Federal Rules for Children's Coverage | Plan Provisions and Taxation

Until the passage of the Omnibus Budget Reconciliation Act of 1993 (OBRA '93), provisions regarding eligibility were determined by the employer, provider underwriting practices, and/or any applicable state laws. OBRA '93 brought the federal government into the picture with a series of rules designed to better guarantee that benefits are available to children. Some of these rules pertain to eligibility.

Coverage for Adopted Children
One rule is in the form of an amendment to ERISA. If a work-related group medical expense plan provides coverage for dependent children of participants or beneficiaries, it must provide benefits for adopted children or children placed for adoption under the same terms and conditions that apply to natural children. For purposes of this change, a child is defined as a person under the age of 18 at the time of adoption or placement for adoption. Placement for adoption occurs at the time in the adoption process when the plan participant or beneficiary assumes and retains the legal duty for the total or partial support of a child to be adopted.

In addition to providing coverage, a plan cannot restrict benefits because of a preexisting condition at the time coverage is effective as long as the adoption or placement for adoption occurs while the parent is eligible for plan participation.

Medical Child Support Orders
Two other rules have as their goal the shifting of Medicaid cost from the government to the private sector by requiring employer-provided benefit plans to pick up more of the cost of providing medical expense benefits to the children of divorced and separated parents. The first of these rules amended ERISA by requiring employer-sponsored medical expense plans to recognize qualified medical child support orders by providing benefits for a participant's children in accordance with the requirements of such an order.

The act defines a medical child support order as a court judgment, decree, or order that (1) provides for child support with respect to the child of a group plan participant or provides benefit coverage to such a child, is ordered under state domestic relations law, and relates to benefits under the plan or (2) enforces a state medical support law enacted under the new Medicaid rules discussed below. The support order then becomes qualified if two additional requirements are met. First, the order must create or recognize the right of the child to receive benefits to which the plan participant or other beneficiary is entitled under a group plan. Second, the order must include such information as the name and last known mailing address of the plan participant and the child, a reasonable description of the coverage to be provided the period for which coverage must be provided and each plan to which the order applies. However, a qualified order cannot require a plan to offer any benefit that is not already available under the plan unless the benefits are necessary to meet the requirements of a state medical child support law established under the Social Security Act.

When a plan administrator receives a medical child support order, the administrator must promptly notify the participant and each child named under the order and inform them of the plan's procedure for determining if the order is a qualified medical child support order. Under the act, all group plans must establish reasonable written procedures for determining whether these orders are qualified.

Changes in Medicaid Rules
Under the final rule that is discussed, states were encouraged (under threat of losing some Medicaid reimbursement) to adopt a series of laws relating to medical child support. One of these laws prohibits plan administrators from denying enrollment of a child under a parent's insurance plan on the grounds that (1) the child was born out of wedlock, (2) the child is not claimed as a dependent on the parent's federal income tax return, or (3) the child does not reside with the parent or in the insurer's service area. In addition, a second law provides that if a court orders a parent to provide medical support, the parent's plan must enroll the child without regard to any enrollment restrictions. If the parent fails to enroll the child, enrollment can be made by the child's other parent or by the state Medicaid agency. The employer is required to withhold from the parent's compensation any payments that the parent must make toward the cost of coverage.

ELIGIBILITY | Plan Provisions and Taxation

The eligibility requirements for medical expense coverage are essentially the same as those discussed earlier for group term insurance—an employee must usually be in a covered classification, must satisfy any probationary period, and must be a full-time employee. Coverage is rarely made available to part-time employees. In addition, medical expense contracts often contain an actively-at-work provision. This provision may be waived, particularly for larger employers for whom adverse selection tends to be less of a problem than for smaller groups because any adverse selection for a large group is reflected in future premiums through the experience-rating process.

Eligibility requirements may vary somewhat if an employer changes providers for a plan's benefits. Note that the following discussion refers to the employer's plan with benefits paid by the previous provider as the "old plan" and the employer's plan with benefits paid by the new provider as the "new plan." In actuality, the employer still has the same medical expense plan. It has only been modified with the use of a new provider and, possibly, a different level of benefits. This is a material modification to a group health plan, and ERISA requires that participants be notified of this change by a summary of material modification.

