Health Care Reconciliation Bill Clears Final Hurdle - President Expected to Sign Bill Soon
March 26, 2010

Last night the House approved the reconciliation bill (H.R. 4872), which amends the health care reform bill (H.R. 3590) signed into law by President Obama earlier this week. The President is expected to sign the reconciliation bill into law soon. Now that the reconciliation bill is to become law, many facets of the health care reform legislation are much clearer-at least for now.

One issue of significant interest over the past week is the new law's effect on dependent coverage. With the passage of the reconciliation bill, the effect on dependent coverage is now clear.

Employer Obligation to Provide Coverage to Dependent Children Under Age 26. Under the combined legislation, beginning September 23, 2010, any group health plan or a health insurance issuer that offers group or individual health insurance coverage that provides coverage of dependent children, must continue to make dependent coverage available for an adult child (who is not married) until the child turns 26 years of age.

There is no requirement for a group health plan or issuer to provide health insurance coverage for dependents. But if coverage is provided for dependent children, then, under the combined health care reform legislation, the coverage must continue until the children turn 26. The reconciliation bill did away with the "grandfathering" rule that exempted some plans from complying with this requirement. All group health plans that offer coverage for dependent children must comply with the age 26 rule by September 23, 2010.

It is our interpretation of this rule that an adult child would have to continue to meet the plan's definition of "dependent"-other than the otherwise applicable age requirement-to remain covered under the group health plan up until age 26, but forthcoming federal regulations should clarify this point before the compliance deadline.

Under Section 4980D of the Internal Revenue Code, the sponsor of a plan that provides dependent coverage is subject to an excise tax generally equal to $100 for each day during the noncompliance period for each individual to whom the failure relates.

Even if a group health plan participant's adult child (who is under age 26) is covered under the plan under this new requirement, a child of that adult child would not have to be covered under this new requirement. Whether, and under what conditions, a participant's grandchild may be covered under the plan would depend on the plan's terms and applicable state law, particularly those states requiring coverage for the pregnancy and birth of a child to a dependent child receiving coverage under the plan.

Federal regulations must be provided to define the dependents for whom coverage will be made available under this rule and we await further regulatory guidance from the applicable federal agencies.

No other new employer obligation under the health care reform legislation (prohibition on lifetime caps, rescinding coverage, extension of preventive coverage, prohibition of pre-existing condition limitations) will take effect until on or after September 23, 2010.

What About This Age 27 Business? Effective on the enactment date, the new law extends the general exclusion from individual gross income for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the tax year. The reconciliation bill now makes clear that this is not a mandate for employers to provide coverage to age 27, but rather a provision that allows individuals to exempt the benefit from income if such benefit is provided.

This change is also intended to apply to the exclusion for employer-provided coverage under an accident or health plan for injuries or sickness for a child. A parallel change is made for VEBAs and 401(h) accounts. Also, self-employed individuals are permitted to take a deduction for the health insurance costs of any child of the taxpayer who has not attained age 27 as of the end of the tax year.

What Now? Hopefully the passage of the reconciliation bill puts many of these urgent questions to rest, at least for now. House and Senate Republicans are campaigning for the fall elections on a pledge to repeal the health care reform legislation and, whether they are successful or not, we expect some key provisions of the legislation will be modified prior to enactment. An employer's obligation to follow this legislation and subsequent regulations (and attempts to amend or revise them) continues.

Please mark you calendars for April 20, 2010 at 10:00 a.m. for our webinar: "Demystifying Health Care Reform: What Employers Need to Know Now." During this one-hour webinar we'll provide a high level, preliminary discussion of the employer obligations under the new law. The fee for this webinar will be $50 per connection site and we'll provide a registration e-blast shortly. In the mean time, if you would like to register, please contact Edi Heavner at (205) 323-9263 or eheavner@lehrmiddlebrooks.com

If you have questions about this Advisory, please contact your LMV attorney at (205) 326-3002.