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Adult Children Coverage

Q: 2/11/11: An employee’s adult child is a discharged vet (honorable discharge) who is on the government-provided VA insurance program. The employee wishes to enroll him onto her employer-provided coverage. The employer’s plan is a grandfathered plan that provides dependent coverage. Is the adult child eligible to enroll in the employer plan since he already has VA coverage?

A: Yes. The VA coverage does not make the adult child ineligible to enroll in the employer plan. The Interim Final Regulations (DOL. Regs. Section 2590.715-2714(b)) provide that “a plan or issuer may not deny or restrict coverage of a child [who has not attained age 26] based on eligibility for other coverage, except that. . . for plan years beginning before January 1, 2014, [a special rule applies] for grandfathered health plans that are group health plans.” This special rule (at 2590.715-2714(g)(1)) allows a grandfathered plan to “exclude an adult child who has not attained age 26 from coverage only if the adult child is eligible to enroll in an eligible employer-sponsored health plan. . . other than a group health plan of a parent.”
The VA coverage is not an “employer-sponsored health plan,” so a grandfathered health plan cannot exclude an otherwise-eligible adult child from coverage merely because he or she has VA coverage. (If you have a self-funded grandfathered plan and you have this issue, you should confirm in writing with your stop-loss carrier that any claims of such adult child will count toward the stop-loss threshold.)

Grandfathering

Q: When it comes to maintaining grandfather status, does the provision that an employer cannot reduce its employer contribution rate more than 5 percentage points below the current year’s percentage rate apply on an annual basis, or is the limit not more than 5 percentage points since March 23, 2010?

A: The limit is that the employer cannot reduce its contribution percentage rate (toward premiums) more than 5 percentage points below the contribution percentage rate in effect for the period that included March 23, 2010. This is not an annual limit, of not more than 5% per year.

Q: If an Employer changes carriers but maintains comparable benefits, does that cause the group health plan to relinquish its grandfather status?

A: The plan will not lose GF status merely because it changes carriers, so long as it does not make any of the changes that cause a plan to relinquish its GF status (e.g., increase EE co-insurance by any amount, increase EE deductibles or co-payments by an more than medical inflation + 15 percentage points, the other changes listed in the Interim Final Regs and in Part II of the government FAQs). HOWEVER, if the plan sponsor changes carriers and they change to a non-GF policy, the carrier is going to take the position that the policy is not GF’d, so the plan is not GF’d. We need clarification from the gov’t whether the plan sponsor of an insured plan can claim the plan is GF’d, if the carrier says it does not consider the underlying policy to be GF’d. Two main reasons a policy would not be GF’d: 1) It was not in existence on 3/23/10, it’s a policy that’s been filed with the state Insurance Dept. since 3/23/10. 2) The carrier has decided to treat all of it’s policies as non-GF’d (or all small group, or all mid-size group, or all large group)

Q: If an Employer maintains Grandfathered status, must they offer the age 26 dependent coverage? Can they make the employee pay for that dependent coverage?

A: Yes, the “coverage to age 26” requirement applies even if they are grandfathered, and yes, they can charge the employee the same amount for coverage for an adult dependent as they would charge the employee for a child dependent. PLUS one other provision applies if they are grandfathered: Before 2014, a Grandfathered plan is not required to provide coverage to an adult dependent who has other employer group coverage available through his/her own or his/her spouse’s employment. But note that this does NOT say that if both parents work and have group coverage available through work, one or both of their group plans do not have to provide coverage. It’s only if the adult dependent (or his/her spouse) is employed and has coverage available through work, that the parent’s employer’s group health plan does not have to cover the adult dependent.

Nondiscrimination Tests

Q: If a grandfathered plan has a 30 day waiting period for managers and a 90-day waiting period for all other employees, will the plan fail the nondiscrimination test under 105(h)?

