August 11, 2010 

Office of Health Plan Standards and Compliance Assistance 

Employee Benefits Security Administration 

Room N-5653 

U.S. Department of Labor 

200 Constitution Avenue NW 

Washington, DC 20210 

Attention: RIN 1210-AB41 

Re: Definition of “Child” in Interim Final Rules for Group Health Plans and Health 

Insurance Issuers Relating to Dependent Coverage of Children to Age 26 

Dear Sir or Madam: 

As a follow-up to the letter submitted by the American Benefits Council (“Council”) on 

June 28, 20101

, we are writing on behalf of the Council and HR Policy Association (“HR 

Policy”) to request additional guidance in connection with the Interim Final Rules for 

Group Health Plans and Health Insurance Issuers Relating to Dependent Coverage of 

Children to Age 26 under the Patient Protection and Affordable Care Act of 2010, Pub. 

L. 111-148 (“PPACA”) (the “Interim Final Rules”). It is our understanding that these 

comments will be shared with the Departments of Treasury and Health and Human 

Services. 

The Council is a public policy organization representing principally Fortune 500 

companies and other organizations that assist employers of all sizes in providing 

benefits to employees. Collectively, the Council's members either sponsor directly or 

provide services to retirement and health plans that cover more than 100 million 

Americans. 

 

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 On June 28, 2010, the Council submitted a letter to the Departments of Health and Human Services, 

Labor and Treasury with respect to the new adult child requirement as set forth in new Public Health 

Service Act (“PHSA”) section 2714, as added by section 1001 of the Patient Protection and Affordable 

Care Act of 2010 (“PPACA”), Pub. L. 111-148 (enacted on March 23, 2010). 
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HR Policy represents the chief human resource officers of over 300 of the largest 

employers doing business in the United States. Representing every major industrial 

sector, HR Policy's members employ more than 18 million people worldwide and 

collectively spend more than $75 billion annually providing health insurance to millions 

of American employees, their dependents and retirees. 

At the outset, we note that clarifying guidance regarding the items discussed below is 

needed urgently. Many employers and issuers are in the process of making final 

decisions with respect to their plans for the upcoming plan year. This is because, for 

those who sponsor and/or administer calendar year plans, they must begin printing the 

necessary materials for annual open enrollment, which frequently occurs in October 

preceding the start of the plan year. Accordingly, we request that any clarifying 

guidance be issued as soon as possible to allow those employers and issuers that have 

not already finalized their plan terms for the upcoming plan year, to utilize the 

guidance for purposes of the upcoming plan year. 

Definition of “Adult Child” Should Be Consistent with Internal Revenue Code 

152(f)(1) 

As stated in the Council’s June 28, 2010 letter, we urge the Departments of Health and 

Human Services, Labor and Treasury (collectively, the “Agencies”) to issue guidance 

providing an express definition of “child” for purposes of the Interim Final Rules and 

new section 2714 of the Public Health Service Act (“PHSA”) (as added by PPACA). The 

Interim Final Rules and new PHSA section 2714 generally provide that a plan or issuer 

that makes available dependent coverage of children must make such coverage 

available for children until attainment of age 26 (the “Adult Child Requirement”). 

Specifically, we request guidance clarifying that the terms “child” and “children” as 

used in new PHSA section 2714 and the Interim Final Rules have the same meaning as 

the term “child” in section 152(f)(1) of the Internal Revenue Code of 1986, as amended 

(the “Code”). 

The Council and HR Policy request that the Agencies define “child” for the purposes of 

the Adult Child Requirement to mean the employee’s legal child (by adoption or birth, 

foster child, or step-child) as set forth in Code section 152(f)(1). As discussed in the 

Council’s June 28, 2010 letter, many plan sponsors make coverage available to an 

employee’s custodial children and/or grandchildren residing with the employee. This 

includes, most notably, minors for whom the employee is not the legal parent but 

otherwise acts as the custodian either in accordance with a court appointed legal 

guardianship or as defined by applicable plan terms. For example, plans may cover an 

employee’s nieces or nephews or other non-152(f)(1) children who live with the 

employee and receive some specified amount of financial support from the employee. 

