Fine print hinders efforts to insure young adults
WASHINGTON -- President Barack Obama is pushing to speed up insurance coverage for young adults in their twenties -- a key early benefit of his health care overhaul -- but the law's fine print suggests some won't be able to sign up until next year.
What seemed like a simple solution so middle-class parents don't have to worry about keeping their children insured as they move from home or school to work has generated lots of questions.
The law says employers must start offering extended coverage as early as Sept. 23, but many families will likely have to wait until Jan. 1, as health care plans typically operate on the calendar year.
On Tuesday, the IRS issued a notice reassuring employers that neither they nor their workers would face negative tax repercussions from expanding coverage immediately. Some businesses weighing whether to act now had worried that traditional tax breaks for employer-sponsored health care might not apply.
"We want to make it as easy as possible for employers to quickly implement this change and extend health coverage on a tax-favored basis to older children of their employees," said IRS commissioner Doug Shulman. The notice clarifies that under the new law, companies offering a cafeteria-style menu of employee benefits can expand coverage immediately.
Stay tuned. Even if the timeline for the new benefit is getting clearer, it's still far from clear how employers and insurers will price the new coverage. There could be considerable differences in costs.
With college graduations just weeks away -- and the economy still uncertain -- the No. 1 inquiry corporate benefit managers are getting from employees is how they can keep their adult children on the company plan, said Paul Dennett, vice president for health reform at the American Benefits Council.
"I think there are a few questions that need to be clarified so people can make sure if they're making the right decision, and they do it in the right way," Dennett said. His group represents human resources departments.
Some parents may be frustrated and others may end up disappointed, but most will eventually be pleased, said Peter Harbage, a Democratic health policy consultant.
"People are going to see that we are on a path to making the health care system better," Harbage said. "It's been broken for so long that I think people are going to understand it's going to take a little bit of time."
The age at which young adults lose parental coverage varies widely. Most plans cover dependents until they graduate from college, but many children don't go to college. An estimated 485,000 young adults would gain coverage from the provision, a much-touted early benefit of the new law. The IRS said the overhaul law allows -- but does not require-- employers to offer tax-free health coverage to adult children until they turn 27.
Last week, major national insurers announced they would move up the effective date of the extension so recent graduates or those with a birthday in 2010 don't experience a break in coverage. The industry acted after Health and Human Services Secretary Kathleen Sebelius worked behind the scenes to encourage individual companies to make the change.
But the insurers' announcement applied mainly to policies they sell directly to customers, not to plans run by employers -- the primary sponsors of private health insurance. And under the health care overhaul law, there may be a lag in when employers start to offer the new benefit.
The law says the coverage extension is effective for the first plan year on or after Sept. 23. For most company plans, the new plan year doesn't start until Jan. 1, 2011. That means some young adults currently insured could experience a break in coverage.
"Most employer plans are on a calendar-year date," Dennett said. "For most employers, this requirement will take effect Jan. 1, 2011."
Another caveat: Employers don't have to cover a dependent who's eligible for a health-care plan at his or her own job.
One major issue remains unresolved -- how employers will charge for the new coverage. They could spread the cost across their entire pool of employees with family coverage. Or they could charge families that elect to cover their young adults a separate premium, which would be noticeably higher.
"There is no free lunch, so there will be an incremental cost," said Ron Fontanetta, a principal with the consulting firm TowersWatson. He believes a majority of employers will keep things simple and raise overall family premiums modestly. White House spokesman Nick Papas said the administration's preliminary analysis indicates premiums will rise on average less than half of 1 percent.
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