Most Employers to Wait to Cover Adult Children

Many companies do not intend to comply early with a provision in the new health care reform law that will require group health care plans to extend coverage to employees’ young adult children up to age 26, according to a survey released Tuesday, June 8.

Among the 501 large employers responding to a Hewitt Associates Inc. survey, 77 percent said they will wait until the effective date before offering the coverage. Ten percent of respondents said they will extend coverage early to all eligible adult children, 9 percent said they will continue coverage for graduating students already covered in their plans, and 4 percent were undecided.

The law requires the extension to be made on the first day of the plan year starting after September 23, 2010. For calendar-year plans, which are the most common, the effective date of the provision would be January 1.

There are several reasons why most employers are not expanding coverage before they are required to do so.

“The cost and administrative complexities of early adoption are key factors, but it’s really about their view of access,” Ken Sperling, Hewitt’s global health care leader in Norwalk, Connecticut, said in a statement.

“Many employers believe most adult children are healthy and can find affordable coverage in the individual market. They view COBRA as another option, particularly for those adult children with pre-existing health conditions. So, for many employers, they don’t see a coverage gap they feel compelled to immediately close,” Sperling said.

Cost increases for the expanded coverage will be modest. Among employers that have estimated how much their plan costs will increase annually by extending coverage to the adult children, 18 percent expect costs to rise by less than 1 percent, 11 percent expect costs to increase by between 1 and 2 percent, and 11 percent project costs to rise by between 2 and 5 percent.

Interim final regulations published by the Internal Revenue Service and the departments of Labor and Health and Human Services estimate that the expansion of coverage would increase premiums by an average of 0.7 percent in 2011.

So far, just one major self-funded employer—United Technologies Corp. in Hartford, Connecticut—has announced that it will comply early. Effective immediately, the company will continue coverage of employees’ adult children enrolled in its plan who would have lost coverage for reasons that include graduation from school.

Then on July 1, coverage will be offered to employees’ adult children up to age 26 regardless of whether they now are covered, unless they are eligible to enroll in another employer’s health care plan.

United Technologies, which had stopped coverage of employees’ children at age 19 or 23 if the child was a full-time college student, had until January 1, 2011, to comply. A top company executive said United Technologies was complying sooner than required because it was the right thing to do and because such action was consistent with its practice of providing competitive benefits.

This week, several major employers are expected to announce early adoption of the young adult expansion provision, a source said. 

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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