[Federal Register Volume 75, Number 92 (Thursday, May 13, 2010)]
[Rules and Regulations]
[Pages 27122-27140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11391]



[[Page 27121]]

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Part II

Department of the Treasury



Internal Revenue Service



26 CFR Parts 54 and 602



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Department of Labor



Employee Benefits Security Administration

29 CFR Part 2590



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Department of Health and Human Services

45 CFR Parts 144, 146, and 147



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Group Health Plans and Health Insurance Issuers Relating to Dependent 
Coverage of Children to Age 26 Under the Patient Protection and 
Affordable Care Act; Interim Final Rule and Proposed Rule

Federal Register / Vol. 75, No. 92 / Thursday, May 13, 2010 / Rules 
and Regulations

[[Page 27122]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 54 and 602

[TD 9482]
RIN 1545-BJ46

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AB41

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

[OCIIO-4150-IFC]

45 CFR Parts 144, 146, and 147

RIN 0991-AB66


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

AGENCY: Internal Revenue Service, Department of the Treasury; Employee 
Benefits Security Administration, Department of Labor; Department of 
Health and Human Services.

ACTION: Interim final rules with request for comments.

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SUMMARY: This document contains interim final regulations implementing 
the requirements for group health plans and health insurance issuers in 
the group and individual markets under provisions of the Patient 
Protection and Affordable Care Act regarding dependent coverage of 
children who have not attained age 26.

DATES: Effective date. These interim final regulations are effective on 
July 12, 2010.
    Comment date. Comments are due on or before August 11, 2010.
    Applicability date. These interim final regulations generally apply 
to group health plans and group health insurance issuers for plan years 
beginning on or after September 23, 2010. These interim final 
regulations generally apply to individual health insurance issuers for 
policy years beginning on or after September 23, 2010.

ADDRESSES: Written comments may be submitted to any of the addresses 
specified below. Any comment that is submitted to any Department will 
be shared with the other Departments. Please do not submit duplicates.
    All comments will be made available to the public. Warning: Do not 
include any personally identifiable information (such as name, address, 
or other contact information) or confidential business information that 
you do not want publicly disclosed. All comments are posted on the 
Internet exactly as received, and can be retrieved by most Internet 
search engines. No deletions, modifications, or redactions will be made 
to the comments received, as they are public records. Comments may be 
submitted anonymously.
    Department of Labor. Comments to the Department of Labor, 
identified by RIN 1210-AB41, by one of the following methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#8ecba3c1c6deddcdcfa0cbccddcfceeae1e2a0e9e1f8"><span class="__cf_email__" data-cfemail="3e7b1371766e6d7d7f107b7c6d7f7e5a515210595148">[email protected]</span></a>.
    <bullet> Mail or Hand Delivery: 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.
    Comments received by the Department of Labor will be posted without 
change to http://www.regulations.gov and http://www.dol.gov/ebsa, and 
available for public inspection at the Public Disclosure Room, N-1513, 
Employee Benefits Security Administration, 200 Constitution Avenue, 
NW., Washington, DC 20210.
    Department of Health and Human Services. In commenting, please 
refer to file code OCIIO-4150-IFC. Because of staff and resource 
limitations, we cannot accept comments by facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address only: Office of Consumer Information and Insurance Oversight, 
Department of Health and Human Services, Attention: OCIIO-4150-IFC, 
P.O. Box 8016, Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Office of Consumer Information and 
Insurance Oversight, Department of Health and Human Services, 
Attention: OCIIO-4150-IFC, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--
    Office of Consumer Information and Insurance Oversight, Department 
of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201 (Because access to 
the interior of the Hubert H. Humphrey Building is not readily 
available to persons without Federal government identification, 
commenters are encouraged to leave their comments in the OCIIO drop 
slots located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.).
    b. For delivery in Baltimore, MD--
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call (410) 786-7195 in advance to schedule your arrival with one 
of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 
three weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security

[[Page 27123]]

Boulevard, Baltimore, Maryland 21244, Monday through Friday of each 
week from 8:30 a.m. to 4 p.m. EST. To schedule an appointment to view 
public comments, phone 1-800-743-3951.
    Internal Revenue Service. Comments to the IRS, identified by REG-
114494-10, by one of the following methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> Mail: CC:PA:LPD:PR (REG-114494-10), room 5205, Internal 
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 
20044.
    <bullet> Hand or courier delivery: Monday through Friday between 
the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-114494-10), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington DC 20224.
    All submissions to the IRS will be open to public inspection and 
copying in room 1621, 1111 Constitution Avenue, NW., Washington, DC 
from 9 a.m. to 4 p.m.

FOR FURTHER INFORMATION CONTACT: Amy Turner or Beth Baum, Employee 
Benefits Security Administration, Department of Labor, at (202) 693-
8335; Karen Levin, Internal Revenue Service, Department of the 
Treasury, at (202) 622-6080; Jim Mayhew, Office of Consumer Information 
and Insurance Oversight, Department of Health and Human Services, at 
(410) 786-1565.
    Customer Service Information: Individuals interested in obtaining 
information from the Department of Labor concerning employment-based 
health coverage laws may call the EBSA Toll-Free Hotline at 1-866-444-
EBSA (3272) or visit the Department of Labor's Web site (http://www.dol.gov/ebsa). In addition, information from HHS on private health 
insurance for consumers can be found on the Centers for Medicare & 
Medicaid Services (CMS) Web site (http://www.cms.hhs.gov/HealthInsReformforConsume/01_Overview.asp).

SUPPLEMENTARY INFORMATION: 

I. Background

    The Patient Protection and Affordable Care Act (the Affordable Care 
Act), Public Law 111-148, was enacted on March 23, 2010; the Health 
Care and Education Reconciliation Act (the Reconciliation Act), Public 
Law 111-152, was enacted on March 30, 2010. The Affordable Care Act and 
the Reconciliation Act reorganize, amend, and add to the provisions of 
part A of title XXVII of the Public Health Service Act (PHS Act) 
relating to group health plans and health insurance issuers in the 
group and individual markets. The term ``group health plan'' includes 
both insured and self-insured group health plans.\1\ The Affordable 
Care Act adds section 715 to the Employee Retirement Income Security 
Act (ERISA) and section 9815 to the Internal Revenue Code (the Code) to 
make the provisions of part A of title XXVII of the PHS Act applicable 
under ERISA and the Code to group health plans, and health insurance 
issuers providing health insurance coverage in connection with group 
health plans, as if those provisions of the PHS Act were included in 
ERISA and the Code. The PHS Act sections incorporated by this reference 
are sections 2701 through 2728. PHS Act sections 2701 through 2719A are 
substantially new, though they incorporate some provisions of prior 
law. PHS Act sections 2722 through 2728 are sections of prior law 
renumbered with some, mostly minor, changes. Section 1251 of the 
Affordable Care Act, as modified by section 10103 of the Affordable 
Care Act and section 2301 of the Reconciliation Act, specifies that 
certain plans or coverage existing as of the date of enactment (i.e., 
grandfathered health plans) are subject to only certain provisions.
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    \1\ The term ``group health plan'' is used in title XXVII of the 
PHS Act, part 7 of ERISA, and chapter 100 of the Code, and is 
distinct from the term ``health plan'', as used in other provisions 
of title I of the Affordable Care Act. The term ``health plan'' does 
not include self-insured group health plans.
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    Subtitles A and C of title I of the Affordable Care Act amend the 
requirements of title XXVII of the PHS Act (changes to which are 
incorporated into ERISA section 715). The preemption provisions of 
ERISA section 731 and PHS Act section 2724 \2\ (implemented in 29 CFR 
2590.731(a) and 45 CFR 146.143(a)) apply so that the requirements of 
the Affordable Care Act are not to be ``construed to supersede any 
provision of State law which establishes, implements, or continues in 
effect any standard or requirement solely relating to health insurance 
issuers in connection with group or individual health insurance 
coverage except to the extent that such standard or requirement 
prevents the application of a requirement'' of the Affordable Care Act. 
Accordingly, State laws that impose on health insurance issuers 
stricter requirements than those imposed by the Affordable Care Act 
will not be superseded by the Affordable Care Act.
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    \2\ Code section 9815 incorporates the preemption provisions of 
PHS Act section 2724. Prior to the Affordable Care Act, there were 
no express preemption provisions in chapter 100 of the Code.
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    The Departments of Health and Human Services, Labor, and the 
Treasury (the Departments) expect to issue regulations implementing the 
revised PHS Act sections 2701 through 2719A in several phases. The 
first publication in this series was a Request for Information relating 
to the medical loss ratio provisions of PHS Act section 2718, published 
in the Federal Register on April 14, 2010 (75 FR 19297). These interim 
final regulations are being published to implement PHS Act section 2714 
(requiring dependent coverage of children to age 26). PHS Act section 
2714 generally is effective for plan years (in the individual market, 
policy years) beginning on or after September 23, 2010, which is six 
months after the March 23, 2010 date of enactment of the Affordable 
Care Act.\3\ The implementation of other provisions of PHS Act sections 
2701 through 2719A and section 1251 of the Affordable Care Act will be 
addressed in future regulations.
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    \3\ See section 1004 of the Affordable Care Act.
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    Because subtitles A and C of title I of the Affordable Care Act 
contain requirements that are applicable to both the group and 
individual health insurance markets, it would be duplicative to insert 
the requirements into both the existing 45 CFR part 146 (Requirements 
for the Group Health Insurance Market) and 45 CFR part 148 
(Requirements for the Individual Health Insurance Market). Accordingly, 
these interim final regulations create a new part 147 in subchapter B 
of 45 CFR to implement the provisions of the Affordable Care Act. The 
provisions of the Affordable Care Act, to the extent that they apply to 
group health plans and group health insurance coverage, are also 
implemented under new regulations added to 29 CFR part 2590 and 26 CFR 
part 54.

II. Overview of the Regulations

A. PHS Act Section 2714, Continued Eligibility of Children Until Age 26 
(26 CFR 54.9815-2714, 29 CFR 2590.715-2714, 45 CFR 147.120)

    Section 2714 of the PHS Act, as added by the Affordable Care Act 
(and amended by the Reconciliation Act), and these interim final 
regulations provide that a plan or issuer that makes available 
dependent coverage \4\ of children must make such coverage available 
for children until attainment

[[Page 27124]]