A: No, because a grandfathered plan is not subject to the nondiscrimination rules. However, a nongrandfathered plan is subject to the nondiscrimination rules, and the 30-day vs 90-day waiting period noted above most likely would fail the nondiscrimination test. We will have to wait until the regulators issue the Nondiscrimination regulations to know for sure. Additionally, the IRS delayed the effective date of the nondiscrimination rules until the first day of the plan year that is some period of time after the issuance of final regulations (IRS Notice 2011-1), so it probably will be the 2012 plan year before the nondiscrimination rules are effective.) Assuming that such a waiting period is found to discriminate in favor of highly compensated employees, the result would be that the plan sponsor would have to pay an excise tax equal to $100 per day per employee who is discriminated against. This would amount to $6,000 per employee who has a 90-day waiting period (i.e., 60 days x $100/day = $6,000; 90-30 days = 60 days during which time highly compensated employees have coverage under the plan and non-highly compensated employees do not.) If the employer has 100 non-HCEs who must wait 60 days more than HCEs before they can enroll in the plan, the penalty would be $600,000 (100 x $6,000).

Q: If an employer pays a higher percentage of the premium for managers than for other employees, will the plan fail the nondiscrimination test under 105(h)?

A: If the plan is a non-grandfathered plan, it will be subject to the nondiscrimination rules. As noted above in Q/A 1, we have to wait until the nondiscrimination regulations are issued to know for sure, but it is likely that a plan will be considered discriminatory if the employer pays a higher percentage of the premium for managers or other highly-compensated employees than for non-highly-compensated employees.

Q: If a grandfathered plan did have the same waiting period for all eligible employees, but changes it as of January 1, 2011 to be a 30-day waiting period for managers and a 90-day waiting period for all other employees, will the plan fail the nondiscrimination test under 105(h)?

A: It appears that such a change would not cause the plan to lose it s grandfathered status, so the plan would not be subject to the nondiscrimination rules. The [glossary id=’842′ slug=’dol’ /], HHS and IRS said in FAQS (Part II) on ACA Implementation that an otherwise-grandfathered plan will not lose its grandfathered status unless the plan sponsor takes one of the actions listed in the FAQ. (See the “Grandfathering” section above.)

Small Business Health Care Tax Credit

Q: Is an employer eligible for the small business health care tax credit if the employer has fewer than 25 full-time employee equivalents but is a member of a controlled group or an affiliated service group that overall employs more than 25 full-time employee equivalents?

A: No. This is clarified in IRS FAQ #23 on the Small Business Health Care Tax Credit (view website). The IRS provides that: “Members of a controlled group (e.g., businesses with the same owners) or an affiliated service group (e.g., related businesses of which one performs services for the other) are treated as a single employer for purposes of the credit. Thus, for example, all employees of the controlled group or affiliated service group, and all wages paid to employees by the controlled group or affiliated service group, are counted in determining whether any member of the controlled group or affiliated service group is a qualified employer. Rules for determining whether an employer is a member of a controlled group or an affiliated service group are provided under sections 414(b), (c), (m), and (o).

Other

Q: If a plan files its Form 5500 based on a calendar year, but has an October 1 (10/1) renewal date (i.e., its contract or policy year is 10/1 – 9/30), do the HCR provisions apply as of October 1, 2010 or as of January 1, 2011?

A: They apply as of January 1, 2011. The “plan year” for HCR purposes is the ERISA plan year, which is the annual 12-month period for which the Form 5500 is filed. It is not the contract or policy year.

Resources

Sources and Notice

These FAQs on Health Care Reform are from three sources:

Leavitt Benefits attorneys/ Benefits Compliance Dept.
FAQs from the [glossary id=’842′ slug=’dol’ /], HHS, and IRS (government agencies with jurisdiction for implementation of health care reform)
FAQs from members of the Council of Insurance Agents and Brokers (CIAB), for which answers have been provided by The Council’s attorneys at Steptoe & Johnson LLP.

NOTICE: The information provided here is not intended to be, and should not be construed as, legal advice or a legal opinion. If you have questions relating to your specific circumstances, you should consult with your own attorney or other legal adviser.

All section references in the FAQs are to the Patient Protection and Affordable Care Act (Pub. L. No. 111-148) (“PPACA”) or the Health Care and Education Reconciliation Act of 2010 (Pub. L. No. 111-152) (“HCEARA”), or to regulations and guidance that have been published by various government agencies, as indicated in each response.