In the first of what promises to be an ongoing series of tri-agency regulations, the Departments of Health and Human Services, Labor, and the Treasury have issued rules on one of the most controversial provisions in the health care reform legislation―the extension of coverage for children up to age 26. The guidance clarifies several key issues relating to this mandate:
- Coverage for children may not be conditioned on any factor other than the child’s relationship to the employee. Plans that currently limit a child’s eligibility based on factors such as the support provided by the employee, the child’s marital or student status, or obtaining an age that is younger than age 26 will need to be revised to remove these restrictions, even for minor children. Surprisingly, the regulations themselves do not define who will be considered a “child.”
- Rules apply only if the plan covers children as dependents. Nothing in the new rules requires a plan to cover children. The rules apply only to plans that do. If a plan covers children, it must provide coverage for all children up to age 26.
- Special enrollment period required. A plan must offer an employee whose child has lost or has been denied coverage before his or her 26th birthday a special enrollment opportunity of at least 30 days to elect to cover the child. For a calendar year plan, the coverage, if elected, must be effective no later than January 1, 2011. The special enrollment period must begin no later than that date, although many employers will choose to run it earlier in conjunction with the regular annual enrollment period for the 2011 plan year. Appropriate notice of the special election period must be given to employees.
- Identical coverage must be provided at identical cost. Children, whether or not adults, must be offered all of the benefit options under the plan that are available to similarly situated dependents. They cannot be required to pay more for coverage than other similarly situated dependents are required to pay.
- Coverage may be paid with pre-tax dollars. As described in our legal alert dated April 27, 2010, coverage for an employee’s child may be provided free from federal income tax until the year in which the child reaches age 27.
- COBRA continuation coverage processes may be affected. If a child eligible for the special enrollment period is currently or was previously a COBRA participant and the child reenrolls in the plan, any future COBRA coverage resulting from a subsequent qualifying event (including aging out of the plan at 26) will result in another, new COBRA election. The subsequent COBRA continuation period will be determined without reference to any prior COBRA continuation coverage period.
The regulations provide a very limited exception for certain grandfathered health plans. For plan years beginning before January 1, 2014, a plan that is considered a grandfathered health plan may exclude a child who has not attained age 26 from coverage only if the child is eligible to enroll in an employer-sponsored health plan (other than the plan of a parent). Regulations on grandfathered health plans are expected shortly. Further, although not specifically addressed by the regulations, certain collectively bargained plans will not be required to cover children up to age 26 until the expiration of the last collective bargaining agreement applicable to that coverage ratified before March 23, 2009.
The government is encouraging employers and insurers to make coverage for adult children available sooner than required under the rules. Certain insurers have committed to offering coverage to at least certain children under age 26 before they are required to do so to avoid removing dependents from their records only to add them back in several months. Employer-sponsored group health plans providing coverage through insurance contracts should contact their insurers to determine if the insurer has implemented extended coverage before the required deadline.
As the federal health care reform effort gained steam, Ballard Spahr attorneys formed an initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting employers in understanding the relevant changes and planning for the future. For more information on the firm’s Health Care Reform Initiative, please click here.