of 26 years of age. The statute also requires the issuance of 
regulations to ``define the dependents to which coverage shall be made 
available'' under this rule.
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    \4\ For purposes of these interim final regulations, dependent 
coverage means coverage of any individual under the terms of a group 
health plan, or group or individual health insurance coverage, 
because of the relationship to a participant (in the individual 
market, primary subscriber).
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    Many group health plans that provide dependent coverage limit the 
coverage to health coverage excludible from employees' gross income for 
income tax purposes. Thus, dependent coverage is limited to employees' 
spouses and employees' children that qualify as dependents for income 
tax purposes. Consequently, these plans often condition dependent 
coverage, in addition to the age of the child, on student status, 
residency, and financial support or other factors indicating dependent 
status. However, with the expansion of dependent coverage required by 
the Affordable Care Act to children until age 26, conditioning coverage 
on whether a child is a tax dependent or a student, or resides with or 
receives financial support from the parent, is no longer appropriate in 
light of the correlation between age and these factors. Therefore, 
these interim final regulations do not allow plans or coverage to use 
these requirements to deny dependent coverage to children. Because the 
statute does not distinguish between coverage for minor children and 
coverage for adult children under age 26, these factors also may not be 
used to determine eligibility for dependent coverage for minor 
children.
    Accordingly, these interim final regulations clarify that, with 
respect to children who have not attained age 26, a plan or issuer may 
not define dependent for purposes of eligibility for dependent coverage 
of children other than in terms of the relationship between the child 
and the participant (in the individual market, the primary subscriber). 
Examples of factors that cannot be used for defining dependent for 
purposes of eligibility (or continued eligibility) include financial 
dependency on the participant or primary subscriber (or any other 
person), residency with the participant or primary subscriber (or any 
other person), student status, employment, eligibility for other 
coverage, or any combination of these. These interim final regulations 
also provide that the terms of the plan or policy for dependent 
coverage cannot vary based on the age of a child, except for children 
age 26 or older. Examples illustrate that surcharges for coverage of 
children under age 26 are not allowed except where the surcharges apply 
regardless of the age of the child (up to age 26) and that, for 
children under age 26, the plan cannot vary benefits based on the age 
of the child. The Affordable Care Act, as originally enacted, required 
plans and issuers to make dependent coverage available only to a child 
``who is not married.'' This language was struck by section 2301(b) of 
the Reconciliation Act. Accordingly, under these interim final 
regulations, plans and issuers may not limit dependent coverage based 
on whether a child is married. (However, a plan or issuer is not 
required under these interim final regulations to cover the spouse of 
an eligible child).
    The statute and these interim final regulations provide that 
nothing in PHS Act section 2714 requires a plan or issuer to make 
available coverage for a child of a child receiving dependent coverage.
    Under section 1004(d) of the Reconciliation Act and IRS Notice 
2010-38 (released to the public on April 27, 2010 and scheduled to be 
published in 2010-20 Internal Revenue Bulletin, May 17, 2010), 
employers may exclude from the employee's income the value of any 
employer-provided health coverage for an employee's child for the 
entire taxable year the child turns 26 if the coverage continues until 
the end of that taxable year. This means that if a child turns 26 in 
March, but stays on the plan past December 31st (the end of most 
people's taxable year), the health benefits up to December 31st can be 
excluded for tax purposes.
    Application to grandfathered health plans. Under the statute and 
these interim final regulations, the requirement to make available 
dependent coverage for children who have not attained age 26 generally 
applies to all group health plans and health insurance issuers offering 
group or individual health insurance coverage whether or not the plan 
or health insurance coverage qualifies as a grandfathered health plan 
\5\ under section 1251 of the Affordable Care Act, for plan years (in 
the individual market, policy years) beginning on or after September 
23, 2010. However, in accordance with section 2301(a) of the 
Reconciliation Act, for plan years beginning before January 1, 2014, 
these interim final regulations provide that a grandfathered health 
plan that is a group health plan that makes available dependent 
coverage of children may exclude an adult child who has not attained 
age 26 from coverage only if the child is eligible to enroll in an 
employer-sponsored health plan (as defined in section 5000A(f)(2) of 
the Code) other than a group health plan of a parent. In the case of an 
adult child who is eligible for coverage under the plans of the 
employers of both parents, neither plan may exclude the adult child 
from coverage based on the fact that the adult child is eligible to 
enroll in the plan of the other parent's employer.
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    \5\ Section 1251 of the Affordable Care Act, as modified by 
section 10103 of the Affordable Care Act and section 2301 of the 
Reconciliation Act, specifies that certain plans or coverage 
existing as of the March 23, 2010 date of enactment (i.e., 
grandfathered health plans) are subject to only certain provisions.
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    Regulations relating to grandfathered health plans under section 
1251 of the Affordable Care Act are expected to be published in the 
very near future. The Departments anticipate that the regulations will 
make clear that changes to plan or policy terms to comply with PHS Act 
section 2714 and these interim final regulations, including voluntary 
compliance before plan years (in the individual market, policy years) 
beginning on or after September 23, 2010, will not cause a plan or 
health insurance coverage to lose grandfathered health plan status for 
any purpose under the Affordable Care Act, as amended.
    Transitional Rule. Prior to the applicability date of PHS Act 
section 2714, a child who was covered under a group health plan or 
health insurance coverage as a dependent may have lost eligibility 
under the plan (or coverage) due to age prior to age 26. Moreover, if, 
when a parent first became eligible for coverage, a child was under age 
26 but older than the age at which the plan (or coverage) stopped 
covering children, the child would not have become eligible for the 
plan (or coverage). When the provisions of section 2714 become 
applicable, a plan or issuer can no longer exclude coverage for the 
child prior to age 26 irrespective of whether or when that child was 
enrolled in the plan (or coverage). Also, a child of a primary 
subscriber with family coverage in the individual market may be 
entitled to an opportunity to enroll if the child previously lost 
coverage due to age while other family members retained the 
coverage.\6\
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    \6\ In the group market, section 9802(a) of the Code, section 
702(a) of ERISA, and section 2705 of the PHS Act provide that a plan 
or issuer cannot impose any rule for eligibility for benefits 
(including any rule excluding coverage) based on a health factor, 
including a preexisting condition. These rules were added by HIPAA 
and generally became applicable for group health plans for plan 
years beginning on or after July 1, 1997. Similar guidance regarding 
re-enrollment rights for individuals previously denied coverage due 
to a health factor was issued by the Departments of the Treasury, 
Labor, and HHS on December 29, 1997, at 62 FR 67689 and on January 
8, 2001 at 66 FR 1378, 1403, 1410, 1418.
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    Accordingly, these interim final regulations provide transitional 
relief for a child whose coverage ended, or who was denied coverage (or 
was not

[[Page 27125]]

eligible for coverage) under a group health plan or health insurance 
coverage because, under the terms of the plan or coverage, the 
availability of dependent coverage of children ended before the 
attainment of age 26.
    These interim final regulations require a plan or issuer to give 
such a child an opportunity to enroll that continues for at least 30 
days (including written notice of the opportunity to enroll), 
regardless of whether the plan or coverage offers an open enrollment 
period and regardless of when any open enrollment period might 
otherwise occur. This enrollment opportunity (including the written 
notice) must be provided not later than the first day of the first plan 
year (in the individual market, policy year) beginning on or after 
September 23, 2010. Thus, many plans can use their existing annual 
enrollment periods (which commonly begin and end before the start of 
the plan year) to satisfy the enrollment opportunity requirement. If 
the child is enrolled, coverage must begin not later than the first day 
of the first plan year (in the individual market, policy year) 
beginning on or after September 23, 2010, even if the request for 
enrollment is made after the first day of the plan year. In subsequent 
years, dependent coverage may be elected for an eligible child in 
connection with normal enrollment opportunities under the plan or 
coverage.
    Under these interim final regulations, the notice may be provided 
to an employee on behalf of the employee's child (in the individual 
market, to a primary subscriber on behalf of the primary subscriber's 
child). In addition, for a group health plan or group health insurance 
coverage, the notice may be included with other enrollment materials 
that a plan distributes to employees, provided the statement is 
prominent. For a group health plan or group health insurance coverage, 
if a notice satisfying these requirements is provided to an employee 
whose child is entitled to an enrollment opportunity, the obligation to 
provide the notice of enrollment opportunity with respect to that child 
is satisfied for both the plan and the issuer.
    Any child enrolling in group health plan coverage pursuant to this 
enrollment right must be treated as a special enrollee, as provided 
under the regulations interpreting the HIPAA portability provisions.\7\ 
Accordingly, the child must be offered all the benefit packages 
available to similarly situated individuals who did not lose coverage 
by reason of cessation of dependent status. The child also cannot be 
required to pay more for coverage than similarly situated individuals 
who did not lose coverage by reason of cessation of dependent status.
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    \7\ HIPAA is the Health Insurance Portability and Accountability 
Act of 1996 (Public Law 104-191). Regulations regarding the 
treatment of HIPAA special enrollees are included at 26 CFR 54.9801-
6(d), 29 CFR 2590.701-6(d), and 45 CFR 146.117(d).
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    The Departments have been informed that many health insurance 
issuers have announced that they will allow continued coverage of adult 
children before such coverage is required by the Affordable Care Act. A 
plan or issuer that allows continued coverage of adult children before 
being required to do so by the Affordable Care Act is not required to 
provide the enrollment opportunity with respect to children who do not 
lose coverage.
    Examples in these interim final regulations illustrate the 
application of these transitional rules. One example illustrates that, 
if a child qualifies for an enrollment opportunity under this section 
and the parent is not enrolled but is otherwise eligible for 
enrollment, the plan must provide an opportunity to enroll the parent, 
in addition to the child. Similarly, another example illustrates that, 
if a plan has more than one benefit package option, a child qualifies 
for enrollment under this section, and the parent is enrolled in one 
benefit package option, the plan must provide an opportunity to enroll 
the child in any benefit package option for which the child is 
otherwise eligible (thus allowing the parent to switch benefit package 
options). Another example illustrates that a child who qualifies for an 
enrollment opportunity under this section and who is covered under a 
COBRA continuation provision must be given the opportunity to enroll as 
a dependent of an active employee (i.e., other than as a COBRA-
qualified beneficiary). In this situation, if the child loses 
eligibility for coverage due to a qualifying event (including aging out 
of coverage at age 26), the child has another opportunity to elect 
COBRA continuation coverage. (If the qualifying event is aging out, the 
COBRA continuation coverage could last 36 months from the loss of 
eligibility that relates to turning age 26.) The final example in this 
section illustrates that an employee who joined a plan prior to the 
applicability date of PHS Act section 2714, and has a child who never 
enrolled because the child was too old under the terms of the plan but 
has not yet turned 26, must be provided an opportunity to enroll the 
child under this section even though the child was not previously 
covered under the plan. If the parent is no longer eligible for 
coverage under the plan (for example, if the parent has ceased 
employment with the plan sponsor) as of the first date on which the 
enrollment opportunity would be required to be given, the plan would 
not be required to enroll the child.

B. Conforming Changes Under the PHS Act

1. References to the Public Health Service Act
    Conforming changes to references to sections of title XXVII of the 
PHS Act are made throughout parts 144 and 146 of title 45 of the Code 
of Federal Regulations to reflect the renumbering of certain sections 
by the Affordable Care Act.
2. Definitions (45 CFR 144.103)
    These interim final regulations define ``policy year'' as the 12-
month period that is designated in the policy documents of individual 
health insurance coverage. If the policy document does not designate a 
policy year (or no such document is available), then the policy year is 
the deductible or limit year used under the coverage. If deductibles or 
other limits are not imposed on a yearly basis, the policy year is the 
calendar year. The Affordable Care Act uses the term ``plan year'' in 
referring to the period of coverage in both the individual and group 
health insurance markets. The term ``plan year'', however, is generally 
used in the group health insurance market. Accordingly, these interim 
final regulations substitute the term ``policy year'' for ``plan year'' 
in defining the period of coverage in the individual health insurance 
market.

III. Interim Final Regulations and Request for Comments

    Section 9833 of the Code, section 734 of ERISA, and section 2792 of 
the PHS Act authorize the Secretaries of the Treasury, Labor, and HHS 
(collectively, the Secretaries) to promulgate any interim final rules 
that they determine are appropriate to carry out the provisions of 
chapter 100 of the Code, part 7 of subtitle B of title I of ERISA, and 
part A of title XXVII of the PHS Act, which include PHS Act sections 
2701 through 2728 and the incorporation of those sections into ERISA 
section 715 and Code section 9815.
    In addition, under Section 553(b) of the Administrative Procedure 
Act (APA) (5 U.S.C. 551 et seq.) a general notice of proposed 
rulemaking is not required when an agency, for good cause, finds that 
notice and public comment thereon are impracticable, unnecessary, or 
contrary to the public interest. The

[[Page 27126]]

provisions of the APA that ordinarily require a notice of proposed 
rulemaking do not apply here because of the specific authority granted 
by section 9833 of the Code, section 734 of ERISA, and section 2792 of 
the PHS Act. However, even if the APA was applicable, the Secretaries 
have determined that it would be impracticable and contrary to the 
public interest to delay putting the provisions in these interim final 
regulations in place until a full public notice and comment process is 
completed. The statutory requirement implemented in these interim final 
regulations was enacted on March 23, 2010, and applies for plan years 
(in the individual market, policy years) beginning on or after 
September 23, 2010. Having a binding rule in effect is critical to 
ensuring that individuals entitled to the new protections being 
implemented have these protections uniformly applied.
    Moreover, the provisions in these interim final regulations require 
lead time for implementation. These interim final regulations require 
that an enrollment period be provided no later than the first day the 
obligation to allow dependent children to enroll until attainment of 
age 26 takes effect. Preparations presumably would have to be made to 
put such an enrollment process in place. Group health plans and health 
insurance issuers also would have to take the cost associated with this 
new obligation into account in establishing their premiums, and in 
making other changes to the designs of plan or policy benefits, and any 
such premiums and changes would have to receive necessary approvals in 
advance of the plan or policy year in question.
    For the foregoing reasons, the Departments have determined that it 
is essential to provide certainty about what will be required of group 
health plans and health insurance issuers under the statutory 
requirements implemented in binding regulations as far in advance of 
September 23, 2010 as possible. This makes it impracticable to engage 
in full notice and comment rulemaking before putting regulations into 
effect, and in the public interest to do so through interim final 
regulations under which the public will have an opportunity for 
comment, but that opportunity will not delay putting rules in effect (a 
delay that could possibly last past September 23, 2010).
    Issuance of proposed regulations would not be sufficient because 
the proposed regulations would not be binding, and different group 
health plans or health insurance issuers could interpret the statutory 
language in different ways. Had the Departments published a notice of 
proposed rulemaking, provided for a 60-day comment period, and only 
then prepared final regulations, which would be subject to a 60-day 
delay in effective date, it is unlikely that it would have been 
possible to have final regulations in effect before late September, 
when these requirements could be in effect for some plans or policies. 
It therefore is in the public interest that these interim final 
regulations be in effect and apply when the statutory protections being 
implemented apply.

IV. Economic Impact and Paperwork Burden

A. Summary--Department of Labor and Department of Health and Human 
Services

    As stated earlier in this preamble, these interim final regulations 
implement PHS Act section 2714, which requires plans or issuers that 
make dependent coverage available for children to continue to make such 
coverage available for an adult child until the attainment of age 26. 
The regulation also provides an enrollment opportunity to individuals 
who lost or were not eligible for dependent coverage before age 26.\8\ 
This provision generally is effective for plan years (in the individual 
market, policy years) beginning on or after September 23, 2010, which 
is six months after the March 23, 2010 date of enactment of the 
Affordable Care Act.
---------------------------------------------------------------------------

    \8\ The Affordable Care Act adds section 715 and Code section to 
make the provisions of part A of title XXVII of the PHS Act 
applicable to group health plans, and health insurance issuers 
providing health insurance coverage in connection with group health 
plans, under ERISA and the Code as if those provisions of the PHS 
Act were included in ERISA and the Code. The PHS Act sections 
incorporated by this reference are sections 2701 through 2728. 
Section 1251 of the Affordable Care Act provides rules for 
grandfathered health plans, and these rules are further clarified in 
section 10103 of the Affordable Care Act and section 2301 of the 
Reconciliation Act.
---------------------------------------------------------------------------

    The Departments have crafted these interim final regulations to 
secure the protections intended by Congress in the most economically 
efficient manner possible. The Departments have quantified costs where 
possible and provided a qualitative discussion of the economic benefits 
and some of the transfers and costs that may stem from these interim 
final regulations.

