2008 Legislation Triggers Health Plan Changes

October 21, 2008

2008 brought a number of new laws impacting a health plan’s eligibility, terms and coverage, including the recently enacted “Fostering Connections to Success and Increasing Adoptions Act of 2008” (“FCSIAA”) and “Michelle’s Law.” Plan sponsors should review their health plans prior to the end of 2008 to ensure compliance with FCSIAA and consider the impact of Michelle’s Law on their group health plans for the first plan year beginning after October 9, 2009.

Fostering Connections to Success and Increasing Adoptions Act of 2008 (“FCSIAA”)

The FCSIAA modifies the definition of “qualifying child” under the Internal Revenue Code’s definition of “dependent” to clarify who constitutes a dependent for certain tax purposes, including eligibility for tax-favored benefits under group health plans. In light of these changes, plan sponsors should review the definition of “dependent” in their group health plan to determine whether an amendment is required to comply.

What changes were made to the definition of qualifying child by FCSIAA? 

  • An adopted child must not only meet the age requirements to be a dependent, but also must be younger than the taxpayer who claims the child as a dependent.
  • A child must be unmarried and must not have filed a joint tax return with a spouse for the same tax year as the child is claimed as a dependent.
  • A child can be a dependent of a nonparent, but only if (i) the parents of the child could claim the child as a qualifying child, but do not claim the child, and (ii) the adjusted gross income of the nonparent is higher than the highest adjusted gross income of any parent of the child.

When are the new dependent rules effective?

The new dependent rules are effective for tax years beginning after December 31, 2008.

“Michelle’s Law” Mandates Continued Eligibility of Students on a Medical Leave of Absence

After Michelle’s Law becomes effective, a dependent child who is forced to take a medically necessary leave of absence from school will not have to elect COBRA in order to maintain coverage under a group health plan, but will continue to be eligible to be covered as a dependent.

Who is covered by Michelle’s Law?

A child who, immediately before the first day of a “medically necessary leave of absence,” was covered as a dependent under a group plan on the basis of his/her student status at a post-secondary educational institution.

What is a Medically Necessary Leave of Absence?

A “medically necessary leave of absence” is a medically necessary leave of absence from (or any other change in enrollment at) a post-secondary educational institution commencing when a covered dependent is suffering from a serious illness or injury that causes the child to lose student status for the purpose of coverage as a dependent under the terms of the plan. The child’s treating physician must provide a written certification to the plan indicating that the dependent child is suffering from a serious illness or injury and that the leave of absence is medically necessary.

Requirements of Michelle’s Law

  • The plan must continue to provide coverage to the child for one year from the beginning of the leave (or, if earlier, to the date the coverage otherwise would have ended).
  • The plan must provide the child with the same benefits during the leave that the child would have received as a covered student dependent not on a medically necessary leave of absence. Such benefits are subject to changes in the plan’s terms that occur during the period of coverage provided under Michelle’s Law.
  • A plan must include a description of Michelle’s Law with any notice the plan sends describing requirements for certifying student status for eligibility for dependent coverage.

Effective Date

Michelle’s Law applies for plan years beginning on or after October 9, 2009.

You may also view the alert in the PDF below.

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