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Most Employers Not Providing Early Coverage for Adult Children

By Stephen Miller  6/10/2010
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About one in five (19 percent) of large U.S. employers plan to extend health care coverage to eligible adult children up to age 26 before the health care reform law requires them to do so, according to a mid-May 2010 survey by consultancy Hewitt Associates.

Of these companies, which have an average of 11,795 covered employees, 10 percent voluntarily will extend coverage early for all eligible adult children, while 9 percent will do so for graduating students already covered under the health care plan. Consequently, approximately 950,000 workers will be able to cover their adult children earlier than the health care reform law requires.

A little more than three-quarters (77 percent) of surveyed companies plan to wait to extend health care coverage to adult children until the reform law requires them to do so, which, in most cases, is the plan year beginning in 2011. Hewitt found that 4 percent of employers were undecided.

Similarly, according to a May 2010 Towers Watson survey of 661 large U.S. companies, 78 percent do not plan to adopt the provision early, with 16 percent indicating they would adopt early and 6 percent stating they did not yet know.

Under the Patient Protection and Affordable Care Act, group health plans must, on request, provide coverage for adult children of covered employees up to age 26, effective for plan years beginning after Sept. 22, 2010, (which would be Jan. 1, 2011, for calendar year plans). Prior to Jan. 1, 2014, this rule applies to grandfathered plans only if the child is not eligible for coverage under another employer-sponsored plan.

"Affordable health coverage for adult children will provide emotional and financial peace of mind to parents across this country," said Phyllis C. Borzi, assistant secretary of labor for the Employee Benefits Security Administration, in a May 2010 statement. "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."

Health and Human Services Secretary Kathleen Sebelius also has urged employers to provide adult-child coverage during 2010 rather than waiting until the law requires them to do so.

Earning Goodwill

“Employers that are choosing to extend coverage early are doing so because it earns employee goodwill, particularly when many adult children today can’t find jobs or were laid off during the recession,” says Ken Sperling, Hewitt’s global health care leader.

“However,” he adds, most companies are holding off on extending coverage for a variety of reasons. The cost and administrative complexities of early adoption are key factors, but it’s really about their view of access. Many employers believe most adult children are healthy and can find affordable coverage in the individual market. They view COBRA as another option, particularly for those adult children with pre-existing health conditions. So for many employers, they don't see a coverage gap they feel compelled to immediately close.”

Estimated Costs

Hewitt’s survey found that nearly six out of 10 employers (57 percent) have already estimated the cost of expanding coverage to adult children. Of those, 18 percent expect to see less than a 1 percent increase in total annual health care costs between 2011 and 2014. Twenty-six percent of companies project a 1 to 2 percent increase, and 11 percent expect costs to increase between 2 and 5 percent. (For other views on the costs of coverage adult children, see the SHRM Online article "Employers: Expanded Coverage Will Raise Health Care Costs.")

Under the new provision, Hewitt estimates that an average employer might cover 5 to 10 percent more adult children than they do today. This includes dependents ages 19 to 23 who are not full-time students and adult children ages 23 to 26. For an employer with 5,000 employees, Hewitt estimates that the additional cost of covering these adult children could range between $350,000 and $720,000 per year in premiums and claims costs.

“Most employers feel the wait for required coverage is relatively short and will extend coverage to adult children in January 2011 when their next plan year begins,” says Sperling. “Parents should pay careful attention to their open-enrollment materials this fall and closely evaluate the coverage options and associated costs in both their employer-sponsored plans and the individual insurance market.”

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

Employers: Expanded Coverage Will Raise Health Care Costs, SHRM Online Benefits Discipline, May 2010

Agencies Issue Interim Rule on Child Coverage until Age 26, SHRM Online Benefits Discipline, May 2010

Temporary Complication’ in Coverage of Young Adults Poses Challenges, SHRM Online Legal Affairs, May 2010

Young Adult Coverage Until Ages 26 or 27 Explained, SHRM Online Legal Affairs, May 2010

Payment of Coverage for Eligible Adult Child Permitted on Pretax Basis, SHRM Online Legal Affairs, May 2010

Quick Links:

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SHRM Online Health Care Reform web page

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