B. Executive Order 12866--Department of Labor and Department of Health 
and Human Services

    Under Executive Order 12866 (58 FR 51735), this regulatory action 
has been determined ``significant'' and therefore subject to review by 
the Office of Management and Budget (OMB). Section 3(f) of the 
Executive Order defines a ``significant regulatory action'' as an 
action that is likely to result in a rule (1) having an annual effect 
on the economy of $100 million or more in any one year, or adversely 
and materially affecting a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local or tribal governments or communities (also referred to as 
``economically significant''); (2) creating a serious inconsistency or 
otherwise interfering with an action taken or planned by another 
agency; (3) materially altering the budgetary impacts of entitlement 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or (4) raising novel legal or policy issues arising 
out of legal mandates, the President's priorities, or the principles 
set forth in the Executive Order. OMB has determined that this 
regulation is economically significant within the meaning of section 
3(f)(1) of the Executive Order, because it is likely to have an annual 
effect on the economy of $100 million in any one year. Accordingly, OMB 
has reviewed these rules pursuant to the Executive Order. The 
Departments provide an assessment of the potential costs, benefits, and 
transfers associated with the regulatory provision below. The 
Departments invite comments on this assessment and its conclusions.
1. Need for Regulatory Action
    PHS Act section 2714, as added by the Affordable Care Act and 
amended by the Reconciliation Act requires group health plans and 
health insurance issuers offering group or individual health insurance 
coverage that make dependent coverage available for children to 
continue to make coverage available to such children until the 
attainment of age 26. With respect to a child receiving dependent 
coverage, coverage does not have to be extended to a child or children 
of the child or a spouse of the child. In addition, as provided by the 
Reconciliation Act, grandfathered group health plans are not required 
to offer dependent coverage to a child under 26 who is otherwise 
eligible for employer-sponsored insurance other than a group health 
plan of a parent for plan years beginning before January 1, 2014. PHS 
Act section 2714 generally is effective for plan years (in the 
individual market, policy years) beginning on or after September 23, 
2010. Thus, these interim final regulations are necessary to amend the 
Departments' existing regulations to

[[Page 27127]]

implement these statutorily mandated changes.
2. Summary of Impacts
    In this section, the Departments estimate the number of individuals 
affected by these interim final regulations, and the impact of the 
regulations on health insurance premiums in the group and individual 
markets. Beginning with the population of individuals age 19-25, the 
number of individuals potentially affected is estimated by applying 
several criteria including whether their parents have existing 
employer-sponsored insurance (ESI) or an individual market policy; and 
whether the individuals are themselves uninsured, have ESI, individual 
market policies or other forms of coverage. A range of assumptions 
concerning the percentage of the potentially affected individuals that 
will accept the offer of new dependent coverage--``take-up'' rates-- is 
then applied to estimate the number of newly covered individuals. The 
premium impact is calculated by using an estimated incremental 
insurance cost per newly-covered individual as a percent of average 
family premiums.
    In accordance, with OMB Circular A-4,\9\ Table 1 below depicts an 
accounting statement showing the Departments' assessment of the 
benefits, costs, and transfers associated with this regulatory action.
---------------------------------------------------------------------------

    \9\ Available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf.

                                            Table 1--Accounting Table
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Benefits:
    Annualized Quantified: low estimate....................  0.19 million previously uninsured individuals gain
                                                              coverage in 2011.
    mid-range estimate.....................................  0.65 million previously uninsured individuals gain
                                                              coverage in 2011.
    high estimate..........................................  1.64 million previously uninsured individuals gain
                                                              coverage in 2011.
Qualitative: Expanding coverage options of the 19-25 population should decrease the number uninsured, which in
 turn should decrease the cost-shifting of uncompensated care onto those with insurance, increase the receipt of
 preventive health care and provide more timely access to high quality care, resulting in a healthier
 population. Allowing extended dependent coverage will also permit greater job mobility for this population as
 their insurance coverage will no longer be tied to their own jobs or student status. Dependents aged 19-25 that
 have chronic or other serious health conditions would still be able to continue their current coverage through
 a parent's plan. To the extent there is an increase in beneficial utilization of healthcare, health could
 improve.


----------------------------------------------------------------------------------------------------------------
                                                                                          Discount      Period
             Costs\10\                  Low       Mid-range       High         Year         rate       covered
                                      estimate     estimate     estimate      dollar      percent        \11\
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/           11.2         11.2         11.2         2010            7    2011-2013
 year)............................
                                           10.4         10.4         10.4         2010            3    2011-2013
                      A one-time notice of right to enroll must be sent to those affected.
Qualitative: To the extent additional coverage increases utilization of health care services, there will be
 additional costs incurred to achieve the health benefits.
----------------------------------------------------------------------------------------------------------------
Transfer: \12\
    Annualized Monetized                3,459.3      5,250.2      6,893.9         2010            7    2011-2013
     ($millions/year).............
                                        3,482.5      5,274.5      6,895.4         2010            3    2011-2013
Qualitative: If the rule causes family health insurance premiums to increase, there will be a transfer from
 individuals with family health insurance coverage who do not have dependents aged 19-25 to those individuals
 with family health insurance coverage that have dependents aged 19-25. To the extent that these higher premiums
 result in lower profits or higher prices for the employer's product, then the higher premiums will result in a
 transfer either from stockholders or consumers.
----------------------------------------------------------------------------------------------------------------
\10\ The cost estimates are annualize across the years 2011-2013, and reflects a single point estimate of the
  cost to send out a notice in the first year only.
\11\ The Departments limited the period covered by the RIA to 2011-2013, because it only has reliable data to
  make projections over this period due to the fact that in 2014, things will change drastically when the
  subsidies and tax credits to offset premium increases and the exchanges are in effect.
\12\ The estimates in this table reflect the annualized discounted value in 2010 of the additional premium costs
  for family policies calculated as the product of the newly covered dependents in each year from 2011-2013 (see
  below) and an incremental cost per newly-covered person in those years (see below).

3. Estimated Number of Affected Individuals
    The Departments' estimates in this section are based on the 2004-
2006 Medical Expenditure Panel Survey Household Component (MEPS-HC) 
which was projected and calibrated to 2010 to be consistent with the 
National Health Accounts projections. The Departments estimate that in 
2010, there are approximately 29.5 million individuals aged 19-25 
(young adults) in the United States. Of those individuals, 9.3 million 
young adults (of whom 3.1 million are uninsured) do not have a parent 
who has either ESI or non-group insurance, and thus they have no access 
to dependent coverage. As shown in Table 2, among the remaining 20.2 
million young adults whose parents are covered either by ESI or by non-
group insurance:
    <bullet> 3.44 million are currently uninsured,
    <bullet> 2.42 million are covered by their own non-group insurance,
    <bullet> 5.55 million are covered by their own ESI,
    <bullet> 5.73 million are already on their parent's or spouse's 
ESI, and
    <bullet> 3.01 million have some other form of coverage such as 
Medicaid or TRICARE.

[[Page 27128]]



                              Table 2--Young Adults Aged 19-25 by Insurance Status
----------------------------------------------------------------------------------------------------------------
                                                                             ESI as a
                                     Uninsured*   Non-group     Own ESI     dependent      Other        Total
----------------------------------------------------------------------------------------------------------------
Total U.S. Population Aged 19-25..         6.59         2.69         6.98         5.75          7.5         29.5
              All Young Adults in U.S. with a Parent with a Policy by Young Adult Insurance Status
----------------------------------------------------------------------------------------------------------------
Parents have ESI..................         3.28         2.03         5.32         5.73         2.91        19.27
Parents have non-group............         0.16         0.40         0.23  ...........         0.10         0.88
----------------------------------------------------------------------------------------------------------------
    Subtotal A....................         3.44         2.42         5.55         5.73         3.01        20.15
----------------------------------------------------------------------------------------------------------------
*The bolded numbers are potentially affected by the regulation.
 
Source: MEPS 2004-2006 HC Surveys, controlled to 2010 consistent with the National Health Accounts. Note: Total
  number of young adults, age 19-25 is 29.5 million; the 20.15 million in this Table are the subset whose
  parents have either ESI or non-group coverage.

    Initially, the subset of this group of young adults that will be 
affected by these interim final regulations are those who are either 
uninsured (3.44 million) or covered by individual coverage (2.42 
million). The statute does not require grandfathered group health plans 
to offer coverage to young adults who currently have their own ESI or 
an offer of an ESI. For the purposes of this analysis, it is assumed 
that all plans begin 2011 with grandfathered status. These impacts 
could change if plans lose their Grandfathered status.
    Of these 5.86 million young adults, as shown in Table 3, 3.49 
million are also unlikely to switch to their parents' coverage because:
    <bullet> They are already allowed to enroll in extended dependent 
coverage for young adults through their State's existing laws, but have 
chosen not to (2.61 million). Thirty-seven states already have 
requirements concerning dependent coverage in the group market, 
although most of these are substantially more restrictive than those 
contained in this regulation.\13\ Using information about State laws 
obtained from the Kaiser Family Foundation,\14\ a State by State 
profile of State required coverage based on a person's State of 
residence, age, student status, and living situation was developed. 
This profile was then overlaid on MEPS data to obtain an estimate of 
the number of individuals that would newly become eligible for coverage 
due to these interim final regulations.
---------------------------------------------------------------------------

    \13\ Restrictions include requirements for financial dependency, 
student status, and age limits.
    \14\ As described in Kaiser Family Foundation, Definition of 
Dependency by Age, 2010, KFF State Health Facts, at http://www.statehealthfacts.org/comparetable.jsp?ind=601&cat=7.
---------------------------------------------------------------------------

    <bullet> They have an offer of ESI and have parents who are covered 
by ESI (0.48 million). For the purposes of this regulatory impact 
statement, the Departments assume that the parents of these young 
adults will be in grandfathered group health plans, and thus that these 
young adults will not be affected by the provisions of these interim 
final regulations. To the extent that some of the coverage in which 
these parents are enrolled is not grandfathered, the effect of these 
interim final regulations will be larger than the estimates provided 
here.
    <bullet> Finally, there are 0.40 million young adults who have non-
group coverage and whose parents have non-group coverage. Because the 
parents' non-group coverage is underwritten, there is not likely to be 
any financial benefit to the family in moving the young adult onto the 
parents' coverage, and the Departments assume that these young adults 
will not be affected by the regulation.

  TABLE 3--``Uninsured'' and ``Non-group'' Young Adults Unlikely to be
           Affected by Extending Dependent Coverage to Age 26
------------------------------------------------------------------------
                                                 Non-Group
                                    Uninsured     coverage      Total
------------------------------------------------------------------------
(1) Young adults potentially              1.30         1.31         2.61
 covered by parent ESI due to
 state law.......................
(2) Young adults with an offer of         0.31         0.17         0.48
 ESI whose parents have ESI......
(3) Young adults with non-group    ...........         0.40         0.40
 coverage whose parents have non-
 group coverage..................
                                  --------------------------------------
    Subtotal B...................         1.61         1.88         3.49
------------------------------------------------------------------------

    As shown in Table 4, this leaves approximately 2.37 million young 
adults who might be affected by this provision, or approximately eight 
percent of the 29.5 million young adults in the age group. Among the 
approximately 2.37 million young adults who are estimated to be 
potentially affected by this provision, approximately 1.83 million are 
currently uninsured, and 0.55 million are currently covered by their 
own non-group coverage.

    TABLE 4--Young Adults Potentially Affected by Extending Dependent
                           Coverage to Age 26
------------------------------------------------------------------------
                                                 Non-group
                                    Uninsured     coverage      Total
------------------------------------------------------------------------
Parents have ESI.................         1.67         0.55         2.21
Parents have non-group...........         0.16  ...........         0.16
                                  --------------------------------------

[[Page 27129]]

 
    Total (Subtotal A-Subtotal            1.83         0.55         2.37
     B)*.........................
------------------------------------------------------------------------
Source: MEPS 2004-2006 HC Surveys, controlled to 2010 consistent with
  projections of the National Health Accounts.
*Subtotal A is in Table 2 and Subtotal B is in Table 3.

