Dependent Eligibility

A group health plan will have established criteria for determining whether or not the dependent of a participant is eligible to participate in the health plan.

There are also requirements for notifying the Plan Administrator when a dependent terminates and for determining possible tax implications for certain dependents.

Under the Affordable Care Act (“ACA”), group health plans providing coverage to dependent children must allow adult children to remain eligible for coverage until the child’s 26th birthday, regardless of full-time student, marital status, financial dependency, residency, or any other factor other than the relationship to the participant.  This coverage mandate is effective for plan years beginning on or after September 23, 2010, although early voluntary compliance has been encouraged by the Department of Labor (“DOL”).

Common Requirements

Please note: All plans may have their own dependent eligibility requirements.  You should review your Summary Plan Description for definitions of dependents and age limitations.

Dependents of an employee eligible for medical coverage commonly include:

• Spouses
  • Not in the armed forces of any country
  • Not covered under the same group health plan as a participant
• Children, step children and foster children who are:
  • Not in the armed forces of any country
  • Not covered under the same group health plan as a member
  • Not over the age of 26 (for plans subject to the ACA)
  • Any child covered under a Qualified Medical Child Support Order (QMCSO) as defined by applicable federal and state laws

New Dependents

To receive immediate coverage, the employer or the employee must notify the insurance company or plan administrator within a specified time (see your SPD) after the date the dependent is born, adopted, or placed.

• If such notice is not given to the insurance company within the time period, the child may be subject to the Late Enrollment provisions.
• If the child’s coverage terminates because the employee fails to pay the required contribution within the specified time period following the child’s date of birth, adoption or placement, benefits may only be payable for covered expenses incurred by the child during the period in which coverage was in force.

Status Changes

When a dependent’s status changes, certain laws may impact the dependent’s rights or eligibility for benefits under a group health plan.  Applicable laws include COBRA, HIPAA Special Enrollment Rules, and Section 125 rules.

COBRA

COBRA regulations provide that if a dependent loses coverage under the employer’s plan due to the COBRA qualifying events of employment termination/reduction in hours, death of the employee, or the employer’s bankruptcy, the employer has 30 days to notify the Plan Administrator of the qualifying event, and the Plan Administrator then has 14 days to send out the COBRA election notice.  Since the employer is typically the Plan Administrator, as a practical matter this becomes a 44 day timeframe to send out a COBRA election notice after these qualifying events.

If the COBRA qualifying event is divorce or a child losing eligibility (situations that the employer may not be aware of), the employee or qualified beneficiary must be allowed a minimum of 60 days to notify the Plan Administrator (usually, the employer) of the qualifying event.  In cases where the employer is the Plan Administrator, once notice from the employee or qualified beneficiary is received, the Plan Administrator has 14 days to send out a COBRA election notice.

These timeframes do not change in circumstances where the employer and/or Plan Administrator has delegated the task of issuing the COBRA notice to a third-party COBRA administrator.

See the COBRA Provisions compliance activity for more information about COBRA timeframes and the role of the employer.

HIPAA Special Enrollment Rules

If a dependent loses coverage from another health plan, or the employee gains a dependent through marriage, birth or adoption or placement for adoption, the employee/dependent must be allowed a minimum of 30 days to enroll in the employer’s health plan and must be treated as an individual who enrolls when first eligible in terms of benefits and premiums.  If an employee or dependent experiences a special enrollment event governed by CHIPRA (a gain or loss of eligibility for premium assistance under a state Medicaid or Children’s Health Insurance Program) a minimum of 60 days is required for enrollment/disenrollment in the employer’s health plan.

Under IRS guidance effective Sept. 16, 2013, the marriage of a same-sex couple (married in a state that recognizes same sex marriage) would be considered a status change permitting a mid-year election change.

Section 125 Changes Related to Dependent Eligilbility

If an employer maintains a cafeteria plan that permits the employee to pay for health coverage on a pre-tax basis, and the employee adds a dependent pursuant to HIPAA’s special enrollment provisions, the employee may make a corresponding election change to the cafeteria plan if the addition of the dependent causes an increase in the employee’s required contribution for coverage.

In the case of a health FSA,  the health FSA may permit an employee who elects coverage pursuant to a HIPAA special enrollment event to make an election change consistent with the addition.

In the case of a status change that is not a special enrollment event, a cafeteria plan or health FSA may permit election changes in accordance with IRS status change rules.

Michelle’s Law

Michelle’s law was named for a seriously ill college student who was forced to stay in college as a full-time student to maintain her status as a dependent on her parent’s health insurance.

This amendment to federal law requires health plans to provide the same eligibility to participate as if the child continued to be a full-time student, if a full-time student is forced to take a medical leave of absence from school for a serious injury or illness.  Coverage under these circumstances must continue until:

• one year after the first day of the medically necessary leave of absence, or
• the date on which such coverage would otherwise terminate under the terms of the plan

Plans Covered

The law applies to both fully insured and self-insured employer sponsored group health plans, regardless of size, including church plans and government plans. It does not apply to plans that offer excepted benefits. Please note that nonfederal government employers (such as state, local and municipal government plans) that sponsor self-insured health plans can request an exemption from Michelle’s Law.

