Early Coverage of Adult Children: Compliance Traps for Employers
Health Care Reform legislation will require coverage of children of plan participants up to age 26, effective for the first plan year beginning after September 23, 2010. The Obama Administration has encouraged insurers and self-insured plans to extend coverage earlier than required, and many insurers have announced that they are doing so during 2010. We have found that there is widespread confusion on the differences between this “early coverage” of adult children and the mandatory coverage that will take effect later. Employers need to be aware that even if their insurer or self-insured plan administrator has extended coverage for adult children in 2010, there are still important requirements that will need to be met when mandatory coverage takes effect.
We have reviewed several insurance company announcements of their early coverage policies. All of them extend coverage to age 26 only for dependents already on the plan, who would have “aged off” the plan in 2010 absent a change. (One insurer we reviewed only extended coverage for children who would lose it due to college graduation.) In Washington, insured plans already had to cover children to age 25; in other plans children might become ineligible when they cease to be a dependent, at age 23 or at 19 if not enrolled in college. Pursuant to the “early coverage” changes adopted by many insurance companies, children who hit the applicable age for termination of coverage under the plan during the remainder of 2010 could remain on the plan, and thus would not have to use COBRA to keep their coverage. Most insurers are offering early coverage on an “opt-out” basis; that is, coverage will be extended as announced unless the employer notifies the insurer that it does not want the extension for its plan.
This early coverage of adult children differs from the mandatory coverage that will take effect in 2011 for most plans. The IRS, Department of Labor and HHS issued interim final regulations concerning coverage of adult children on May 13, 2010. The regulations require coverage of adult children up to age 26, regardless of whether the child is married, a student, a dependent, or residing at home. There is a limited exception is for grandfathered plans, which until 2014 can deny coverage to an adult child who is eligible for coverage under another employer’s plan, through the child’s or child’s spouse’s employment. The mandatory coverage is thus broader than the early coverage that at least some insurers are offering. More important, the regulations require an open enrollment period for adult children, including those not on the plan who will now be eligible to enroll or re-enroll. This could include children who aged off in prior years, children on COBRA continuation coverage, and children who were never on the plan because they were too old when the parent became eligible. All adult children must receive notice of an open enrollment period of at least 30 days; the notice can be given to the employed parent. Coverage must be effective at the beginning of the effective plan year, retroactively if necessary. (As with HIPAA special enrollment, a parent who dropped coverage when his or her child became ineligible can re-enroll on the plan at the same time as the adult child if necessary for the child to be covered.) Most employers will want to integrate this open enrollment requirement with their normal open enrollment period occurring prior to the plan year beginning after September 23, 2010.
Early coverage of adult children will make sense for many employers. For example, a Washington employer with an insured plan may not want to exclude a child who turns age 25 later in 2010, or force the child onto COBRA, if the child will be eligible to re-enroll January 1, 2011. Such a plan would accept the insurer’s offer to extend coverage early. (A self-insured plan sponsor may feel differently about taking on additional risks before required.)
But employers must be clear about the fact that accepting early coverage does not fulfill the mandatory coverage requirements. None of the insurers we have reviewed are offering open enrollment in 2010.
Action Needed: Even if a plan’s insurer or administrator has extended coverage to adult children on the plan in 2010, the employer will still need to conduct open enrollment for children not currently on the plan (and may need to expand the coverage offered earlier) effective for the next plan year. Employers should thus be prepared to include the notice of open enrollment for adult children in their next enrollment period materials and to get the notice to all employees.