    It is difficult to estimate precisely what fraction of the 2.37 
million young adults who might potentially be affected by the provision 
will actually enroll on their parents' coverage. A study by Monheit and 
Cantor of the early experience in States that have extended coverage to 
dependents suggests that few uninsured children in these States shift 
to their parents' policy.\15\ However, data and methodological 
difficulties inevitably lead to substantial uncertainty about the 
finding.
---------------------------------------------------------------------------

    \15\ Monheit, A., J. Cantor, et al, ``State Policies Expanding 
Dependent Coverage to Young Adults in Private Health Insurance 
Plans,'' presented at the Academy Health State Health Research and 
Policy Interest Group Meeting, Chicago IL, June 27, 2009.
---------------------------------------------------------------------------

    The Departments considered two other points of reference to 
estimate take-up rates. One is the work that has analyzed take-up rates 
among people made newly eligible for public coverage by Medicaid 
expansions. These studies suggest take-up rates in the range of 10-34 
percent.\16\ However, the populations eligible for these expansions 
have different socio-demographic compositions than those eligible for 
the dependent coverage provisions covered under these interim final 
regulations, and the decision to take-up Medicaid is clearly different 
than the decision to cover a child on a parent's private insurance 
policy. A second point of reference are estimates from the Kaiser/HRET 
Employer Health benefits Survey \17\ which suggest that, depending on 
the size of the worker contribution, between 77 percent and 90 percent 
of employees accept offers of family policies. Again, these estimates 
would be based on a group that differs in characteristics from those 
eligible for new dependent coverage. These concerns notwithstanding, 
the analyses of Medicaid expansions and employee take-up of employer 
sponsored coverage provide useful points of reference.
---------------------------------------------------------------------------

    \16\ Bansak, Cynthia and Steven Raphael. ``The Effects of State 
Policy Design Features on Take-Up and Crowd-out Rates fro the State 
Children's Health Insurance Program.'' Journal of Policy Analysis 
and Management, Vol. 26, No. 1, 149-175. 2006. Find that for the 
time period 1998-2002 take-up rates for SCHIP were about 10 percent.
    Currie, Janet and Jonathan Gruber. ``Saving babies: The Efficacy 
and Cost of Recent Changes in Medicaid Eligibility of Pregnant 
Women.'' The Journal of Political Economy, Vol. 104, No. 6, Dec. 
1996, pp. 1263-1296. Find for Medicaid expansions during the 1979-
1992 period the take-up rate for eligible pregnant women was 34 
percent.
    Cutler, David and Jonathan Gruber. ``Does Public Insurance Crowd 
Out Private Insurance?'' The Quarterly Journal of Economics, Vol. 
111, No. 2, May 1996, pp. 391-430. Find that for the Medicaid 
expansions from 1987-1992 the take-up rate for the uninsured is 
close to 30 percent, while for pregnant women it was seven percent.
    Gruber, Jonathan and Kosali Simon. ``Crowd-Out Ten years Later: 
Have Recent Public Insurance Expansions Crowded Out Private Health 
Insurance?'' NBER Working Paper 12858. January 2007. Find that for 
the Medicaid expansions during 1996-2002 the take-up rate was 7 
percent across all children, but nearly one-third for uninsured 
children.
    \17\ Found at http://www.kff.org/insurance/snapshot/chcm020707oth.cfm.
---------------------------------------------------------------------------

    Recognizing the uncertainty in the area, the Departments produced a 
range of assumptions concerning take-up rates. In developing the range 
of take-up rates, the Departments assume that these rates will vary by 
the following factors: (1) The young adult's current health coverage 
status (uninsured young adults are less likely to take advantage of the 
dependent coverage option than young adults already covered by non-
group insurance, because young adults who have purchased non-group 
insurance have shown a strong preference for coverage, and can almost 
always save money and get better coverage by switching to their 
parents' policy); (2) the young adult's health status (young adults in 
fair or poor health are more likely to take advantage of the option 
than those in excellent, very good or good health), and (3) the young 
adult's living situation (those living with their parents are more 
likely to take up the option than those not living with their parents).
    The almost fully covered or ``high'' take-up rate scenario assumes 
that regardless of health or insurance status, 95 percent of young 
adults living at home and 85 percent of those not living at home would 
move to dependent coverage. For the mid-range scenario, the Departments 
assume that relative to the high take-up rate scenario, 90 percent of 
the uninsured whose health status was fair or poor health and 50 
percent of those in good to excellent health would move to dependent 
coverage. In the low take-up rate scenario, the Departments adjusted 
the percentages to 80 percent and 10 percent of the high take-up rate 
scenario. In all three scenarios, the same assumptions apply to 
individuals with non-group policies whose parents have ESI--95 percent 
of those living at home and 85 percent of those living elsewhere would 
move to dependent coverage.
    In the low take-up rate scenario, the assumptions lead to the 
result that approximately 30 percent of eligibles will enroll in 
dependent coverage. In the mid-range scenario, they result in an 
approximate 50 percent take-up rate, and in the high take-up scenario, 
they result in an approximate 90 percent take-up rate. The Departments 
are uncertain regarding which of these scenarios is most likely but are 
confident that they bracket the expected outcome.

  Table 5--Number of Individuals with New Dependent Coverage and Impact on Group Insurance Premiums, 2011-2013
----------------------------------------------------------------------------------------------------------------
                                        Low estimate            Mid-range estimate           High estimate
                                --------------------------------------------------------------------------------
                                   2011     2012     2013     2011     2012     2013     2011     2012     2013
----------------------------------------------------------------------------------------------------------------
Individuals with New Dependent      0.68     0.97     1.08     1.24     1.60     1.65     2.12     2.07     1.98
 Coverage (millions)...........
From Uninsured (millions)......     0.19     0.29     0.33     0.65     0.94     0.91     1.64     1.42     1.21
Incremental Premium Cost Per      $3,670   $3,800   $4,000   $3,380   $3,500   $3,690   $3,220   $3,340   $3,510
 Individual Coverage...........
Impact on Group Insurance            0.5      0.7      0.7      0.7      1.0      1.0      1.2      1.2      1.1
 Premiums (%)..................
----------------------------------------------------------------------------------------------------------------


[[Page 27130]]

    These take-up rate assumptions are then applied to the number of 
potentially affected individuals displayed in Table 3. The resulting 
number of individuals with new dependent coverage is summarized in 
Table 5. Under the mid-range take-up rate assumption, the Departments 
estimate that in 2011, 1.24 million young adults will newly be covered 
by their parents' ESI or non-group market policies, of whom 0.65 
million were previously uninsured, and 0.6 million were previously 
covered by non-group coverage. The number of individuals newly covered 
by their parents' plans would be 0.7 and 2.12 million under the high 
and low take-up rate assumptions respectively, with 0.2 and 1.64 
million of these individuals being previously uninsured. Relative to 
the individuals covered under the high take-up rate assumption, higher 
proportions of the low- and mid-range assumption groups are accounted 
for by people who previously had non-group coverage (72 percent and 48 
percent respectively in contrast to 23 percent for the high take-up 
rate group). This difference is a result of the Departments' assumption 
for the low- and mid-range take-up rates that people with non-group 
coverage will be more likely than healthy people who were uninsured to 
take advantage of the dependent coverage option.
    Under the mid-range take-up rate assumptions, the estimated number 
of young adults covered by their parents' plans in 2012 increases 
somewhat over the 2011 estimate to 1.6 million in total, of whom 
approximately 0.9 million would have been uninsured. The increase in 
the estimate for 2012 results from the assumption that as children 
reach the age that would have caused them to be excluded from their 
parents' policy before the implementation of these interim final 
regulations, a large fraction of them now will remain on their parents' 
policy. Similarly, the estimated number of young adults enrolling in 
their parents' non-group policy increases from just under 75,000 in 
2011 to approximately 100,000 in 2012, and 120,000 in 2013.
4. Benefits
    The benefits of these interim final regulations are expected to 
outweigh the costs to the regulated community. In the mid-range take-up 
rate assumption, the Departments estimate that in 2011, 0.65 million 
previously uninsured individuals will now be covered on their parent's 
policies due to these interim final regulations and 1.24 million 
individuals total will now be covered on their parent's coverage. 
Expanding coverage options for the 19-25 population should decrease the 
number uninsured, which in turn should decrease the cost-shifting of 
uncompensated care onto those with coverage, increase the receipt of 
preventive health care and provide more timely access to high quality 
care, resulting in a healthier population. In particular, children with 
chronic conditions or other serious health issues will be able to 
continue coverage through a parent's plan until age 26. Allowing 
extended dependent coverage also will permit greater job mobility for 
this population as their health coverage will no longer be tied to 
their own jobs or student status.
5. Costs and Transfers Associated With the Rule
    Estimates for the incremental annual premium costs for the newly 
covered individuals are developed based on expenditure data from MEPS 
and vary based on the take-up rate assumptions. These incremental costs 
are lowest for the high take-up rate assumption since the newly covered 
group would contain a relatively high percentage of individuals whose 
health status was good to excellent. Conversely, the low take-up rate 
assumption results in the highest incremental costs because a higher 
percentage of the newly covered individuals would be those whose health 
status was fair to poor. For those enrolling in their parents' ESI, the 
expected annual premium cost under the mid-range take-up rate 
assumption would be $3,380 in 2011, $3,500 in 2012 and $3,690 in 2013. 
If these costs were distributed among all family ESI plans, family 
premiums would be expected to rise by 0.7 percent in 2011, 1.0 percent 
in 2012, and 1.0 percent in 2013 due to these interim final 
regulations.\18\ The comparable incremental costs and premium effects 
for the low and high take-up rate assumptions are summarized in Table 
5. To the extent that these increases are passed on to workers in the 
form of higher premiums for all workers purchasing family policies or 
in the form of lower wages for all workers, there will be a transfer 
from workers who do not have newly covered dependents to those who do. 
To the extent that these higher premiums result in lower profits or 
higher prices for the employer's product, the higher premiums will 
result in a transfer either from stockholders or consumers.
---------------------------------------------------------------------------

    \18\ For purposes of this regulatory impact analysis, the 
Departments assume that there would be no effect on premiums for 
employee-only policies.
---------------------------------------------------------------------------

    In addition, to the extent that these interim final regulations 
result in a decrease in the number of uninsured, the Departments expect 
a reduction in uncompensated care, and a reduction in liability for 
those who fund uncompensated care, including public programs (primarily 
Medicaid and State and local general revenue support for public 
hospitals), as well as the portion of uncompensated care that is paid 
for by the cost shift from private premium payers. Such effects would 
lead to lower premiums for the insured population, both with or without 
newly covered children.
    For the small number of children (75,000 in 2011) enrolling in 
their parents' non-group insurance policy under the mid-range take-up 
assumption, the Departments expect estimated annual premium cost to be 
$2,360 in 2011, $2,400 in 2012 and $2,480 in 2013. To a large extent, 
premiums in the non-group market are individually underwritten, and the 
Departments expect that most of the premium cost will be borne by the 
parents who are purchasing the policy to which their child is added. 
If, instead, these costs were distributed over the entire individual 
market (as would be the case in a pure community-rated market), then 
individual premiums would be expected to rise 0.7 percent in 2011, 1.0 
percent in 2012, and 1.2 percent in 2013 due to these interim final 
regulations. However, the Departments expect the actual increase across 
the entire individual market, if any, will be much smaller than these 
estimates, because they expect that the costs largely will be borne by 
the subscribers who are directly affected rather than distributed 
across the entire individual market.
6. Enrollment Opportunity
    These interim final regulations provide an enrollment opportunity 
for children excluded from coverage because of age before the effective 
date of the rule. The Departments estimate that this information 
collection request will result in approximately 105,000,000 notices 
being distributed with an hour burden of approximately 1,100,000 hours 
and cost burden of approximately $2,010,500. For a discussion of this 
enrollment opportunity, see the Paperwork Reduction Act section later 
in this preamble.
7. Regulatory Alternatives
    Section 6(a)(3)(C)(iii) of Executive Order 12866 requires an 
economically significant regulation to include an assessment of the 
costs and benefits of potentially effective and reasonable alternatives 
to the planned regulation, and an explanation of why the planned

[[Page 27131]]

regulatory action is preferable to the potential alternatives. The 
Departments carefully considered limiting the flexibility of plans and 
policies to define who is a child. However, the Departments concluded, 
as they have in other regulatory contexts, that plan sponsors and 
issuers should be free to determine whether to cover children or which 
children should be covered by their plans and policies (although they 
must comply with other applicable Federal or State law mandating 
coverage, such as ERISA section 609). Therefore, these interim final 
regulations have not limited a plan's or policy's flexibility to define 
who is a child for purposes of the determination of children to whom 
coverage must be made available.

C. Regulatory Flexibility Act--Department of Labor and Department of 
Health and Human Services

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the APA (5 
U.S.C. 551 et seq.) and that are likely to have a significant economic 
impact on a substantial number of small entities. Under Section 553(b) 
of the APA, a general notice of proposed rulemaking is not required 
when an agency, for good cause, finds that notice and public comment 
thereon are impracticable, unnecessary, or contrary to the public 
interest. These interim final regulations are exempt from APA, because 
the Departments made a good cause finding that a general notice of 
proposed rulemaking is not necessary earlier in this preamble. 
Therefore, the RFA does not apply and the Departments are not required 
to either certify that the regulations would not have a significant 
economic impact on a substantial number of small entities or conduct a 
regulatory flexibility analysis.
    Nevertheless, the Departments carefully considered the likely 
impact of the regulations on small entities in connection with their 
assessment under Executive Order 12866. Consistent with the policy of 
the RFA, the Departments encourage the public to submit comments that 
suggest alternative rules that accomplish the stated purpose of PHS Act 
section 2714 and minimize the impact on small entities.

D. Special Analyses--Department of the Treasury

    Notwithstanding the determinations of the Department of Labor and 
Department of Health and Human Services, for purposes of the Department 
of the Treasury, it has been determined that this Treasury decision is 
not a significant regulatory action for purposes of Executive Order 
12866. Therefore, a regulatory assessment is not required. It has also 
been determined that section 553(b) of the APA (5 U.S.C. chapter 5) 
does not apply to these interim final regulations. For the 
applicability of the RFA, refer to the Special Analyses section in the 
preamble to the cross-referencing notice of proposed rulemaking 
published elsewhere in this issue of the Federal Register. Pursuant to 
section 7805(f) of the Code, these temporary regulations have been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small businesses.