Written Certification
The requirements of Michelle’s Law do not apply unless the plan receives a written certification by a treating physician of the dependent child, which states that the child is suffering from a serious illness or injury and the leave of absence is medically necessary.

Plan Notice Requirement
The health plan must include with any notice of any requirement for certification of student status a description of the terms relative to continued coverage during medically necessary leaves of absence.  The description should be written in language that is understandable to the typical plan participant.

Information about the right to this extended coverage should also be included in the plan’s Summary Plan Description (SPD) and enrollment materials.

Impact of ACA on Michelle’s Law Requirements
Because Michelle’s law provides extended eligibility to a seriously ill dependent child only when the child’s eligibility is otherwise conditioned on full-time student status, the ACA’s elimination of full-time student status as a condition of eligibility for an employee’s child limits Michelle’s Law impact on most group health plans.  This is because under the ACA, plans are required to extend eligibility to adult children until the child’s 26th birthday without regard to full-time student status.  For plan years beginning on or after September 23, 2010, the impact of Michelle’s Law, as well as its notice and disclosure requirements, is limited to plans allowing an adult child to participate after attaining age 26, if eligibility is conditioned on maintaining full-time student status.

Possible Tax Implications

Section 105(b) of the Internal Revenue Code generally excludes from an employee’s gross income employer-provided reimbursements made directly or indirectly to the employee for the medical care of the employee, employee’s spouse or employee’s dependents (as defined in § 152).

Prior to the ACA, medical coverage provided to the dependents of an employee was nontaxable only if the dependent was a “qualifying child” or “qualifying relative” – and therefore a “tax dependent” under Code Section 152, as modified by Code Section 105(b).  Coverage provided for children who were not tax dependents resulted in imputed taxable income to the employee purchasing the coverage.

Under § 152(f)(1), a child is an individual who is the son, daughter, stepson, or stepdaughter of the employee, and a child includes both a legally adopted individual of the employee and an individual who is lawfully placed with the employee for legal adoption by the employee.  Under § 152(f)(1), a child also includes an “eligible foster child”, defined as an individual who is placed with the employee by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

As amended by the ACA, the exlusion from gross income under § 105(b) has been modified to expand the availability of nontaxable health coverage to an employee’s children.  Effective March 30, 2010, the Section 105(b) exclusion is available with respect to coverage provided to an employee’s child who has not attained age 27 as of the end of the taxable year, including a child of the employee who is not the employee’s dependent within the meaning of the § 152(a).  Thus, the age limit, residency, support, and other tests described in § 152(c) do not apply with respect to such a child for purposes of § 105(b). Note that this exclusion applies longer than the required coverage under the ACA to age 26.

The exclusion applies only for reimbursements for medical care of individuals who are not age 27 or older at any time during the taxable year.  For purposes of §§ 105(b) and 106, the taxable year is the employee’s taxable year; employers may assume that an employee’s taxable year is the calendar year; a child attains age 27 on the 27th anniversary of the date the child was born (for example, a child born on April 10, 1983 attained age 27 on April 10, 2010).  Employers may rely on the employee’s representation as to the child’s date of birth.

Same-Sex Spouses and Domestic Partners

Under IRS guidance effective Sept. 16, 2013, if a same-sex couple is validly married under the laws of a state that recognizes same-sex marriage, they will be regarded as married for all purposes under the tax code.  This includes provisions of the code and regulations that use the terms “husband” and “wife” as well as “spouse” or “marriage”.  This rule applies even if the couple resides in a state that does not recognize same-sex marriage.

This guidance does not require employee welfare benefit plans to provide health benefits to same-sex spouses.  However, to the extent that an employer does so, the employer may treat the cost of coverage provided to the spouse as tax deductible.  In addition, a health FSA may provide benefits to a same-sex spouse.  See our Blog post for information on what same sex spouses are eligible for this tax deduction and whether the employer or employee is eligible for a tax refund if taxes were withheld from benefits provided to same sex spouse prior to Sept. 16, 2013.

NOTE: same sex couples who have entered into a state sanctioned domestic partnership or civil union will not be regarded as married under the tax code and benefits provided to a same sex partner in this case will be taxable.

See the same-sex spouses reference material for more information.

Additional Resources

Click Here to review the Working Families Tax Relief Act.

States Extending Dependent Coverage

States may require fully insured health plans established in their state to extend the ACA mandated coverage of dependents beyond age 26.Unless it prevents the application of ACA. The following list provides additional information on state mandated dependent coverage extensions. As with the ACA, these mandates do not require an employer to offer dependent coverage.

Please note that these laws change frequently and employers should seek guidance from a legal or benefits professional when determining dependent coverage criteria.

These are not a comprehensive overview of all employment-related state laws.