Children’s coverage and retroactive rescissions were among the health reform topics discussed by Kevin Knopf, attorney-advisor, Treasury Office of Benefits Tax Counsel, at the American Bar Association’s 21st Annual National Institute on Health and Welfare Benefit Plans in Washington, D.C. on October 25. Knopf elaborated on the official guidance issued on those requirements under the Patient Protection and Affordable Care Act.
Children’s Coverage
The ACA requires that employers providing health insurance coverage to an employee’s dependent child must continue to do so until the child reaches age 27. Knopf acknowledged that, while they prevent an insurer from defining “child,” the regulations do not themselves provide a definition of “child” for purposes of the health care reform package. He said that this was not a mistake: rather than provide a hard-and-fast definition, the IRS instead provided a safe harbor for taxpayers who rely upon the definition of “child” in IRC Sec. 152.
Despite this flexible interpretation of the law, Knopf reported that the Treasury continues to receive questions concerning step- and foster children. He stated that both of these children would fall within the Code Sec. 152 safe harbor.
However, when the parent-child relationship terminates, the IRS will no longer consider the child to belong to the insured individual and the insurer is no longer to continue coverage, Knopf explained. As an example, he pointed to a situation where an insured has a stepchild, but subsequently divorces the spouse and no longer carries on a relationship with the child.
Knopf also observed that the regulations prevent insurers from varying the terms of health coverage based on the age of the dependent child. He pointed out that an insurer could only charge additional fees for covering an adult child if it charged those fees for all children, and he indicated that the IRS is continuing to review this rule.
Retroactive Rescission
Knopf also explained that the ACA imposes new strict standards on when a health insurer may retroactively revoke an individual’s coverage. He noted that these restrictions arose because, while individuals could theoretically obtain retroactive health insurance coverage in the event of revocation, they cannot practically do so. He explained that the new law only allows retroactive rescission based on very few circumstances.
Knopf also recognized, however, that the restrictions are not airtight. He noted that an insured individual’s fraud or intentional misstatement of material fact could still justify the insurer’s retroactive revocation.
Additionally, the IRS’s answer to a frequently asked question describes a situation in which an employee terminates employment, he or she fails to pay any insurance premiums, and the employer delays terminating their health insurance coverage. The IRS will not consider the employer to have a restricted rescission where it retroactively eliminated the employee’s coverage back to the date of termination, if the delay is because of administrative delay.
Knopf reported that retroactive rescission of health care coverage may be limited for both medical and nonmedical reasons. This includes errors committed by the plan, mistakenly granting nonqualified employees health care coverage. He pointed to an example in the regulations where an employer provides health insurance coverage for full-time employees, but not for part-time employees. When an employee switches from full-time to part-time, but the plan mistakenly continues coverage, the regulations explain that the employer may prospectively, but not retroactively cancel the employee’s coverage.
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