E. Paperwork Reduction Act

1. Department of Labor and Department of the Treasury: Affordable Care 
Act Enrollment Opportunity Notice Relating to Extended Dependent 
Coverage
    As part of their continuing efforts to reduce paperwork and 
respondent burden, the Departments conduct a preclearance consultation 
program to provide the general public and federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested 
data can be provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the impact of collection requirements on respondents 
can be properly assessed.
    As discussed earlier in this preamble, prior to the applicability 
date of PHS Act section 2714, a child who was covered under a group 
health plan (or group health insurance coverage) may have lost 
eligibility for coverage under the plan due to age before age 26. 
Moreover, if a child was under age 26 when a parent first became 
eligible for coverage, but older than the age at which the plan stopped 
covering children, the child would not have become eligible for 
coverage. When the provisions of PHS Act section 2714 become applicable 
to the plan (or coverage), the plan or coverage can no longer exclude 
coverage for the individual until age 26.
    Accordingly, these interim final regulations require plans to 
provide a notice of an enrollment opportunity to individuals whose 
coverage ended, or who were denied coverage (or were not eligible for 
coverage) under a group health plan or health insurance coverage 
because, under the terms of the plan or coverage, the availability of 
dependent coverage of children ended before the attainment of age 26. 
The enrollment opportunity must continue for at least 30 days, 
regardless of whether the plan or coverage offers an open enrollment 
period and regardless of when any open enrollment period might 
otherwise occur. This enrollment opportunity must be presented not 
later than the first day of the first plan year (in the individual 
market, policy year) beginning on or after September 23, 2010 (which is 
the applicability date of PHS Act section 2714). Coverage must begin 
not later than the first day of the first plan year (in the individual 
market, policy year) beginning on or after September 23, 2010.\19\
---------------------------------------------------------------------------

    \19\ Any individual enrolling in coverage pursuant to this 
enrollment right must be treated as a special enrollee, as provided 
under HIPAA portability rules. Accordingly, the individual must be 
offered all the benefit packages available to similarly situated 
individuals who did not lose coverage by reason of cessation of 
dependent status. The individual also cannot be required to pay more 
for coverage than similarly situated individuals who did not lose 
coverage by reason of cessation of dependent status.
---------------------------------------------------------------------------

    The Affordable Care Act dependent coverage enrollment opportunity 
notice is an information collection request (ICR) subject to the PRA. 
Currently, the Departments are soliciting public comments for 60 days 
concerning these disclosures. The Departments have submitted a copy of 
these interim final regulations to OMB in accordance with 44 U.S.C. 
3507(d) for review of the information collections. The Departments and 
OMB are particularly interested in comments that:
    <bullet> Evaluate whether the collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    <bullet> Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
    <bullet> Enhance the quality, utility, and clarity of the 
information to be collected; and
    <bullet> Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, for example, by 
permitting electronic submission of responses.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Attention: Desk Officer for the Employee Benefits Security

[[Page 27132]]

Administration either by fax to (202) 395-7285 or by e-mail to <a href="/cdn-cgi/l/email-protection#07686e7566587472656a6e74746e686947686a652962687729606871"><span class="__cf_email__" data-cfemail="a0cfc9d2c1ffd3d5c2cdc9d3d3c9cfcee0cfcdc28ec5cfd08ec7cfd6">[email protected]</span></a>. A copy of the ICR may be obtained by contacting 
the PRA addressee: G. Christopher Cosby, Office of Policy and Research, 
U.S. Department of Labor, Employee Benefits Security Administration, 
200 Constitution Avenue, NW., Room N-5718, Washington, DC 20210. 
Telephone: (202) 693-8410; Fax: (202) 219-4745. These are not toll-free 
numbers. E-mail: <a href="/cdn-cgi/l/email-protection#791c1b0a185716090b391d1615571e160f"><span class="__cf_email__" data-cfemail="71141302105f1e010331151e1d5f161e07">[email protected]</span></a>. ICRs submitted to OMB also are 
available at reginfo.gov (http://www.reginfo.gov/public/do/PRAMain).
    The Departments assume that 2,800,000 ERISA covered plans will send 
the enrollment opportunity notice to all 79,573,000 employees eligible 
for group health insurance coverage. The Departments estimate that 
preparing the enrollment notice will require 30 minutes of legal 
professional time at a labor rate of $119 per hour \20\ and one minute 
of clerical time at $26 per hour per paper notice to distribute the 
notices.\21\ This results in an hour burden of nearly 822,000 hours and 
an associated equivalent cost of nearly $21,513,000.
---------------------------------------------------------------------------

    \20\ Hourly wage estimates are based on data from the Bureau of 
Labor Statistics Occupational Employment Survey (May 2008) and the 
Bureau of Labor Statistics Employment Cost Index (June 2009). All 
hourly wage rates include wages and benefits. Clerical wage and 
benefits estimates are based on metropolitan wage rates for 
executive secretaries and administrative assistants. Legal 
professional wage and benefits estimates are based on metropolitan 
wage rates for lawyers.
    \21\ While plans could prepare their own notice, the Departments 
assume that the notices will be prepared by service providers. The 
Departments have previously estimated that there are 630 health 
insurers (460 providing coverage in the group market, and 490 
providing coverage in the individual market.). These estimates are 
from NAIC 2007 financial statements data and the California 
Department of Managed Healthcare (2009), at http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx. Because the hour and cost burden is shared 
between the Departments of Labor/Treasury and the Department of 
Health and Human Services, the burden to prepare the notices is 
calculated using half the number of insurers (315).
---------------------------------------------------------------------------

    The Departments estimate that the cost burden associated with 
distributing the approximately 79,573,000 notices will be approximately 
$2,467,000 based on one minute of clerical time, and $.05 per page for 
material and printing costs. The Departments assumed that 38 percent of 
the notices would be sent electronically.\22\ In addition, plans can 
send these notices with other plan documents, such as open enrollment 
materials. Therefore, the Departments have not included postage costs 
in this estimate. The Departments note that persons are not required to 
respond to, and generally are not subject to any penalty for failing to 
comply with, an ICR unless the ICR has a valid OMB control number.\23\
---------------------------------------------------------------------------

    \22\ For purposes of this burden estimate, the Departments 
assume that 38 percent of the disclosures will be provided through 
electronic means in accordance with the Department of Labor's 
standards for electronic communication of required information 
provided under 29 CFR 2520.104b-1(c).
    \23\ 5 CFR 1320.1 through 1320.18.
---------------------------------------------------------------------------

    These paperwork burden estimates are summarized as follows:
    Type of Review: New collection.
    Agencies: Employee Benefits Security Administration, Department of 
Labor; Internal Revenue Service, U.S. Department of the Treasury.
    Title: Affordable Care Act Enrollment Opportunity Notice Relating 
to Extended Dependent Coverage.
    OMB Number: 1210-0139; 1545-2172.
    Affected Public: Business or other for-profit; not-for-profit 
institutions.
    Total Respondents: 2,800,000.
    Total Responses: 79,573,000.
    Frequency of Response: One-time.
    Estimated Total Annual Burden Hours: 411,000 hours (Employee 
Benefits Security Administration); 411,000 hours (Internal Revenue 
Service).
    Estimated Total Annual Burden Cost: $1,233,500 (Employee Benefits 
Security Administration); $1,233,500 (Internal Revenue Service).
2. Department of Health and Human Services: Affordable Care Act 
Enrollment Opportunity Notice Relating to Extended Dependent Coverage
    We are soliciting public comment on the following sections of this 
document that contain information collection requirements (ICR) 
regarding the Affordable Care Act--ICR Relating to Enrollment 
Opportunity Notice--Dependent Coverage. As discussed earlier in this 
preamble, the Affordable Care Act and these interim final regulations 
require issuers in the individual market and group health plans 
sponsored by State and local governments to notify participants 
regarding an enrollment opportunity related to the extension of 
dependent coverage. Prior to the applicability date of PHS Act section 
2714, a child who was covered under a group health plan (or group 
health insurance coverage) as a dependent may have lost eligibility for 
coverage under the plan due to age before age 26. Moreover, if, when a 
parent first became eligible for coverage, a child was under age 26 but 
older than the age at which the plan stopped covering children, the 
child would not have become eligible for coverage. When the provisions 
of PHS Act section 2714 become applicable to the plan (or coverage), 
the plan or coverage can no longer exclude coverage for the individual 
until age 26.
    Accordingly, these interim final regulations require issuers in the 
individual insurance market and group health plans sponsored by State 
and local governments to provide a notice of an enrollment opportunity 
to individuals whose coverage ended, or who was denied coverage (or was 
not eligible for coverage) under a group health plan or group health 
insurance coverage because, under the terms of the plan or coverage, 
the availability of dependent coverage of children ended before the 
attainment of age 26. The enrollment opportunity must continue for at 
least 30 days, regardless of whether the plan or coverage offers an 
open enrollment period and regardless of when any open enrollment 
period might otherwise occur. This enrollment opportunity must be 
presented not later than the first day of the first plan year (in the 
individual market, policy year) beginning on or after September 23, 
2010 (which is the applicability date of PHS Act section 2714). 
Coverage must begin not later than the first day of the first plan year 
(in the individual market, policy year) beginning on or after September 
23, 2010.\24\
---------------------------------------------------------------------------

    \24\ Any individual enrolling in coverage pursuant to this 
enrollment right must be treated as a special enrollee, as provided 
under HIPAA portability rules. Accordingly, the individual must be 
offered all the benefit packages available to similarly situated 
individuals who did not lose coverage by reason of cessation of 
dependent status. The individual also cannot be required to pay more 
for coverage than similarly situated individuals who did not lose 
coverage by reason of cessation of dependent status.
---------------------------------------------------------------------------

    The Department estimates that 126,000 State and local governmental 
plans would have to send 19,627,000 notices to eligible employees and 
490 insurers in the individual market would have to send approximately 
5,444,000 notices to individuals with policies covering dependents.\25\ 
For purposes of this estimate, the Department assumes that it will take 
a legal professional, on average, 30 minutes to prepare the notice at a 
labor rate of $119 per hour,\26\ and one minute, on average, of a 
clerical professional's time at $26 per hour to copy and mail the 
notice.\27\ While plans could prepare their own notice, the

[[Page 27133]]

Department assumes that the notices will be prepared by service 
providers. The Department has previously estimated that there are 630 
health insurers \28\ (460 providing coverage in the group market, and 
490 providing coverage in the individual market). Because the hour and 
cost burden is shared among the Departments of Labor/Treasury and the 
Department of Health and Human Services, the burden to prepare the 
notices is calculated using half the number of insurers (315). The 
Department assumes that 38 percent of the notices would be sent 
electronically.\29\ Notices that are sent electronically do not require 
any of the clerical worker's time to mail the notice. This results in 
an hour burden of approximately 259,000 hours and an associated 
equivalent cost of about $6,791,000 to prepare and distribute 
25,071,000 notices. The Department estimates that the cost burden 
associated with distributing the notices will be approximately 
$777,000.\30\ The Department assumes that 38 percent of the notices 
would be sent electronically.\31\ In addition, plans and issuers can 
send these notices with other plan documents (for example, during open 
enrollment for the government plans, or other communication at 
reenrollment in the individual market). Therefore, the Department did 
not include postage costs in this estimate. The Department notes that 
persons are not required to respond to, and generally are not subject 
to any penalty for failing to comply with, an ICR unless the ICR has a 
valid OMB control number.\32\
---------------------------------------------------------------------------

    \25\ The number of individual insurance notices was based on the 
number of individual policy holders with dependents on that policy 
according to the 2009 March Current Population Survey (CPS).
    \26\ Estimates of labor rates include wages, other benefits, and 
overhead based on the National Occupational Employment Survey (May 
2008, Bureau of Labor Statistics) and the Employment Cost Index June 
2009, Bureau of Labor Statistics).
    \28\ These estimates are from NAIC 2007 financial statements 
data and the California Department of Managed Healthcare (2009), at 
http://wpso.dmhc.ca.gov/hpsearch/viewall.aspx.
    \29\ For purposes of this burden estimate, the Department 
assumes that 38 percent of the disclosures will be provided through 
electronic means.
    \30\ This estimate is based on an average document size of one 
page and $.05 cents per page for material and printing costs.
    \31\ For purposes of this burden estimate, the Department 
assumes that 38 percent of the disclosures will be provided through 
electronic means.
    \32\ 5 CFR 1320.1 through 1320.18.
---------------------------------------------------------------------------

    These paperwork burden estimates are summarized as follows:
    Type of Review: New collection.
    Agency: Department of Health and Human Services.
    Title: Notice of Special Enrollment Opportunity under the 
Affordable Care Act Relating to Dependent Coverage.
    OMB Number: 0938-1089.
    Affected Public: Business; State, Local, or Tribal Governments.
    Respondents: 126,000.
    Responses: 25,071,000.
    Frequency of Response: One-time.
    Estimated Total Annual Burden Hours: 259,000 hours.
    Estimated Total Annual Burden Cost: $777,000.
    If you comment on this information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget,
    Attention: CMS Desk Officer, 4140-IFC
    Fax: (202) 395-6974; or
    E-mail: <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="3c73756e7d634f495e51554f4f5553527c53515e1259534c125b534a">[email protected]</a>

F. Congressional Review Act

    These interim final regulations are subject to the Congressional 
Review Act provisions of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (5 U.S.C. 801 et seq.) and have been transmitted 
to Congress and the Comptroller General for review.

G. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires 
agencies to prepare several analytic statements before proposing any 
rules that may result in annual expenditures of $100 million (as 
adjusted for inflation) by State, local and tribal governments or the 
private sector. These interim final regulations are not subject to the 
Unfunded Mandates Reform Act, because they are being issued as an 
interim final regulation. However, consistent with the policy embodied 
in the Unfunded Mandates Reform Act, these interim final regulations 
have been designed to be the least burdensome alternative for State, 
local and tribal governments, and the private sector, while achieving 
the objectives of the Affordable Care Act.

