The U.S. Departments of the Treasury, Labor (DOL), and Health and Human Services (HHS) issued an interim final rule on May 10, 2010, on the requirement to provide health benefits to employees' adult children until age 26 under the Patient Protection and Affordable Care Act.
The interim final rule, which has a 90-day comment period, becomes effective July 12, 2010, and generally applies to group health plans for plan years beginning on or after Sept. 23, 2010 (typically Jan. 1, 2011, for calendar year plans).
The interim rule should not be confused with IRS guidance issued in April 2010 regarding the exclusion from taxable income of adult-child coverage (see IRS Issues Guidelines on Nontaxable Adult-Child Coverage).
Among the coverage provisions clarified in the agencies' interim rule:
• Under-26 children who were previously dropped from dependent coverage will be able to re-enroll as long as they don't have access to an employer-sponsored plan.
• The re-enrollment option only applies to plans that already offer dependent coverage. If a company has such a plan, it must inform employees that their children, who may have aged out of the plan, will be eligible again starting Jan. 1, 2011.
• The policy applies to married and unmarried children, but does not extend to their spouses or children.
(For an analysis of the Treasury, DOL and HHS interim final rule, see Forever Young: New “Adult Children” Guidance under Health Care Reform Covers Enrollment, Surcharges.)
DOL: Press Employers for Early Coverage
In addition, the DOL's Employee Benefits Security Administration (EBSA) issued a Fact Sheet on the health care act provisions regarding adult-child coverage, advising parents of young adults to:
• Check for immediate options. Employees are encouraged to ask their employers to provide coverage earlier than the implementation deadline for young adults losing coverage as a result of graduating from college or aging out of dependent coverage on a family policy. "This stop-gap coverage, in many cases, is available now. Ask your employer and insurer about this option," the department advises.
• Watch for open enrollment. If early coverage is not an option provided by their employer, then young adults can join their parents' family plan beginning on or after Sept. 23, 2010. "Insurers and employers are required to provide notice for this special open enrollment period. Watch for it or ask about it," the fact sheet states.
• Expect an offer of continued enrollment. "Insurers and employers that sponsor health plans will inform young adults of continued eligibility for coverage until the age of 26," the fact sheet notes. "To get the coverage, young adults and their parents need not do anything but sign up and pay for this option."
Immediate Action Encouraged
In conjunction with the issuance of the interim final rule and the fact sheet, EBSA Assistant Secretary Phyllis C. Borzi issued a statement encouraging employers to swiftly extend health care coverage to employees' adult children up to age 26.
"Young adults are uninsured at the highest rate of any age group and have the lowest rate of access to employer-based coverage," Borzi said. "We encourage employers and private-sector health plans to make this important health coverage available immediately. It makes good business sense, and I thank those companies who have decided to adopt this provision earlier than the September effective date."
Higher Premiums Expected
HHS released estimates of the costs and benefits of the requirement as part of a regulation directing employers and insurers on how to carry it out. The new benefit will cost $3,380 for each dependent, raising premiums by 0.7 percent in 2011 for employer plans, according to the department's mid-range estimate. Some 1.2 million young adults are expected to sign up, more than half of whom would have been uninsured.
Health insurers predict somewhat higher premium increases related to the expanded coverage requirement. Dr. Jeffrey Kang, chief medical officer at Cigna Healthcare, told SHRM Online, "If you’re an employer that is currently covering dependents up to age 23, which is what most employers do, we're estimating the cost impact of covering dependents up to age 26 is roughly a 1.5 percent to 2 percent additional increase in premiums." (See Health Reform's Coverage Requirements Expected to Drive Premiums Higher.)
Regulators Urged to Examine Premium Hikes
In a move intended to warn health insurers about premium increases that the government may deem too high, U.S. Department of Health and Human Services Secretary Kathleen Sebelius urged governors and state insurance commissioners to examine premium increases in their states. “For too long in this country, Americans have been at the mercy of insurance companies, and have ended up paying a steep price,” Sebelius wrote in a letter dated May 5, 2010. “Using faulty assumptions and loopholes, insurers have tried to game the system and consumers have ended up with one bad deal after another.”
Sebelius' letter encouraged governors and state insurance commissioners to review and approve insurance rate increases before they take effect, “to the extent you have authority to do so.”
Others dispute the claim that U.S. health insurers engage in excessive overpricing. Overall, the profit margin for health insurance companies was a modest 3.4 percent in 2009, according to data cited by Mark J. Perry, a professor of economics and finance at the University of Michigan.
"Even if we could strip away 100 percent of the health insurance industry's profits, it would only save patients between $100 and $200 per year in health insurance costs," Perry writes.
Stephen Miller is an online editor/manager for SHRM.
Forever Young: New “Adult Children” Guidance under Health Care Reform Covers Enrollment, Surcharges, SHRM Online Benefits Discipline, May 2010
IRS Issues Guidelines on Nontaxable Dependent Coverage, SHRM Online Benefits Discipline, April 2010
SHRM Online Benefits Discipline
SHRM Online Health Care Reform web page