Friday, October 22, 2010

From the mailbag: Retirees and Dependents

From a reader:

"My spouse is a retiree of [a well-known financial institution]. We are both in our late 50's and on [the former employer's] group health insurance. Our daughter turned 24 last Spring, and "aged off" our insurance due to that event. We were told by the [former employer] in August that she could be added back during open enrollment for coverage effective 1/1/2011 under the new provision of Obamacare, since she is under age 26.

Open enrollment began today and now they've changed their tune. They are now saying that because my wife is a retiree, and not an active participant, that the changes in the law pertaining to dependent coverage do not apply. I have read both the text of the law itself from the Federal Register and the federal regulations promulgated by the IRS, the Dept. Of Labor, and the Dept. Of Health and Human Services. I see nothing that makes this distinction. In fact, the regulations specifically state that even if my daughter were married, or not living with us, she would still be covered. The only exception seems to be, for grandfathered plans, if she were eligible for coverage under a different employer’s group plan, they could exclude her. This does not apply to her.

The [former employer] has promised to research further and get back to me in 5 business days. I asked them specifically to site me the law or regulation that allows them to distinguish a retiree’s dependent coverage from an active employee’s dependent coverage.

Do you know anything that backs up their position, or are they completely wrong, as I suspect? Thank you very much for your help in this matter

We're always grateful for a challenge, and this one seems both current and important. Here's what I replied:

"You'll find that the employer didn't actually "change its tune," but gave you inaccurate info in the first place. Retiree plans are exempt from that part of ObamaCrap.


If she's healthy, you might be better off putting her on her own plan, anyway. Often, these are less expensive than dependent coverage on a group plan, and will offer a choice of benefits designs.

Have a GREAT rest of the day!!

Our reader, being the tenacious sort (which we like), wasn't wholly satisfied with this reply, and (as it turns out), with good reason:

"She does have her own plan, but it’s not very good. Guess we’ll have to shop around for something better for her. Do you know where in the law this exception for retiree plans is? (Sorry, I’m a lawyer, so I like the details).

Thanks for the quick reply

He's right to call me on this, because he had asked for a specific citation, not just our analysis. Here's my reply:

Here ya go!

"Among other things, the regulations, set to be published in the Federal Register on Thursday, June 17 ... also confirm that retiree-only plans are exempt from certain PPACA requirements."


[Link to relevant Federal Register]

And so our work was done. Or so I thought.

As our own Mike Feehan points out:

"Actually, Hank, behind the curtains there's a little more involved than just being a retiree or the dependent of a retiree.

The distinction comes about because, apparently, the former employee and her family are enrolled in a "retiree-only" plan. Since they are both under 65, and presumably not Medicare-eligible, it's possible they could have the same plan (i.e., same benefit design) as the former employer's active employees. The employer's corrected answer tells me that this couple is enrolled in a distinct, retiree-only plan. (HHS says a retiree-only plan can enroll no more than 1 current employee). Thanks in large part to lobbying by AARP, retiree-only plans are, as you point out, exempt from PPACA. Of course, the plan sponsor of a retiree-only plan can voluntarily choose to comply with the reform requirements. But if they claim exemption they obviously can ignore the requirements - and the extra cost that the requirements entail. To claim the exemption, the plan sponsor must certify that the plan covers no more than 1 current employee, that a separate Form 5500 for the plan is filed with DOL, and that there is a separate SPD [ed: Summary Plan Description].

Clearly and in hindsight, the former employer gave them bad information the first time. While learning the truth of the matter may have angered them, I don't see that they "lost" anything they were entitled to. Maybe, if their daughter immediately canceled some other individual policy in anticipation of group coverage, they could claim to have been damaged by relying on the employer's erroneous advice. But that seems unlikely. So I doubt the employer's bad answer has harmed them - at least not in any way that I can see. It just made them angry. I bet there's a lot of plans out there bumping into things in the dark, trying to figure this out. It's almost as though the government deliberately made all this as complex as possible . . . naw, that can't be right . . . .can it?
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