Dependent Coverage To Age 26 Regulations Issued

The Departments of Health and Human Services, Labor and Treasury have issued interim final rules on extending health insurance coverage for adult children up to age 26. The regulations apply to health coverage for plan years beginning on or after Sept. 23, 2010.

Under the Affordable Care Act, employee benefit plans and health insurers that offer dependent coverage to children must now make the coverage available to adult children up to age 26.

The government estimates that expanding coverage for adult children will, on average, cost $3,380 for each dependent, thus increasing premiums for employer-sponsored health plans by 0.7% in 2011, 1% ($3,500) in 2012 and 1% ($3,690) in 2013.

In addition, federal regulators report that 5.73 million adults aged 19-25 are already on their parent’s or spouse’s employer-covered health plan.

Some of the key elements of the interim final rules include:

• 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.”

• 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 Jan. 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.

• Coverage may be paid with pre-tax dollars. 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 Jan. 1, 2014, a plan that is considered a grandfathered health plan may exclude a child who is under 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.