H. Federalism Statement--Department of Labor and Department of Health 
and Human Services

    Executive Order 13132 outlines fundamental principles of 
federalism, and requires the adherence to specific criteria by Federal 
agencies in the process of their formulation and implementation of 
policies that have ``substantial direct effects'' on the States, the 
relationship between the national government and States, or on the 
distribution of power and responsibilities among the various levels of 
government. Federal agencies promulgating regulations that have these 
federalism implications must consult with State and local officials, 
and describe the extent of their consultation and the nature of the 
concerns of State and local officials in the preamble to the 
regulation.
    In the Departments' view, these interim final regulations have 
federalism implications, because they have direct effects on the 
States, the relationship between the national government and States, or 
on the distribution of power and responsibilities among various levels 
of government. However, in the Departments' view, the federalism 
implications of these interim final regulations are substantially 
mitigated because, with respect to health insurance issuers, the 
Departments expect that the majority of States will enact laws or take 
other appropriate action resulting in their meeting or exceeding the 
Federal standard.
    In general, through section 514, ERISA supersedes State laws to the 
extent that they relate to any covered employee benefit plan, and 
preserves State laws that regulate insurance, banking, or securities. 
While ERISA prohibits States from regulating a plan as an insurance or 
investment company or bank, the preemption provisions of ERISA section 
731 and PHS Act section 2724 (implemented in 29 CFR 2590.731(a) and 45 
CFR 146.143(a)) apply so that the HIPAA requirements (including those 
of the Affordable Care Act) are not to be ``construed to supersede any 
provision of State law which establishes, implements, or continues in 
effect any standard or requirement solely relating to health insurance 
issuers in connection with group health insurance coverage except to 
the extent that such standard or requirement prevents the application 
of a requirement'' of a federal standard. The conference report 
accompanying HIPAA indicates that this is intended to be the 
``narrowest'' preemption of State laws. (See House Conf. Rep. No. 104-
736, at 205, reprinted in 1996 U.S. Code Cong. & Admin. News 2018.) 
States may continue to apply State law requirements except to the 
extent that such requirements prevent the application of the Affordable 
Care Act requirements that are the subject of this rulemaking. State 
insurance laws that are more stringent than the Federal requirements 
are unlikely to ``prevent the application of'' the Affordable Care Act, 
and be preempted. Accordingly, States have significant latitude to 
impose requirements on health

[[Page 27134]]

insurance issuers that are more restrictive than the Federal law.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have federalism 
implications or limit the policy making discretion of the States, the 
Departments have engaged in efforts to consult with and work 
cooperatively with affected State and local officials, including 
attending conferences of the National Association of Insurance 
Commissioners and consulting with State insurance officials on an 
individual basis. It is expected that the Departments will act in a 
similar fashion in enforcing the Affordable Care Act requirements. 
Throughout the process of developing these interim final regulations, 
to the extent feasible within the specific preemption provisions of 
HIPAA as it applies to the Affordable Care Act, the Departments have 
attempted to balance the States' interests in regulating health 
insurance issuers, and Congress' intent to provide uniform minimum 
protections to consumers in every State. By doing so, it is the 
Departments' view that they have complied with the requirements of 
Executive Order 13132.
    Pursuant to the requirements set forth in section 8(a) of Executive 
Order 13132, and by the signatures affixed to these regulations, the 
Departments certify that the Employee Benefits Security Administration 
and the Office of Consumer Information and Insurance Oversight have 
complied with the requirements of Executive Order 13132 for the 
attached regulation in a meaningful and timely manner.

V. Statutory Authority

    The Department of the Treasury temporary regulations are adopted 
pursuant to the authority contained in sections 7805 and 9833 of the 
Code.
    The Department of Labor interim final regulations are adopted 
pursuant to the authority contained in 29 U.S.C. 1027, 1059, 1135, 
1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 
1191b, and 1191c; sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 
401(b), Pub. L. 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 
512(d), Pub. L. 110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), 
Pub. L. 111-148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 
Stat. 1029; Secretary of Labor's Order 6-2009, 74 FR 21524 (May 7, 
2009).
    The Department of Health and Human Services interim final 
regulations are adopted pursuant to the authority contained in sections 
2701 through 2763, 2791, and 2792 of the PHS Act (42 USC 300gg through 
300gg-63, 300gg-91, and 300gg-92), as amended.

List of Subjects

26 CFR Part 54

    Excise taxes, Health care, Health insurance, Pensions, Reporting 
and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

29 CFR Part 2590

    Continuation coverage, Disclosure, Employee benefit plans, Group 
health plans, Health care, Health insurance, Medical child support, 
Reporting and recordkeeping requirements.

45 CFR Parts 144, 146, and 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement, Internal Revenue 
Service.
    Approved: May 7, 2010.
Michael F. Mundaca,
Assistant Secretary of the Treasury (Tax Policy).
    Signed this 6th day of May 2010.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
    Approved: May 4, 2010.
Jay Angoff,
Director, Office of Consumer Information and Insurance Oversight.
    Approved: May 7, 2010.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

Internal Revenue Service

26 CFR Chapter 1

0
Accordingly, 26 CFR Parts 54 and 602 are amended as follows:

PART 54--PENSION EXCISE TAXES

0
Paragraph 1. The authority citation for part 54 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805. * * *


0
Par. 2. Section 54.9815-2714T is added to read as follows:


Sec.  54.9815-2714T  Eligibility of children until at least age 26 
(temporary).

    (a) In general--(1) A group health plan, or a health insurance 
issuer offering group health insurance coverage, that makes available 
dependent coverage of children must make such coverage available for 
children until attainment of 26 years of age.
    (2) The rule of this paragraph (a) is illustrated by the following 
example:

    Example.  (i) Facts. For the plan year beginning January 1, 
2011, a group health plan provides health coverage for employees, 
employees' spouses, and employees' children until the child turns 
26. On the birthday of a child of an employee, July 17, 2011, the 
child turns 26. The last day the plan covers the child is July 16, 
2011.
    (ii) Conclusion. In this Example, the plan satisfies the 
requirement of this paragraph (a) with respect to the child.

    (b) Restrictions on plan definition of dependent. With respect to a 
child who has not attained age 26, a plan or issuer may not define 
dependent for purposes of eligibility for dependent coverage of 
children other than in terms of a relationship between a child and the 
participant. Thus, for example, a plan or issuer may not deny or 
restrict coverage for a child who has not attained age 26 based on the 
presence or absence of the child's financial dependency (upon the 
participant or any other person), residency with the participant or 
with any other person, student status, employment, or any combination 
of those factors. In addition, a plan or issuer may not deny or 
restrict coverage of a child based on eligibility for other coverage, 
except that paragraph (g) of this section provides a special rule for 
plan years beginning before January 1, 2014 for grandfathered health 
plans that are group health plans. (Other requirements of Federal or 
State law, including section 609 of ERISA or section 1908 of the Social 
Security Act, may mandate coverage of certain children.)
    (c) Coverage of grandchildren not required. Nothing in this section 
requires a plan or issuer to make coverage available for the child of a 
child receiving dependent coverage.
    (d) Uniformity irrespective of age. The terms of the plan or health 
insurance coverage providing dependent coverage of children cannot vary 
based on age (except for children who are age 26 or older).
    (e) Examples. The rules of paragraph (d) of this section are 
illustrated by the following examples:

    Example 1.  (i) Facts. A group health plan offers a choice of 
self-only or family health coverage. Dependent coverage is provided 
under family health coverage for children of participants who have 
not attained age 26. The plan imposes an additional premium 
surcharge for children who are older than age 18.
    (ii) Conclusion. In this Example 1, the plan violates the 
requirement of paragraph (d) of this section because the plan varies 
the terms

[[Page 27135]]

for dependent coverage of children based on age.
    Example 2.  (i) Facts. A group health plan offers a choice among 
the following tiers of health coverage: self-only, self-plus-one, 
self-plus-two, and self-plus-three-or-more. The cost of coverage 
increases based on the number of covered individuals. The plan 
provides dependent coverage of children who have not attained age 
26.
    (ii) Conclusion. In this Example 2, the plan does not violate 
the requirement of paragraph (d) of this section that the terms of 
dependent coverage for children not vary based on age. Although the 
cost of coverage increases for tiers with more covered individuals, 
the increase applies without regard to the age of any child.
    Example 3.  (i) Facts. A group health plan offers two benefit 
packages--an HMO option and an indemnity option. Dependent coverage 
is provided for children of participants who have not attained age 
26. The plan limits children who are older than age 18 to the HMO 
option.
    (ii) Conclusion. In this Example 3, the plan violates the 
requirement of paragraph (d) of this section because the plan, by 
limiting children who are older than age 18 to the HMO option, 
varies the terms for dependent coverage of children based on age.

    (f) Transitional rules for individuals whose coverage ended by 
reason of reaching a dependent eligibility threshold--(1) In general. 
The relief provided in the transitional rules of this paragraph (f) 
applies with respect to any child--
    (i) Whose coverage ended, or who was denied coverage (or was not 
eligible for coverage) under a group health plan or group health 
insurance coverage because, under the terms of the plan or coverage, 
the availability of dependent coverage of children ended before the 
attainment of age 26 (which, under this section, is no longer 
permissible); and
    (ii) Who becomes eligible (or is required to become eligible) for 
coverage under a group health plan or group health insurance coverage 
on the first day of the first plan year beginning on or after September 
23, 2010 by reason of the application of this section.
    (2) Opportunity to enroll required. (i) If a group health plan, or 
group health insurance coverage, in which a child described in 
paragraph (f)(1) of this section is eligible to enroll (or is required 
to become eligible to enroll) is the plan or coverage in which the 
child's coverage ended (or did not begin) for the reasons described in 
paragraph (f)(1)(i) of this section, and if the plan, or the issuer of 
such coverage, is subject to the requirements of this section, the plan 
and the issuer are required to give the child an opportunity to enroll 
that continues for at least 30 days (including written notice of the 
opportunity to enroll). This opportunity (including the written notice) 
must be provided beginning not later than the first day of the first 
plan year beginning on or after September 23, 2010.
    (ii) The written notice must include a statement that children 
whose coverage ended, or who were denied coverage (or were not eligible 
for coverage), because the availability of dependent coverage of 
children ended before attainment of age 26 are eligible to enroll in 
the plan or coverage. The notice may be provided to an employee on 
behalf of the employee's child. In addition, the notice may be included 
with other enrollment materials that a plan distributes to employees, 
provided the statement is prominent. If a notice satisfying the 
requirements of this paragraph (f)(2) is provided to an employee whose 
child is entitled to an enrollment opportunity under this paragraph 
(f), the obligation to provide the notice of enrollment opportunity 
under this paragraph (f)(2) with respect to that child is satisfied for 
both the plan and the issuer.
    (3) Effective date of coverage. In the case of an individual who 
enrolls under paragraph (f)(2) of this section, coverage must take 
effect not later than the first day of the first plan year beginning on 
or after September 23, 2010.
    (4) Treatment of enrollees in a group health plan. Any child 
enrolling in a group health plan pursuant to paragraph (f)(2) of this 
section must be treated as if the child were a special enrollee, as 
provided under the rules of Sec.  54.9801-6(d). Accordingly, the child 
(and, if the child would not be a participant once enrolled in the 
plan, the participant through whom the child is otherwise eligible for 
coverage under the plan) must be offered all the benefit packages 
available to similarly situated individuals who did not lose coverage 
by reason of cessation of dependent status. For this purpose, any 
difference in benefits or cost-sharing requirements constitutes a 
different benefit package. The child also cannot be required to pay 
more for coverage than similarly situated individuals who did not lose 
coverage by reason of cessation of dependent status.
    (5) Examples. The rules of this paragraph (f) are illustrated by 
the following examples:

    Example 1. (i) Facts. Employer Y maintains a group health plan 
with a calendar year plan year. The plan has a single benefit 
package. For the 2010 plan year, the plan allows children of 
employees to be covered under the plan until age 19, or until age 23 
for children who are full-time students. Individual B, an employee 
of Y, and Individual C, B's child and a full-time student, were 
enrolled in Y's group health plan at the beginning of the 2010 plan 
year. On June 10, 2010, C turns 23 years old and loses dependent 
coverage under Y's plan. On or before January 1, 2011, Y's group 
health plan gives B written notice that individuals who lost 
coverage by reason of ceasing to be a dependent before attainment of 
age 26 are eligible to enroll in the plan, and that individuals may 
request enrollment for such children through February 14, 2011 with 
enrollment effective retroactively to January 1, 2011.
    (ii) Conclusion. In this Example 1, the plan has complied with 
the requirements of this paragraph (f) by providing an enrollment 
opportunity to C that lasts at least 30 days.
    Example 2. (i) Facts. Employer Z maintains a group health plan 
with a plan year beginning October 1 and ending September 30. Prior 
to October 1, 2010, the group health plan allows children of 
employees to be covered under the plan until age 22. Individual D, 
an employee of Z, and Individual E, D's child, are enrolled in 
family coverage under Z's group health plan for the plan year 
beginning on October 1, 2008. On May 1, 2009, E turns 22 years old 
and ceases to be eligible as a dependent under Z's plan and loses 
coverage. D drops coverage but remains an employee of Z.
    (ii) Conclusion. In this Example 2, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll 
(including written notice of an opportunity to enroll) that 
continues for at least 30 days, with enrollment effective not later 
than October 1, 2010.
    Example 3. (i) Facts. Same facts as Example 2, except that D did 
not drop coverage. Instead, D switched to a lower-cost benefit 
package option.
    (ii) Conclusion. In this Example 3, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll in any 
benefit package available to similarly situated individuals who 
enroll when first eligible.
    Example 4. (i) Facts. Same facts as Example 2, except that E 
elected COBRA continuation coverage.
    (ii) Conclusion. In this Example 4, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll other 
than as a COBRA qualified beneficiary (and must provide, by that 
date, written notice of the opportunity to enroll) that continues 
for at least 30 days, with enrollment effective not later than 
October 1, 2010.
    Example 5. (i) Facts. Employer X maintains a group health plan 
with a calendar year plan year. Prior to 2011, the plan allows 
children of employees to be covered under the plan until the child 
attains age 22. During the 2009 plan year, an individual with a 22-
year old child joins the plan; the child is denied coverage because 
the child is 22.
    (ii) Conclusion. In this Example 5, notwithstanding that the 
child was not previously covered under the plan, the plan must 
provide the child, not later than January 1, 2011, an opportunity to 
enroll (including written notice to the employee of an opportunity 
to enroll the child) that continues for at least 30 days, with 
enrollment effective not later than January 1, 2011.
    (g) Special rule for grandfathered group health plans--(1) For plan 
years

[[Page 27136]]

beginning before January 1, 2014, a group health plan that qualifies as 
a grandfathered health plan under section 1251 of the Patient 
Protection and Affordable Care Act and that makes available dependent 
coverage of children may exclude an adult child who has not attained 
age 26 from coverage only if the adult child is eligible to enroll in 
an eligible employer-sponsored health plan (as defined in section 
5000A(f)(2)) other than a group health plan of a parent.
    (2) For plan years beginning on or after January 1, 2014, a group 
health plan that qualifies as a grandfathered health plan under section 
1251 of the Patient Protection and Affordable Care Act must comply with 
the requirements of paragraphs (a) through (f) of this section.
    (h) Applicability date. The provisions of this section apply for 
plan years beginning on or after September 23, 2010.
    (i) Expiration date. This section expires on or before May 13, 
2013.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 5. The authority citation for part 602 continues to read as 
follows:

    Authority:  26 U.S.C. 7805.


