepare written notice to eligible dependents notifying them of enrollment rights

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