As discussed in more detail below, without clarification that “child” is defined under 

152(f)(1), employers that offer coverage to non-152(f)(1) individuals would seem to be 

required to continue to offer such coverage until the individual turns 26, regardless of 
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whether that individual continues to meet eligibility requirements under the plan. In 

addition, it would seem to be the case that the cost of the health benefits offered to at 

least some non-152(f)(1) individuals would need to be imputed as additional wages to 

the employee. Unless additional guidance is issued defining “child” as requested by 

the Council and HR Policy, there is a very real likelihood that plans and issuers will 

cease offering coverage to other non-152(f)(1) children. 

Our proposal is completely consistent with congressional intent. As discussed in the 

Council’s June 28, 2010 letter, legislative history quite clearly indicates that Congress 

intended for a Code section 152(f)(1) definition of “child” to apply for purposes of the 

Adult Child Requirement. Specifically, as part of the Health Care and Education 

Reconciliation Act of 2010, Pub. L. 111-152 (the “Reconciliation Bill”), Congress added a 

tax “fix” to Code section 105 to address the taxation of adult child coverage. In doing 

so, Congress expressly defined “adult child” for this purpose by reference to Code 

section 152(f)(1). This was done following the Senate’s passage of PPACA, including 

section 1001 (which includes the new Adult Child Requirement). Accordingly, our 

proposed rule would give full faith to congressional intent by imposing a Code section 

152(f)(1) definition of “child” for purposes of the Adult Child Requirement. 

Alternative Approach has Significant Drawbacks 

With respect to non-152(f)(1) children, some have suggested that an appropriate 

solution would be to permit plan sponsors to define eligibility for “dependent” 

coverage based on factors in addition to “relationship”, such as financial dependency, 

shared domicile, and/or custodial status. For example, a plan could offer coverage for 

grandchildren of employees to the extent they live with the employee and receive over 

half of their financial support from the employee. Thus, according to its terms, the plan 

would not be required to extend coverage to all grandchildren without regard to 

whether a grandchild satisfied the shared domicile and financial support tests. 

However, under this approach, the plan would be required to continue to provide 

coverage to any individual who enrolled in coverage through age 25, even if the 

individual ceases to qualify under the applicable “dependent” definition following the 

commencement of coverage. 

Although the Council and HR Policy believe that this alternative approach is a wellintentioned attempt to address the concerns employers are facing with respect to the 

voluntary coverage they provide for non-152(f)(1) children, we believe the approach 

also has some very significant drawbacks that are likely to decrease the number of 

employers who offer coverage voluntarily to non-152(f)(1) children residing with their 

employees. Such a reduction in coverage surely would be an undesirable and 

unintended consequence. 

Under this alternative approach, plan sponsors would be required to provide coverage 

to non-152(f)(1) children who may have little to no nexus with respect to the employee. 
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This is because, as contemplated, plans would be required to continue to make coverage 

available to a child until his or her 26th birthday, even where he or she ceases to satisfy 

the definition that applied for purposes of determining initial eligibility (e.g., a child no 

longer qualifies as a custodial child of the employee because he or she no longer lives at 

home or is a financial dependent of the employee). The reasons for plan sponsors 

offering coverage to non-152(f)(1) children are simply not served where the individual 

ceases to have a sufficient nexus with the employee. Moreover, as noted in the 

Council’s June 28, 2010 letter, most employers, especially given the current economic 

climate, cannot afford to offer coverage to non-152(f)(1) children without regard to some 

sort of dependency test or other eligibility requirement. 

Another significant drawback to the approach described above is that plans will, in 

many instances, have to impute as wages to the employee the cost of employerprovided coverage attributable to a non-152(f)(1) child. This is because, under the 

proposed approach, a plan could not limit coverage to non-152(f)(1) children to the 

extent they qualify for tax-free employer-paid health coverage in accordance with Code 

sections 105 and 106. 

As you know, the process of imputing as wages the value of employer-paid health 

coverage is no simple task. It is complicated and, as a result, can be very costly to 

administer. Many of our members’ plans currently offer domestic partner coverage, 

and thus are already dealing with the issue of imputation because of the current federal 

income and payroll tax rules that apply to employer-paid coverage for nondependent 

same-sex spouses and domestic partners. As such, our members generally are 

uninterested in expanding the class of enrollees for which they must impute as wages 

the value of employer-paid coverage. As history has shown with respect to the 

provision of nondependent domestic partner coverage, the employee relations issues 

and the costs associated with educating a workforce regarding the taxation of 

nondependent coverage can be substantial. For many small to mid-size employers, 

these costs are likely to be so significant as to operate as a strict bar against providing 

coverage. Lastly, it is important to note that there is an added cost to employers in the 

form of an additional payroll tax burden because the value of imputed coverage 

operates not only to increase the employee’s income and payroll tax liability, but also 

the employer’s payroll tax liability. 

