Dependent Coverage Can Pose Challenges

March 8, 2012 – 5:47 pm | By John Iekel | Post a Comment

Many, perhaps most, employers provide some coverage to employees’ dependents under the benefit plans they offer. But an employer needs to be careful when it does so. Many factors can complicate this coverage.

Following are examples that highlight complicated situations that can arise for an employer that covers employees’ dependents and how an employer should address them. 

Changing Elections and When Coverage Begins  

A plan allows mid-plan year changes of employee elections when an employee marries. If the employee’s new spouse has a dependent, when does the employee’s liability for the additional dependent begin? Does that coverage begin on the date of the marriage? And what about the deduction? Can the employer retroactively deduct the additional premium not original deducted from the employee’s next paycheck? 

The final cafeteria plan rules under Code Section 125 do not limit the period for changing elections mid-year following a status change such as an employee marrying. In event of a birth, adoption or placement for adoption, proper enrollment under the Health Insurance Portability and Accountability Act (HIPAA) operates retrospectively to the date of the event. Contributions to pay for coverage may be through pre-tax salary reduction retroactively to the event. However, with marriage as the special enrollment event, while coverage per plan terms may be retroactive to the date of marriage, pre-tax salary contributions may be done prospectively only from the date the plan receives the enrollment request. 

Submitting Claims for Dependents Not Named  

An employee who participates in his employer’s health flexible spending account (FSA) plan has a dependent between the ages of 19 and 26. The dependent is covered by the ex-spouse’s health insurance. Would the employee be able to submit claims for this dependent under the FSA plan, even if the employee did not name the dependent for coverage under his employer’s plan? 

The cafeteria plan regulations do not require that a tax dependent must be covered under a parent’s medical plan in order to reimburse an out-of-pocket medical expense through a health FSA. As long as the claim has not been otherwise reimbursed, it should be permissible, unless the FSA plan document and summary plan description (SPD) require such medical coverage. The terms of the plan document and the SPD must be reviewed to see if they address this matter and what they say.  

For example, suppose an employee has five children, four by birth and one by adoption. The adopted child is on Medicaid and not on the employee’s medical plan. If the employee has any out-of-pocket medical expenses for the adopted child, the employee certainly can pay for it through the FSA in which the employee participates unless the plan document says FSA funds can only be used to cover such expenses for children who are named by an employee as covered dependents. 

Substantiation for Older Dependents’ Expenses  

Does a flex participant have to submit information, such as proof of student status, when submitting health care expenses for a dependent over age 18? 

Under the Patient Protection and Affordable Care Act (PPACA), a plan must allow a participant’s coverage to cover adult children through age 26. The substantiation rules applicable to anyone apply to them. These are: 

  • fully itemized bill(s) from a doctor, dentist, pharmacy or other supplier, that include dates of service, name of claimant and type of service; and
  • explanation of benefit statement(s) that indicate the deductible, coinsurance and amounts not covered by any medical or dental plan(s) under which the participant and/or any eligible dependents are covered.

Aside from that, adult children who are covered under a parent’s plan need only have proof sufficient to establish that they are eligible to be covered; in this case, that would be proof that they are the children of a participant. 

The PPACA and regulations under it do not require that an adult child provide proof that he or she is a full-time student because the law allows them coverage simply by reason of their being the child of a participant. It is not necessary to establish any other grounds upon which coverage is allowable.

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