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Extension of Dependent Coverage Effective June 1, 2010 and Beyond

The Patient Protection and Affordable Care Act (PPACA), commonly referred to as “Health Care Reform,” was signed into law by President Obama on March 23, 2010. One of the provisions of this law requires health care plans that currently allow enrollment of eligible dependent children to continue to make such coverage available until the child reaches age 26. The provision becomes effective on the first plan anniversary following September 23, 2010.

There are a few key caveats to the new provision:

  • A dependent child’s marital or residency status DOES NOT exclude their eligibility; in other words, the dependent child can be married and eligible for coverage under the parent’s plan
  • Coverage for the dependents of a dependent child (i.e. employee’s grandchildren) is NOT REQUIRED under the law
  • Until January 1, 2014, “grandfathered”(1) plans CAN EXCLUDE any dependent that is directly eligible to enroll in his/her own eligible employer-sponsored health plan even though the dependent may be considered an eligible dependent under the parent’s plan

In response to the Health Care Reform legislation, a number of medical carriers are proactively expediting the mandate by extending dependent coverage up to age 26 effective June 1, 2010 (more than three months in advance of the provision taking effect). The option to extend coverage in June is voluntary for self-funded plans and mandatory for most fully insured plans. Following is clarification on who will be impacted by the changes and when:

Dependent Coverage: Who is Eligible on June 1, 2010?

  • Currently enrolled dependent child(ren) under the age of 26 who will lose dependent or student status and access to health care coverage between June 1, 2010 and the first plan anniversary following September 23, 2010

Dependent Coverage: Who is Eligible on the 1st Anniversary Following September 23, 2010?

  • Dependent children up to age 26 who are currently not covered by a medical plan; enrollment of these dependents can take place during the next anniversary open enrollment period that occurs after September 23, 2010
  • Dependent children up to age 26 of newly hired employees seeking coverage under their parent’s plan

Dependent Coverage: Who is NOT Eligible on June 1, 2010 and Beyond?

  • Dependents of an eligible dependent child
  • Spouse of an eligible dependent child

Craford understands that each of our clients is unique in their culture and approach; what works well for one client may not work well for others. To that end, we would recommend each client consider the following factors before deciding to extend coverage on June 1, 2010. As noted above, some clients will not have the option of foregoing the early extension. For those that do, please do not hesitate to contact your Craford Consultant or Client Manager should you want to discuss options and/or possible outcomes in more detail.

Considerations for Self-Funded Plans:

Financial Exposure/Risk

  • Allowing the June extension liberalizes your plan thus increasing the potential for higher claim costs prior to the enactment date. This risk will likely be mitigated to some degree by increased employee contributions.

Alignment with Other Plans

  • While medical carriers are providing an early extension, several dental and vision carriers are not. Allowing the early extension for medical and not other plans could create confusion amongst your employees and their enrolled dependents.

Administrative Challenges

  • A change in the dependent age will require programming and reconfiguration changes mid-year to HRIS systems and online benefit enrollment websites. COBRA administrators will need to be notified of the early extension decision so they can prepare and update notices accordingly.

Communication Challenges

  • If the decision to implement in June is made, communication will be key when advising employees of the early extension. Helping employees understand who is eligible, and who is not, will be paramount in the process.

1A grandfathered plan is any plan in which an individual is enrolled – either directly or through any group plan – on the date of enactment (3/23/2010)