For the reasons set forth above, the Council and HR Policy continue to believe that the 

best rule — both from a policy perspective and for purposes of satisfying congressional 

intent — is that a “child” for purposes of the Adult Child Requirement should be 

defined by reference to Code section 152(f)(1). Such a rule would foster increased 

coverage by allowing an employee’s Code section 152(f)(1) children to have continued 

access to coverage through age 25. Moreover, such a rule would continue to encourage 

employers to offer coverage to non-152(f)(1) children, consistent with employers’ 

current practices. 
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Provide a Safe Harbor Rule for Coverage Based on Legal Guardianship 

As discussed above, many plans choose to voluntarily extend coverage to one or more 

classes of non-152(f)(1) children. Regardless of whether the Agencies adopt either of the 

approaches discussed above, the Council and HR Policy urge the Agencies to adopt a 

rule that would permit plans to continue to make coverage to one or more classes of 

non-Code section 152(f)(1) children, but only to the extent such children are subject to a 

court appointed legal guardianship. Thus, under such a rule, a plan could continue to 

make coverage available to employees' minor-age grandchildren where the employee is 

the legal guardian of the minor-age grandchild. Furthermore, under the requested rule, 

to the extent that an employee ceases to be the legal guardian with respect to the minorage individual, or such individual attains a specified age of maturity as defined under 

the plan or applicable law (e.g., age 19), the plan could decide to no longer make 

coverage available with respect to such individual. 

Cost of Coverage for an “Adult Child” 

Many of our members are concerned that the costs associated with insuring the health 

risks associated with an adult child may be significantly increased relative to those of (i) 

minor-age children, or (ii) the covered lives of the plan as a whole. The concern arises 

out of potential anti-selection issues associated with extending coverage to “adult 

children”. To ensure that the costs of the Adult Child Requirement are not borne fully 

by plan sponsors and/or the plan as a whole, the Council and HR Policy urge the 

Agencies to issue guidance permitting plans to charge an additional premium equal to 

any increased actuarial risk assumed by the plan with respect to covering an adult 

child. 

Clarification Needed Regarding What Constitutes Qualifying “Other EmployerSponsored Coverage” for Purposes of the Pre-2014 Transition Rule 

PPACA section 1251, as amended by the Reconciliation Bill, provides a special 

transition rule for grandfathered plans. Per this special transition rule, grandfathered 

plans are not required to make coverage available to a qualifying adult child if such 

child is “eligible to enroll in an eligible employer-sponsored health plan ... other than a 

group health plan of a parent.” Clarification is needed regarding what constitutes an 

“eligible employer-sponsored health plan” for purposes of the transition rule. 

The Council and HR Policy request clarification that employer-sponsored continuation 

coverage that is made available to an otherwise qualifying adult child – whether by 

reason of state or federal law (e.g., COBRA coverage), or at the voluntary election of the 

adult child’s former employer – constitutes “eligible employer-sponsored health plan” 

coverage. There is no valid policy justification for distinguishing between active 

coverage and continuation coverage; accordingly, the Council and HR Policy request 
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clarification that employer-sponsored continuation coverage qualifies as an “eligible 

employer-sponsored health plan” for purposes of the transition rule. 

Additionally, the Council and HR Policy request clarification that an “eligible 

employer-sponsored health plan” also includes employer-sponsored coverage that is 

available to an otherwise qualifying adult child vis-à-vis the adult child’s spouse. For 

example, to the extent that an adult child has access to health coverage through his or 

her spouse’s employer, this coverage should qualify as an “eligible employer-sponsored 

health plan” for purposes of the transition rule. 

Conclusion 

We appreciate the opportunity to comment on the Interim Final Regulations. If we can 

be of further assistance, please contact Kathryn Wilber at 202-289-6700 or 

kwilber@abcstaff.org, or Marisa Milton at 202-789-8671 or mmilton@hrpolicy.org. 

Sincerely, 

Kathryn Wilber 

Senior Counsel, Health Policy 

American Benefits Council 

Marisa Milton 

Vice President, Health Care Policy & 

Government Relations 

HR Policy Association