The recently-enacted Patient Protection and Affordable Care Act ("PPACA") requires group health plans and health insurance issuers to extend coverage of adult children to age 26. On May 10, 2010, the Internal Revenue Service ("IRS"), Department of Labor ("DOL") and Department of Health and Human Services ("HHS") issued Interim Final Regulations (the "Interim Regulations") clarifying several aspects of this requirement. This alert summarizes how these changes affect employers and their group health plans.

PPACA Provisions On Extended Coverage For Adult Children

The PPACA made important changes in the law affecting medical coverage for an employee's adult children. Effective for plan years beginning on or after September 23, 2010, PPACA amended the Public Health Services Act ("PHSA") (and corresponding provisions of the Internal Revenue Code and the Employee Retirement Income Security Act) to require a group health plan and health insurance issuer ("issuer") that provides dependent coverage to make such coverage available for an adult child until age 26 (i.e., through age 25). The PPACA does not require a group health plan to cover a child of an adult child receiving extended coverage under this provision.

This requirement does not apply to "grandfathered health plans" for plan years beginning before January 1, 2014 if the adult child is eligible to enroll in another eligible employer-provided group health plan. (For a discussion of "grandfathered health plans," see our prior client alert entitled " Health Care Reform Legislation: Provisions Affecting Employer-Sponsored Group Health Plans .") The agencies intend to publish regulations relating to grandfathered health plans under the PPACA in the very near future. Note that the preamble to the Interim Regulations indicates that the agencies anticipate that the regulations relating to grandfather status will clarify that changes to plan terms to comply with the extended coverage requirement, including voluntary compliance before the mandatory effective date, will not cause a plan or coverage to lose grandfathered health plan status.

Restrictions On Plan Definition Of Dependent

The Interim Regulations clarify that any group health plan or health insurance issuer offering group health insurance coverage that offers dependent coverage must make such coverage available to age 26.

Pursuant to the Interim Regulations, group health plans and insurers may not define dependent for eligibility purposes other than in terms of a relationship between a child and a participant. As a result, dependent status may not be conditioned on the age of the child, student status, residency, financial support or marital status. (As noted above, however, "grandfathered health plans" are not required to extend coverage to adult children before January 1, 2014 if the adult child is eligible to enroll in another eligible employer-provided group health plan.)

Uniform Coverage And Cost

The Interim Regulations prohibit differences in the terms of the plan or health insurance coverage for dependent children based on the age of the child (other than with respect to adult children age 26 and older). Significantly, the Interim Regulations clarify in examples that a plan may not charge an additional premium surcharge for coverage of adult children, except where the surcharge applies regardless of the age of the child. For instance, this requirement is not violated where a plan offers self-only, self-plus-one, self-plus-two and self-plus-three-or-more coverage options because, although the cost of coverage increases for tiers with additional covered individuals, the increase applies without regard to the age of the child.

Opportunity To Enroll Required

Previously, a group health plan or issuer may have ceased coverage for a dependent child prior to age 26 due to loss of eligibility under the plan, or may not have offered coverage at all because the child was not eligible for enrollment at the time the parent became eligible. Pursuant to the Interim Regulations, a group health plan or issuer may not exclude coverage for an adult child prior to age 26 based on whether or when that child was enrolled in the plan. A group health plan or issuer must give the adult child a 30-day enrollment period to enroll in the plan, regardless of whether the plan or coverage offers an open enrollment period and regardless of when any open enrollment period might otherwise occur. This enrollment opportunity must be provided beginning not later than the first day of the first plan year beginning on or after September 23, 2010. Further, coverage must begin no later than the first plan year beginning on or after September 23, 2010.

The employer must provide written notice of these enrollment rights. The notice may be provided to the employee on behalf of the employee's adult child, and may be included with other enrollment materials the plan distributes to employees, provided this enrollment information is prominently displayed.

Treatment Of Enrollees In A Group Health Plan

Any child enrolling in group health plan coverage pursuant to this new enrollment right must be treated as a special enrollee, as provided under the Health Insurance Portability and Accountability Act ("HIPAA") portability provisions. Accordingly, the child must be offered all the benefit packages under the group health plan available to similarly situated individuals who did not lose coverage by reason of loss of dependent status. Thus, the terms of the Plan cannot vary based on the age of a child under age 26. For this purpose, any difference in benefits or cost-sharing requirements constitutes a different benefit package. The employee also cannot be required to pay more for the adult child's coverage than similarly situated individuals who did not lose coverage by reason of loss of dependent status.

Tax Treatment

On April 27, 2010, the IRS issued Notice 2010-38, its initial guidance on the application of the new tax provisions regarding the extension of group health coverage for adult children. (For a discussion of IRS Notice 2010-38, see our prior client alert entitled " IRS Issues Guidance on Employer-Provided Health Coverage for Adult Children .")

What Should Employers Do Now?

  • All plans currently offering coverage to dependent children must make such coverage available for children until the age of 26, effective for the first plan year beginning on or after September 23, 2010.
  • Employers should consider scheduling of the required enrollment period. As the open enrollment periods of many employers do not last 30-days, employers may need to extend enrollment to meet the requirements of the Regulation.
  • Employers should begin preparing open enrollment materials, including the new notice required to be given with respect to extended coverage for adult children.
  • All employers should review their group health plans to ensure that existing language does not inadvertently differentiate benefits and/or costs of coverage based upon the age of the child.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.