Even though it has been adopted by only a few states, most providers follow the procedures established by the National Association of Insurance Commissioners (NAIC) Group Coverage Discontinuance and Replacement Model Regulation for medical expense coverage (and possibly other group coverages). This regulation stipulates that coverage be provided (but possibly limited) under a new plan to anyone who (1) was covered under the old plan at the date it was discontinued and (2) is in an eligible classification of the new plan. Employees actively at work on the date coverage is transferred are automatically covered under the new plan and are exempt from any probationary periods. If the new plan contains a preexisting-conditions provision, benefits applicable to an individual's preexisting conditions are limited to the lesser of (1) the maximum benefits of the new plan (ignoring the preexisting conditions) or (2) the maximum benefits of the old plan.

Employers often negotiate with the provider of benefits to ensure that for employees who are covered under the old plan but who are not actively at work on the date coverage is discontinued (such as an employee disabled by illness or injury or employees suffering temporary interruptions of employment) are included in the new plan. However, their benefits are frequently limited to the old plan's level until they meet the new plan's actively-at-work requirement.

Two final points should be made concerning the transfer of coverage. First, the new plan will not pay benefits for expenses covered by the old plan under an extension-of-benefits provision (discussed later); second, when applying any deductibles or probationary periods under the new plan, credit is often given for the satisfaction (or partial satisfaction) of the same or similar provisions during the last three months of the old plan. For example, assume that coverage is transferred in the middle of a calendar year and the new plan contains the same $200-a-year calendar deductible as the old plan. If an employee has already satisfied the deductible under the old plan, no new deductible is required for the remainder of the calendar year, provided that (1) the expenses used to satisfy the deductible under the old plan satisfy the deductible under the new plan and (2) the expenses were incurred during the last three months of the old plan. If only $140 of the $200 was incurred during those last three months, an additional $60 deductible is required under the new plan for the remainder of the calendar year.

Dependent Eligibility
Typically, the same medical expense benefits that are provided for an eligible employee are also available for that employee's dependents. Conversely, however, dependent coverage is rarely available unless the employee also has coverage. As long as any necessary payroll deductions have been authorized, dependent coverage is typically effective on the same date as the employee's coverage. If coverage under a contributory plan is not elected within 31 days after dependents are eligible, future coverage is available only during an open enrollment period or when satisfactory evidence of insurability is provided. However, if an employee was previously without dependents (and therefore had no dependent coverage), any newly acquired dependents (by birth, marriage, or adoption) are eligible for coverage as of the date they gain dependent status.

The term dependents most commonly refers to an employee's spouse who is not legally separated from the employee and any unmarried dependent children (including stepchildren and adopted children) under the age of 19. However, coverage is usually provided for children to age 23 if they are full-time students. In addition, coverage may also continue (and is required to be continued in some states) for children who are incapable of earning their own living because of a physical or mental infirmity. Such children are considered dependents as long as this condition exists, but periodic proof of the condition may be required. If an employee has dependent coverage, all newly acquired dependents (by birth, marriage, or adoption) are automatically covered.

Some persons that meet the definition of a dependent may be ineligible for coverage because they are in the armed forces or they are eligible for coverage under the same plan as the employees themselves. This latter restriction, however, may not apply to a spouse unless the spouse is actually covered under the plan. Some plans also exclude coverage for any dependents residing outside the United States or Canada.

Medical expense plans may contain a "nonconfinement" provision for dependents, which is similar to the actively-at-work provision for employees. Under this provision, a dependent is not covered if he or she is confined for medical care or treatment in a hospital or at home at the time of eligibility. Coverage, however, becomes effective when the dependent is released from such confinement. Until the passage of HIPAA, a nonconfinement provision was commonly found in medical expense plans. However, many legal and benefit experts feel that such a provision violates HIPAA, because it involves the use of health status as a basis for eligibility. In addition, some states do not allow the provision in insured contracts. As a result, many providers no longer include a nonconfinement provision, and an employee's dependents are eligible for coverage at the same time the employee is eligible.

When coverage is transferred, dependents are treated the same as employees, except that any actively-at-work provision may be replaced by a nonconfinement provision.