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Are You Ready for September 23rd? Advice on Covering a New Wave of Dependents and Implementing Other Policy Changes

By Brian Schilling

On September 23rd, employers across the country will begin to switch gears from preparing for health care reform to implementing the first major policy change: covering employees' dependents up to age 26. A raft of other changes takes effect on that day, too. A smooth transition—and full compliance with the applicable laws—will require more than simply rewriting HR policies and informing your participating health plans.

Fortunately, help is available. But where can you find the most reliable resources?

"There's no shortage of available information for employers," said Cheryl DeMars, CEO of The Alliance, a Madison, Wisconsin-based employer health care coalition. "Our role has been to be an objective reviewer to help employers sift through lot of material, much of which is marketing material."

Checking with your own business coalition for available assistance in implementing the changes mandated by the Patient Protection and Affordable Care Act is a must, says DeMars. Many, like The Alliance, have prepared related summaries of the legislation as well as custom analyses and timelines that show how the various requirements of the act play out in local markets. The Alliance has gone a step further, holding a series of roundtable discussions to allow members to identify implementation challenges and learn from other members. DeMars also expects the group to compile and distill feedback from forthcoming forums to advise the U.S. Department of Health and Human Services.

Perhaps the most immediate challenge facing employers is notifying employees of the new policies. The final Department of Labor regulations put this notification burden on employers' shoulders. How exactly to notify employees is open to interpretation, but the following tasks should be high on your to-do list:

  • Make sure human resources staff know the new eligibility rules.

In particular, staff should know that:

    1. Dependents up to age 26 are eligible for coverage even if they are not in school or are financially independent of their parents. Even married dependents are eligible, although their spouses and children are not.
    2. Dependents who previously aged out of coverage under their parents' plan must be invited back during open enrollment.
    3. Eligibility for coverage begins the first day of the plan year. Dependents may be added or dropped during open enrollment just as before.
    4. Proof may be required. The burden of proving that dependents are eligible may fall to employees. According to a recent Mercer survey, about half of employers expect to require employees to provide such proof.
  • Post notices in company newsletters, on your Intranet site, and elsewhere. As with any major new policy, put the information where employees can't miss it and leave it there for a good long time. Also, update enrollment materials and employee handbooks to reflect the new policies.
  • Consider a dependent audit and various "proof" processes. Some employers may wish to conduct a formal eligibility audit of dependents on their plans, which means checking vital records such as birth certificates. The consulting firm Hewitt Associates reports that such audits turn up an average of 11 percent ineligible results1. Additionally, consider whether and how you plan to require "proof of absence" of other available coverage. Employers are not required to extend coverage to otherwise eligible dependents who have another viable source of coverage. A recent Mercer study found that about 50 percent of employers were considering adopting a "proof of absence" process2.

When Do Changes Take Effect?
While the law states that employers must comply with the new eligibility rules on or after September 23, 2010, most employers will probably opt for the "after" option. The law allows employers to wait to adopt the new policies until their next plan year begins. That means, if your plan has an April 1 plan year, you can wait until spring 2011 to officially invite dependents onto your plan.

Many health plans are eager to implement this policy change as early as possible. Various Blues plans, United Healthcare, and others began offering clients the option of implementing the change as early as April 2010, and since then many others have followed suit. Employer response has been mixed. About 25 percent of employers said they planned to adopt the policy early2.

Even for employers in the 37 states that already have legislation requiring dependent coverage to age 26, the new federal requirement changes things. Self insured plans, for example, are no longer exempt and marital status is no longer relevant.

"The new federal law will significantly expand the population of eligible dependents," said Sara Collins, Ph.D., vice president for affordable health insurance at The Commonwealth Fund. According to Collins, it is expected that the new definition of an eligible dependent will add about 1.5 million young adults to coverage rolls nationwide.

How Much Will It Cost?
Cost estimates range from a low of .7 percent (from the Department of Health and Human Services) to up to 2 percent or even higher, but Collins thinks the lower estimates are more realistic. "It all depends on how many people enroll and on whether or not the people who sign up are sicker than average," she said, "but the HHS estimates are rigorously done."

Strategies for dealing with the added costs will vary from employer to employer, but a survey by benefits consultant Mercer suggests that employees will be picking up a good portion of the tab. About one of five employers are considering changing contribution rate tiers (by, for example, adopting four or more tiers instead of the usual two, based on the number of dependents covered). Other employers (16%) say they will simply increase the contribution rate for all dependent coverage2. Still others (12%) expect to tighten up eligibility rules for vision and dental benefits2.

One thing employers cannot do is charge different rates for different age dependents (e.g., charging more for a 19-year-old than a 10-year-old). The new law bars any such discriminatory pricing practices.

Other Changes Taking Effect
As noted, the expansion of the definition of an eligible dependent isn't the only change employers must begin to implement on September 23. Below is a short list of other notable changes that employers would be well advised to prepare for and communicate with employees.

Elimination of lifetime limits: While lifetime limits on health coverage will be eliminated immediately, annual limits may be around for another few years. These won't be prohibited until 2013.

No cost-sharing for preventive care: Immunizations, mammograms, and other preventive services must not be subject to cost-sharing of any kind (e.g., copay or deductible).

No preauthorization for the emergency room: Not only will plans no longer be allowed to require preauthorization for emergency room visits, they will also be barred from imposing a different cost-sharing amount if the emergency room is out-of-network.

The end of preexisting condition exclusions for children: Preexisting condition exclusions are first barred for children under 19 years of age. In 2013, such exclusions are banned altogether.

W–2 reporting: Employers must show the full cost of health coverage on each employee's W–2.

Limit on flexible spending account contributions: Employees may contribute no more than $2,500 annually to flexible spending accounts.

Breast-feeding breaks: Nursing mothers must be given reasonable periodic breaks to pump milk during the first year following a child's birth. Employers are further obligated to provide a private place to pump other than a bathroom.

Other resources:


1 Effects of Health Care Reform on Dependent Audit, Ask our Expert (Chris Heinefield); Hewitt Associates Web site, accessed 8/14/10.

2 Mercer's 2010 Survey on Health Reform – Sizing up the Challenge; Mercer, Inc. May 2010.

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