0
Par. 6. In Sec.  602.101, paragraph (b) is amended by adding the 
following entry in numerical order to the table:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                             Current OMB
    CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                                * * * * *
54.9815-2714T.............................................     1545-2172
 
                                * * * * *
------------------------------------------------------------------------

Employee Benefits Security Administration

29 CFR Chapter XXV

0
29 CFR Part 2590 is amended as follows:

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

0
1. The authority citation for Part 2590 is revised to read as follows:

    Authority:  29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; 
sec. 101(g), Pub. L.104-191, 110 Stat. 1936; sec. 401(b), Pub. L. 
105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 
110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-
148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029; 
Secretary of Labor's Order 6-2009, 74 FR 21524 (May 7, 2009).

0
2. Section 2590.715-2714 is added to Subpart C to read as follows:


Sec.  2590.715-2714  Eligibility of children until at least age 26.

    (a) In general--(1) A group health plan, or a health insurance 
issuer offering group health insurance coverage, that makes available 
dependent coverage of children must make such coverage available for 
children until attainment of 26 years of age.
    (2) The rule of this paragraph (a) is illustrated by the following 
example:

    Example. (i) Facts. For the plan year beginning January 1, 2011, 
a group health plan provides health coverage for employees, 
employees' spouses, and employees' children until the child turns 
26. On the birthday of a child of an employee, July 17, 2011, the 
child turns 26. The last day the plan covers the child is July 16, 
2011.
    (ii) Conclusion. In this Example, the plan satisfies the 
requirement of this paragraph (a) with respect to the child.

    (b) Restrictions on plan definition of dependent. With respect to a 
child who has not attained age 26, a plan or issuer may not define 
dependent for purposes of eligibility for dependent coverage of 
children other than in terms of a relationship between a child and the 
participant. Thus, for example, a plan or issuer may not deny or 
restrict coverage for a child who has not attained age 26 based on the 
presence or absence of the child's financial dependency (upon the 
participant or any other person), residency with the participant or 
with any other person, student status, employment, or any combination 
of those factors. In addition, a plan or issuer may not deny or 
restrict coverage of a child based on eligibility for other coverage, 
except that paragraph (g) of this section provides a special rule for 
plan years beginning before January 1, 2014 for grandfathered health 
plans that are group health plans. (Other requirements of Federal or 
State law, including section 609 of ERISA or section 1908 of the Social 
Security Act, may mandate coverage of certain children.)
    (c) Coverage of grandchildren not required. Nothing in this section 
requires a plan or issuer to make coverage available for the child of a 
child receiving dependent coverage.
    (d) Uniformity irrespective of age. The terms of the plan or health 
insurance coverage providing dependent coverage of children cannot vary 
based on age (except for children who are age 26 or older).
    (e) Examples. The rules of paragraph (d) of this section are 
illustrated by the following examples:

    Example 1. (i) Facts. A group health plan offers a choice of 
self-only or family health coverage. Dependent coverage is provided 
under family health coverage for children of participants who have 
not attained age 26. The plan imposes an additional premium 
surcharge for children who are older than age 18.
    (ii) Conclusion. In this Example 1, the plan violates the 
requirement of paragraph (d) of this section because the plan varies 
the terms for dependent coverage of children based on age.
    Example 2. (i) Facts. A group health plan offers a choice among 
the following tiers of health coverage: self-only, self-plus-one, 
self-plus-two, and self-plus-three-or-more. The cost of coverage 
increases based on the number of covered individuals. The plan 
provides dependent coverage of children who have not attained age 
26.
    (ii) Conclusion. In this Example 2, the plan does not violate 
the requirement of paragraph (d) of this section that the terms of 
dependent coverage for children not vary based on age. Although the 
cost of coverage increases for tiers with more covered individuals, 
the increase applies without regard to the age of any child.
    Example 3. (i) Facts. A group health plan offers two benefit 
packages--an HMO option and an indemnity option. Dependent coverage 
is provided for children of participants who have not attained age 
26. The plan limits children who are older than age 18 to the HMO 
option.
    (ii) Conclusion. In this Example 3, the plan violates the 
requirement of paragraph (d) of this section because the plan, by 
limiting children who are older than age 18 to the HMO option, 
varies the terms for dependent coverage of children based on age.

    (f) Transitional rules for individuals whose coverage ended by 
reason of reaching a dependent eligibility threshold--(1) In general. 
The relief provided in the transitional rules of this paragraph (f) 
applies with respect to any child--
    (i) Whose coverage ended, or who was denied coverage (or was not 
eligible for coverage) under a group health plan or group health 
insurance coverage because, under the terms of the plan or coverage, 
the availability of dependent coverage of children ended before the 
attainment of age 26 (which, under this section, is no longer 
permissible); and
    (ii) Who becomes eligible (or is required to become eligible) for 
coverage under a group health plan or group health insurance coverage 
on the first day of the first plan year beginning on or after September 
23, 2010 by reason of the application of this section.
    (2) Opportunity to enroll required--(i) If a group health plan, or 
group health

[[Page 27137]]

insurance coverage, in which a child described in paragraph (f)(1) of 
this section is eligible to enroll (or is required to become eligible 
to enroll) is the plan or coverage in which the child's coverage ended 
(or did not begin) for the reasons described in paragraph (f)(1)(i) of 
this section, and if the plan, or the issuer of such coverage, is 
subject to the requirements of this section, the plan and the issuer 
are required to give the child an opportunity to enroll that continues 
for at least 30 days (including written notice of the opportunity to 
enroll). This opportunity (including the written notice) must be 
provided beginning not later than the first day of the first plan year 
beginning on or after September 23, 2010.
    (ii) The written notice must include a statement that children 
whose coverage ended, or who were denied coverage (or were not eligible 
for coverage), because the availability of dependent coverage of 
children ended before attainment of age 26 are eligible to enroll in 
the plan or coverage. The notice may be provided to an employee on 
behalf of the employee's child. In addition, the notice may be included 
with other enrollment materials that a plan distributes to employees, 
provided the statement is prominent. If a notice satisfying the 
requirements of this paragraph (f)(2) is provided to an employee whose 
child is entitled to an enrollment opportunity under this paragraph 
(f), the obligation to provide the notice of enrollment opportunity 
under this paragraph (f)(2) with respect to that child is satisfied for 
both the plan and the issuer.
    (3) Effective date of coverage. In the case of an individual who 
enrolls under paragraph (f)(2) of this section, coverage must take 
effect not later than the first day of the first plan year beginning on 
or after September 23, 2010.
    (4) Treatment of enrollees in a group health plan. Any child 
enrolling in a group health plan pursuant to paragraph (f)(2) of this 
section must be treated as if the child were a special enrollee, as 
provided under the rules of Sec.  2590.701-6(d) of this Part. 
Accordingly, the child (and, if the child would not be a participant 
once enrolled in the plan, the participant through whom the child is 
otherwise eligible for coverage under the plan) must be offered all the 
benefit packages available to similarly situated individuals who did 
not lose coverage by reason of cessation of dependent status. For this 
purpose, any difference in benefits or cost-sharing requirements 
constitutes a different benefit package. The child also cannot be 
required to pay more for coverage than similarly situated individuals 
who did not lose coverage by reason of cessation of dependent status.
    (5) Examples. The rules of this paragraph (f) are illustrated by 
the following examples:

    Example 1. (i) Facts. Employer Y maintains a group health plan 
with a calendar year plan year. The plan has a single benefit 
package. For the 2010 plan year, the plan allows children of 
employees to be covered under the plan until age 19, or until age 23 
for children who are full-time students. Individual B, an employee 
of Y, and Individual C, B's child and a full-time student, were 
enrolled in Y's group health plan at the beginning of the 2010 plan 
year. On June 10, 2010, C turns 23 years old and loses dependent 
coverage under Y's plan. On or before January 1, 2011, Y's group 
health plan gives B written notice that individuals who lost 
coverage by reason of ceasing to be a dependent before attainment of 
age 26 are eligible to enroll in the plan, and that individuals may 
request enrollment for such children through February 14, 2011 with 
enrollment effective retroactively to January 1, 2011.
    (ii) Conclusion. In this Example 1, the plan has complied with 
the requirements of this paragraph (f) by providing an enrollment 
opportunity to C that lasts at least 30 days.
    Example 2. (i) Facts. Employer Z maintains a group health plan 
with a plan year beginning October 1 and ending September 30. Prior 
to October 1, 2010, the group health plan allows children of 
employees to be covered under the plan until age 22. Individual D, 
an employee of Z, and Individual E, D's child, are enrolled in 
family coverage under Z's group health plan for the plan year 
beginning on October 1, 2008. On May 1, 2009, E turns 22 years old 
and ceases to be eligible as a dependent under Z's plan and loses 
coverage. D drops coverage but remains an employee of Z.
    (ii) Conclusion. In this Example 2, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll 
(including written notice of an opportunity to enroll) that 
continues for at least 30 days, with enrollment effective not later 
than October 1, 2010.
    Example 3. (i) Facts. Same facts as Example 2, except that D did 
not drop coverage. Instead, D switched to a lower-cost benefit 
package option.
    (ii) Conclusion. In this Example 3, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll in any 
benefit package available to similarly situated individuals who 
enroll when first eligible.
    Example 4. (i) Facts. Same facts as Example 2, except that E 
elected COBRA continuation coverage.
    (ii) Conclusion. In this Example 4, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll other 
than as a COBRA qualified beneficiary (and must provide, by that 
date, written notice of the opportunity to enroll) that continues 
for at least 30 days, with enrollment effective not later than 
October 1, 2010.
    Example 5. (i) Facts. Employer X maintains a group health plan 
with a calendar year plan year. Prior to 2011, the plan allows 
children of employees to be covered under the plan until the child 
attains age 22. During the 2009 plan year, an individual with a 22-
year old child joins the plan; the child is denied coverage because 
the child is 22.
    (ii) Conclusion. In this Example 5, notwithstanding that the 
child was not previously covered under the plan, the plan must 
provide the child, not later than January 1, 2011, an opportunity to 
enroll (including written notice to the employee of an opportunity 
to enroll the child) that continues for at least 30 days, with 
enrollment effective not later than January 1, 2011.

    (g) Special rule for grandfathered group health plans--(1) For plan 
years beginning before January 1, 2014, a group health plan that 
qualifies as a grandfathered health plan under section 1251 of the 
Patient Protection and Affordable Care Act and that makes available 
dependent coverage of children may exclude an adult child who has not 
attained age 26 from coverage only if the adult child is eligible to 
enroll in an eligible employer-sponsored health plan (as defined in 
section 5000A(f)(2) of the Internal Revenue Code) other than a group 
health plan of a parent.
    (2) For plan years beginning on or after January 1, 2014, a group 
health plan that qualifies as a grandfathered health plan under section 
1251 of the Patient Protection and Affordable Care Act must comply with 
the requirements of paragraphs (a) through (f) of this section.
    (h) Applicability date. The provisions of this section apply for 
plan years beginning on or after September 23, 2010.

Department of Health and Human Services

45 CFR Subtitle A

0
For reasons set forth in the preamble, the Department of Health and 
Human Services is amending 45 CFR Subtitle A, Subchapter B as follows:

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

Subpart A--General Provisions

0
1. Section 144.101 is amended by-
0
A. Revising paragraph (a).
0
B. Redesignating paragraphs (b), (c) and (d) as paragraphs (c), (d) and 
(e), respectively.
0
C. Adding a new paragraph (b).
0
D. Revising the first sentence of newly redesignated paragraph (c).
0
E. Amending newly redesignated paragraph (d) by removing ``2722'' and 
adding in its place ``2723''.
    The revisions and additions read as follows:

[[Page 27138]]

Sec.  144.101  Basis and purpose.

