By: HUB’s EB Compliance Team

Most employer-sponsored health plans offer coverage to spouses and dependent children of employees. They do this because many employees expect it from their employers, thus not offering it could negatively impact the employer’s talent acquisition strategy. Applicable Large Employers (“ALEs”) under the Affordable Care Act (“ACA”) are required to offer coverage to the dependent children of employees in order to avoid penalties under the ACA. However, state law also plays an important role in determining eligibility for dependents under certain health plans. Understanding when state law applies, which state’s laws apply, and when only the ACA applies, can be complicated and bring rise to often-misunderstood questions.

Affordable Care Act

Before the ACA was signed into law in 2010, many employer-sponsored health plans removed young adults from their parent’s employer health plans once they reached a certain age. In addition, eligibility for dependent children after reaching 18 years of age or graduating high school was tied to status as a full-time student. Those who attended college full-time could often remain covered, but those who only attended school part-time risked losing their plan eligibility. Michelle’s Law provides protections for dependent children who might otherwise lose coverage due to a medically necessary leave of absence that causes the child to lose student status, but this is narrow in scope.

The ACA addressed such concerns by requiring health plans that provide dependent coverage to children to make such coverage available for an adult child until the child turns 26. This has made it possible for millions of young adults to retain health care coverage through their parents. With the enactment of the ACA, the federal government began to set consistent limits for dependent eligibility. Notably, this requirement only looks at the age of the child and does not consider status as a full-time student, marital status, financial dependency, residency, or any other factor when determining eligibility other than the relationship to the participant. 

State Laws

Several states, including Florida, New Jersey, New York, South Dakota, and Wisconsin have subsequently enacted measures allowing beneficiaries to stay on their parent’s health insurance plans well past the age of 26. Although many of the laws are similar, the requirements to remain on coverage vary by state. Most of the states that extend additional coverage require the dependents to be unmarried, have no dependents, be a resident of the state, or be enrolled as a full-time college student.

For example, New Jersey extends health coverage through the end of the year the dependent turns 30 if they meet certain requirements. One of these requirements is that after age 25, the child either has continuous coverage under the parent’s plan or other creditable coverage without a gap longer than 63 days. South Dakota, on the other hand, requires health insurance carriers to offer coverage to dependent children who aren’t over the age of 29 if they are full-time students, but employers are not required to contribute towards the cost of coverage for children once they turn 26.

Some states also provide protections for dependents who are disabled. As an example, Wisconsin has no age limit for dependent children who are (a) incapable of self-sustaining employment because of intellectual disability or physical handicap; and (b) chiefly dependent upon the person insured under the policy for support and maintenance. States once again vary in how they enact these requirements and the definitions they attached to terms of art such as “incapable of self-sustaining employment”.

Applicable Law

Employers with employees in states that provide extended benefits for certain dependent children often have employees who are familiar with these state protections. However, state law does not always apply to the benefits offered to employees in that state. This causes much confusion for both employers and employees.

Most self-insured plans are governed by ERISA under federal law rather than state law. This means, by and large, state mandates do not apply to these self-insured plans. Self-insured plans can and sometimes do add their own extensions of benefits, particularly for disabled dependents. Plan sponsors may borrow dependent benefit extension provisions from a particular state’s law as a starting point when drafting their own language. However, such additions are not required for most self-funded plans under state law alone. 

In addition to the relation between state and federal law, with fully-insured plans, the laws of the state where the plan is written will apply, rather than the laws of the state where the employee is located. For example, if an employee in Wisconsin is covered by a self-insured plan, or a fully-insured plan written in another state, the employee’s dependents will not be eligible for the extension under the Wisconsin law.

To further complicate this, some state requirements only apply to dependents living in that state. As an example, under the Florida law, an out-of-state dependent would not be eligible for the Florida extension unless the dependent was a full-time or part-time student.

Conclusion

Clearly, there is considerable variation among state laws in terms of dependent eligibility requirements, especially in comparison to applicable federal law. With all of this variation, it can be tricky for employers to keep track of the ever-changing eligibility requirements. Employers should review and become familiar with their eligibility policies and state dependent eligibility laws. Understanding when dependents lose eligibility can be very helpful for employers so that they are aware of their coverage obligations, know when and what to communicate to employees, and understand their COBRA responsibilities.

Young adult dependents should also understand their eligibility rights and timeframes for special enrollment opportunities, so they don’t miss out on important deadlines.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.