Question: Can an employer change eligibility rules to no longer allow dependents of dependents on the plan? (For example, if an employee’s 17-year old daughter has a baby and the baby is currently covered). Is there a time frame for announcing and implementing the changes?
Answer: For general information, we note that employers considering changing the group health plan’s dependent eligibility provision typically review issues related to compliance, competitiveness, communications and logistics.
The Affordable Care Act (ACA) requires group health plans that offer coverage to any child of the employee to extend eligibility to all children up to age 26. (This ACA requirement does not apply to “HIPAA-excepted benefits”, such as stand-alone dental or vision plans.) Plans cannot impose any conditions on the child’s eligibility other than the child’s relationship to the employee.
For purposes of the ACA requirement, “child” is the employee’s child (including a child placed with the employee for adoption), stepchild and foster child. There is no requirement to extend eligibility to the employee’s grandchild. (Reference: Prop. Federal Regulation FR Doc 2010-11391 as published in Federal Register 5/13/2010; copy available at: http://www.gpo.gov/fdsys/pkg/FR-2010-05-13/pdf/2010-11391.pdf)
In addition to the federal ACA, health benefits provided through a group insurance contract are subject to any applicable state insurance laws or regulations. Self-funded plans, however, generally are exempt from all state insurance requirements.
Employers usually view group health benefits as an important tool in recruiting and retaining a high-quality workforce. For this reason, many employers compare or “benchmark” their plans and plan provisions against those of other employers with whom they compete for labor talent. For effective benchmarking, you will want to consider your competition in each geographic area in which you operate and in each employee strata (employees, mid-management, executive, etc.)
Employer-sponsored group health plans are subject to ERISA (unless sponsored by governmental employers or certain church plans). ERISA requires the group health plan to provide a “Summary of Material Reduction” to plan participants within 60 days of any change or amendment that is a “material reduction in covered services or benefits”. The SMR is not required in advance but is required within 60 days of the change.
Further, the Affordable Care Act (ACA) requires the plan to provide a Summary of Benefits and Coverage (SBC) describing the plan’s benefits in a standardized format. The SBC is required by the first day of the open enrollment period. (The SBC also is required upon the participant’s request, upon special enrollment, etc.) Plans also are required to provide 60 days’ notice in advance of any change being made in the information described in the SBC. The 60-day rule does not apply, however, with respect to changes being made in connection with a renewal.
In any case, we do recommend that you provide a lengthy advance notice period before any change that “takes away” coverage or eligibility for coverage so that families can secure replacement coverage. Fortunately, due to the Affordable Care Act, health plans, whether sold in the individual or group market, can no longer deny coverage based on health status or impose pre-existing condition exclusions on a child.
Lastly, note that many group health plans currently provide “automatic coverage” for newborns during the first 30 or 31 days of life. This type of provision originally came out of state insurance laws in many jurisdictions, although they did not apply to self-funded plans. Over the years, though, automatic newborn coverage has become somewhat common which may lead hospitals and healthcare providers to confuse their patients by mistakenly assuming that all plans provide automatic newborn coverage. You will need to decide whether to continue short-term automatic coverage for newborns (including an employee’s grandchild) regardless of whether the plan extends eligibility for the employee to enroll the grandchild on an ongoing basis. Care should be taken to ensure that the terms of any stop-loss insurance policy are consistent with the terms and provisions of the self-funded plan.