    (a) Part 146 of this subchapter implements requirements of Title 
XXVII of the Public Health Service Act (PHS Act, 42 U.S.C. 300gg, et 
seq.) that apply to group health plans and group health insurance 
issuers.
    (b) Part 147 of this subchapter implements the provisions of the 
Patient Protection and Affordable Care Act that apply to both group 
health plans and health insurance issuers in the Group and Individual 
Markets.
    (c) Part 148 of this subchapter implements Individual Health 
Insurance Market requirements of the PHS Act. * * *
* * * * *
0
2. Section 144.103 is amended by adding the definition of ``Policy 
Year'' to read as follows:


Sec.  144.103  Defintions.

* * * * *
    Policy Year means in the individual health insurance market the 12-
month period that is designated as the policy year in the policy 
documents of the individual health insurance coverage. If there is no 
designation of a policy year in the policy document (or no such policy 
document is available), then the policy year is the deductible or limit 
year used under the coverage. If deductibles or other limits are not 
imposed on a yearly basis, the policy year is the calendar year.
* * * * *

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

0
3. Section 146.101 is amended by--
0
A. Revising the first sentence of paragraph (a).
0
B. Revising paragraph (b)(4).
    The revisions read as follows:


Sec.  146.101  Basis and Scope.

    (a) Statutory basis. This part implements the Group Market 
requirements of the PHS Act.* * *
    (b) * * *
    (4) Subpart E. Subpart E of this part implements requirements 
relating to group health plans and issuers in the Group Health 
Insurance Market.
* * * * *


Sec.  146.115  [Amended]

0
4. Section 146.115 is amended by removing ``2721(b)'' wherever it 
appears in paragraph (a)(6) and adding in its place ``2722(a)''.


Sec.  146.130  [Amended]

0
5. Section 146.130 is amended by--
0
A. Removing ``2704'' wherever it appears in paragraphs (e) and (f), 
including the examples in paragraph (e)(4), and adding in its place 
``2725''.
0
B. Removing ``2723'' wherever it appears in paragraph (e)(3), including 
the paragraph heading, and adding in its place ``2724''.

0
6. A new Part 147 is added to read as follows:

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

    Authority:  Secs 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act (42 USC 300gg through 300gg-63, 300gg-91, and 
300gg-92), as amended.


Sec.  147.100  Basis and scope.

    Part 147 of this subchapter implements the requirements of the 
Patient Protection and Affordable Care Act that apply to group health 
plans and health insurance issuers in the Group and Individual markets.


Sec.  147.120  Eligibility of children until at least age 26.

    (a) In general--(1) A group health plan, or a health insurance 
issuer offering group or individual health insurance coverage, that 
makes available dependent coverage of children must make such coverage 
available for children until attainment of 26 years of age.
    (2) The rule of this paragraph (a) is illustrated by the following 
example:

    Example.  (i) Facts. For the plan year beginning January 1, 
2011, a group health plan provides health coverage for employees, 
employees' spouses, and employees' children until the child turns 
26. On the birthday of a child of an employee, July 17, 2011, the 
child turns 26. The last day the plan covers the child is July 16, 
2011.
    (ii) Conclusion. In this Example, the plan satisfies the 
requirement of this paragraph (a) with respect to the child.

    (b) Restrictions on plan definition of dependent. With respect to a 
child who has not attained age 26, a plan or issuer may not define 
dependent for purposes of eligibility for dependent coverage of 
children other than in terms of a relationship between a child and the 
participant (in the individual market, the primary subscriber). Thus, 
for example, a plan or issuer may not deny or restrict coverage for a 
child who has not attained age 26 based on the presence or absence of 
the child's financial dependency (upon the participant or primary 
subscriber, or any other person), residency with the participant (in 
the individual market, the primary subscriber) or with any other 
person, student status, employment, or any combination of those 
factors. In addition, a plan or issuer may not deny or restrict 
coverage of a child based on eligibility for other coverage, except 
that paragraph (g) of this section provides a special rule for plan 
years beginning before January 1, 2014 for grandfathered health plans 
that are group health plans. (Other requirements of Federal or State 
law, including section 609 of ERISA or section 1908 of the Social 
Security Act, may mandate coverage of certain children.)
    (c) Coverage of grandchildren not required. Nothing in this section 
requires a plan or issuer to make coverage available for the child of a 
child receiving dependent coverage.
    (d) Uniformity irrespective of age. The terms of the plan or health 
insurance coverage providing dependent coverage of children cannot vary 
based on age (except for children who are age 26 or older).
    (e) Examples. The rules of paragraph (d) of this section are 
illustrated by the following examples:

    Example 1. (i) Facts. A group health plan offers a choice of 
self-only or family health coverage. Dependent coverage is provided 
under family health coverage for children of participants who have 
not attained age 26. The plan imposes an additional premium 
surcharge for children who are older than age 18.
    (ii) Conclusion. In this Example 1, the plan violates the 
requirement of paragraph (d) of this section because the plan varies 
the terms for dependent coverage of children based on age.
    Example 2. (i) Facts. A group health plan offers a choice among 
the following tiers of health coverage: Self-only, self-plus-one, 
self-plus-two, and self-plus-three-or-more. The cost of coverage 
increases based on the number of covered individuals. The plan 
provides dependent coverage of children who have not attained age 
26.
    (ii) Conclusion. In this Example 2, the plan does not violate 
the requirement of paragraph (d) of this section that the terms of 
dependent coverage for children not vary based on age. Although the 
cost of coverage increases for tiers with more covered individuals, 
the increase applies without regard to the age of any child.
    Example 3.  (i) Facts. A group health plan offers two benefit 
packages--an HMO option and an indemnity option. Dependent coverage 
is provided for children of participants who have not attained age 
26. The plan limits children who are older than age 18 to the HMO 
option.
    (ii) Conclusion. In this Example 3, the plan violates the 
requirement of paragraph (d) of this section because the plan, by 
limiting children who are older than age 18 to the HMO option, 
varies the terms for dependent coverage of children based on age.

    (f) Transitional rules for individuals whose coverage ended by 
reason of reaching a dependent eligibility

[[Page 27139]]

threshold--(1) In general. The relief provided in the transitional 
rules of this paragraph (f) applies with respect to any child--
    (i) Whose coverage ended, or who was denied coverage (or was not 
eligible for coverage) under a group health plan or group or individual 
health insurance coverage because, under the terms of the plan or 
coverage, the availability of dependent coverage of children ended 
before the attainment of age 26 (which, under this section, is no 
longer permissible); and
    (ii) Who becomes eligible (or is required to become eligible) for 
coverage under a group health plan or group or individual health 
insurance coverage on the first day of the first plan year (in the 
individual market, the first day of the first policy year) beginning on 
or after September 23, 2010 by reason of the application of this 
section.
    (2) Opportunity to enroll required--(i) If a group health plan, or 
group or individual health insurance coverage, in which a child 
described in paragraph (f)(1) of this section is eligible to enroll (or 
is required to become eligible to enroll) is the plan or coverage in 
which the child's coverage ended (or did not begin) for the reasons 
described in paragraph (f)(1)(i) of this section, and if the plan, or 
the issuer of such coverage, is subject to the requirements of this 
section, the plan and the issuer are required to give the child an 
opportunity to enroll that continues for at least 30 days (including 
written notice of the opportunity to enroll). This opportunity 
(including the written notice) must be provided beginning not later 
than the first day of the first plan year (in the individual market, 
the first day of the first policy year) beginning on or after September 
23, 2010.
    (ii) The written notice must include a statement that children 
whose coverage ended, or who were denied coverage (or were not eligible 
for coverage), because the availability of dependent coverage of 
children ended before attainment of age 26 are eligible to enroll in 
the plan or coverage. The notice may be provided to an employee on 
behalf of the employee's child (in the individual market, to the 
primary subscriber on behalf of the primary subscriber's child). In 
addition, for a group health plan or group health insurance coverage, 
the notice may be included with other enrollment materials that a plan 
distributes to employees, provided the statement is prominent. For a 
group health plan or group health insurance coverage, if a notice 
satisfying the requirements of this paragraph (f)(2) is provided to an 
employee whose child is entitled to an enrollment opportunity under 
this paragraph (f), the obligation to provide the notice of enrollment 
opportunity under this paragraph (f)(2) with respect to that child is 
satisfied for both the plan and the issuer.
    (3) Effective date of coverage. In the case of an individual who 
enrolls under paragraph (f)(2) of this section, coverage must take 
effect not later than the first day of the first plan year (in the 
individual market, the first day of the first policy year) beginning on 
or after September 23, 2010.
    (4) Treatment of enrollees in a group health plan. For purposes of 
this Part, any child enrolling in a group health plan pursuant to 
paragraph (f)(2) of this section must be treated as if the child were a 
special enrollee, as provided under the rules of 45 CFR 146.117(d). 
Accordingly, the child (and, if the child would not be a participant 
once enrolled in the plan, the participant through whom the child is 
otherwise eligible for coverage under the plan) must be offered all the 
benefit packages available to similarly situated individuals who did 
not lose coverage by reason of cessation of dependent status. For this 
purpose, any difference in benefits or cost-sharing requirements 
constitutes a different benefit package. The child also cannot be 
required to pay more for coverage than similarly situated individuals 
who did not lose coverage by reason of cessation of dependent status.
    (5) Examples. The rules of this paragraph (f) are illustrated by 
the following examples:

    Example 1. (i) Facts. Employer Y maintains a group health plan 
with a calendar year plan year. The plan has a single benefit 
package. For the 2010 plan year, the plan allows children of 
employees to be covered under the plan until age 19, or until age 23 
for children who are full-time students. Individual B, an employee 
of Y, and Individual C, B's child and a full-time student, were 
enrolled in Y's group health plan at the beginning of the 2010 plan 
year. On June 10, 2010, C turns 23 years old and loses dependent 
coverage under Y's plan. On or before January 1, 2011, Y's group 
health plan gives B written notice that individuals who lost 
coverage by reason of ceasing to be a dependent before attainment of 
age 26 are eligible to enroll in the plan, and that individuals may 
request enrollment for such children through February 14, 2011 with 
enrollment effective retroactively to January 1, 2011.
    (ii) Conclusion. In this Example 1, the plan has complied with 
the requirements of this paragraph (f) by providing an enrollment 
opportunity to C that lasts at least 30 days.
    Example 2. (i) Facts. Employer Z maintains a group health plan 
with a plan year beginning October 1 and ending September 30. Prior 
to October 1, 2010, the group health plan allows children of 
employees to be covered under the plan until age 22. Individual D, 
an employee of Z, and Individual E, D's child, are enrolled in 
family coverage under Z's group health plan for the plan year 
beginning on October 1, 2008. On May 1, 2009, E turns 22 years old 
and ceases to be eligible as a dependent under Z's plan and loses 
coverage. D drops coverage but remains an employee of Z.
    (ii) Conclusion. In this Example 2, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll 
(including written notice of an opportunity to enroll) that 
continues for at least 30 days, with enrollment effective not later 
than October 1, 2010.
    Example 3. (i) Facts. Same facts as Example 2, except that D did 
not drop coverage. Instead, D switched to a lower-cost benefit 
package option.
    (ii) Conclusion. In this Example 3, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll in any 
benefit package available to similarly situated individuals who 
enroll when first eligible.
    Example 4. (i) Facts. Same facts as Example 2, except that E 
elected COBRA continuation coverage.
    (ii) Conclusion. In this Example 4, not later than October 1, 
2010, the plan must provide D and E an opportunity to enroll other 
than as a COBRA qualified beneficiary (and must provide, by that 
date, written notice of the opportunity to enroll) that continues 
for at least 30 days, with enrollment effective not later than 
October 1, 2010.
    Example 5.  (i) Facts. Employer X maintains a group health plan 
with a calendar year plan year. Prior to 2011, the plan allows 
children of employees to be covered under the plan until the child 
attains age 22. During the 2009 plan year, an individual with a 22-
year old child joins the plan; the child is denied coverage because 
the child is 22.
    (ii) Conclusion. In this Example 5, notwithstanding that the 
child was not previously covered under the plan, the plan must 
provide the child, not later than January 1, 2011, an opportunity to 
enroll (including written notice to the employee of an opportunity 
to enroll the child) that continues for at least 30 days, with 
enrollment effective not later than January 1, 2011.

    (g) Special rule for grandfathered group health plans--(1) For plan 
years beginning before January 1, 2014, a group health plan that 
qualifies as a grandfathered health plan under section 1251 of the 
Patient Protection and Affordable Care Act and that makes available 
dependent coverage of children may exclude an adult child who has not 
attained age 26 from coverage only if the adult child is eligible to 
enroll in an eligible employer-sponsored health plan (as defined in 
section 5000A(f)(2) of the Internal Revenue Code) other than a group 
health plan of a parent.
    (2) For plan years beginning on or after January 1, 2014, a group 
health plan that qualifies as a grandfathered

[[Page 27140]]

health plan under section 1251 of the Patient Protection and Affordable 
Care Act must comply with the requirements of paragraphs (a) through 
(f) of this section.
    (h) Applicability date. The provisions of this section apply for 
plan years (in the individual market, policy years) beginning on or 
after September 23, 2010.

[FR Doc. 2010-11391 Filed 5-10-10; 4:15 pm]
BILLING CODE 4830-01-P; 4510-29-P; 4120-01-P


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