The 2010 annual enrollment season saw the opening of the floodgates regarding dependent eligibility, as employers were required under the health care reform law to extend coverage to all dependent children - regardless of student status - to age 26. This includes both married and unmarried dependent children, as well as those who are no longer dependents on their parents' tax returns.
Now that the annual enrollment season is behind us, employers are beginning to get a handle on the number of additional dependents who came onto their plans, and what the true cost to their plans will be.
All of this is leading up to an evaluation of their approach to employee cost-sharing.
Lack of transparency
Despite this expansion of dependent coverage, some want the coverage expanded even further.
For example, one article on the expansion of dependent coverage to age 26 stated that "unfortunately this does not apply to grandchildren."
Really? Of course there are those who are going to want dependent coverage expanded even further than what PPACA requires because they don't realize the cost impact of doing so. And why should they?
Typical employee cost formulas shield employees from seeing - or paying - a cost per dependent.
When the law was passed, employers first thought, "Okay, we'll just charge these older dependents more."
Then came the clarification that you could not charge young adults gaining coverage under the law more than similar individuals who did not lose coverage due to the end of their dependent status.
So there went that idea.
Employers were then left to evaluate their current contribution structure and whether they should increase employee contributions for dependent coverage across the board.
While some thought of whether they should consider a new approach to employee cost sharing, most stuck with their current approach, at least for 2011.
Most employers charge their employees contributions based upon rate tiers. Benchmarking reports show the four-tiered rate approach as the most common.
The four-tiered approach has employees pay contributions based upon whether they enroll in single, employee plus spouse/domestic partner, employee plus child(ren) or employee plus family coverage. Someone enrolling one child pays the same employee contribution rate as someone enrolling five children.
The expansion of dependent coverage up to age 26 has brought up the question of whether this tiered approach to employee contributions is really fair.
Is it fair to charge someone with one child the same contribution cost as someone with five children?
This question will take center stage as employers grapple with the cost of not only the higher dependent age limit, but also with the rising cost of health care in general. They will look for ways in which they can appropriately share this cost increase with employees.
Changing to charge employees a rate per dependent they enroll in coverage will provide some financial incentive for adult children to consider other coverage options, if available to them, while keeping employers in compliance with the PPACA regulations.
The current tiered approach provides no real incentive for dependents to consider other coverage options - why bother when the coverage is "free" if you have at least one other dependent child enrolled also in the coverage?
Now that the provision to extend coverage for dependent children to age 26 is in effect, employers will begin to evaluate the number of dependents they had to enroll as a result of the change, and how the enrollment numbers impacted their overall costs. This will lead them to think more about how they want to structure employee cost sharing moving forward, and employers are bound to look at many different options heading into 2012 and beyond.
Yaccarino is on the health and welfare team of a large, national employer. She can be reached at firstname.lastname@example.org.
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