Preexisting Condition Exclusion Provisions for Children and Dependent Coverage under the Patient Protection and Affordable Care Act (ACA)
Released: 2012-01-03T00:00:00

Under the Patient Protection and Affordable Care Act ( P.L. 111-148 , ACA, as amended), a number of provisions directly affect access to health insurance coverage. Hereafter, "ACA" will refer to ACA, as amended. Most of the insurance reforms in ACA amend Title XXVII of the Public Health Service Act (PHSA, 42 U.S.C. 300gg et seq.). Title XXVII includes requirements on health insurance coverage for both the group and nongroup (individual) markets, enforcement applicable to such requirements, relevant definitions, and other provisions.

This report provides a description of two of the provisions in ACA that are targeted toward younger individuals, for plan years beginning on or after s ix months from the date of enactment (i.e., the plan year beginning on or after September 23, 2010). ACA prohibits coverage exclusions for children with preexisting health conditions who are under age 19, and the law also requires plans to continue to make dependent coverage available to children under age 26.

This report includes a description of the law and relevant information about the implementation of these two provisions.

No Preexisting Condition Coverage Exclusions for Children under Age 19

Summary of Provision

ACA prohibits coverage exclusions for children with preexisting health conditions who are under age 19, effective for plan years beginning on or after September 23, 2010. In other words, health plans may not exclude benefits based on health conditions for qualifying children. This provision applies to all grandfathered and new group plans (including self-insured plans ) and all new individual plans.

A strict interpretation of the statutory language appears to separate the guarantee for the issuance of a health insurance policy from the prohibition against coverage exclusions for preexisting condition s once a policy has been issued. Such an interpretation would mean that children could be denied the offer of coverage altogether until 2014, but that if they are offered coverage, they would have access to all covered benefits to treat their health conditions for plan years beginning on or after September 23, 2010.

However, the law gives the Secretary of Health and Human Services ("Secretary") wide latitude with respect to implementation of the insurance reforms and other provisions. In multiple instances, the law specifies that the Secretary will promulgate regulations to implement various provisions affecting private health coverage. In addition, the inclusion of the insurance reforms under Title XXVII of PHSA indicates the intent for the Secretary to exercise broad rulemaking and enforcement authority.

On March 29, 2010, Secretary Sebelius stated in a letter to the President of America's Health Insurance Plans that she planned to issue regulations to

confirm that beginning in September, 2010:

• Children with pre-existing conditions may not be denied access to their parents' health insurance plan;

• Insurance companies will no longer be allowed to insure a child, but exclude treatments for that child's pre-existing condition.

On June 28, 2010, the Departments of Health and Human Services, Labor, and Treasury ("Departments") issued joint interim final rules in the Federal Register , which include rules for coverage for preexisting conditions. In the preamble of the regulation, the Departments state that this provision "protects individuals under age 19 with a preexisting condition from being denied coverage under a plan or health insurance coverage (through denial of enrollment or denial of specific benefits) based on the preexisting condition." The regulation defines preexisting conditions exclusion as "a limitation or exclusion of benefits (including a denial of coverage) based on the fact that the condition was present before the effective date of coverage (or if coverage is denied, the date of the denial)." In other words, the Departments have broadly defined preexisting condition exclusions to include the outright denial of coverage.

On July 27, 2010, HHS posted Q&As to provide further clarification about implementation of this provision. HHS stated that "issuers in the individual market may restrict enrollment of children under 19, whether in family or individual coverage, to specific open enrollment periods if allowed under State law." Issuers have discretion regarding the number and duration of open enrollment periods, unless such conditions are specified under state law. If a state imposes open enrollment requirements on issuers in the individual market, such requirements are not preempted by federal statute or regulations.

Estimated Effect

The interim final rules for coverage of preexisting health conditions include analysis of the potential impact of such rules on children with preexisting conditions.

Using data from an existing health insurance survey, the Departments estimated that over 19 million children potentially had a preexisting condition in 2010. Most of these children had coverage through the private market (mainly provided through a parent's employer) or had public coverage. The Departments estimated that 540,000 children with preexisting health conditions were left uninsured.

Assuming that a parent's insurance status would be a fundamental factor in the likelihood that an uninsured child with preexisting conditions would gain coverage as a result of the regulation, the Departments analyzed the number of such children (540,000) by the parents' insurance status: has employer-provided coverage, was offered employer-provided coverage, has coverage through the individual health insurance market, does not have private insurance, or there is no parent. Half of uninsured children with preexisting conditions (270,000) had a parent who did not have private coverage. Of the remaining half, most had a parent who was offered or had employer-provided coverage (see Table 1 ).

The Departments researched the literature on take-up rates (i.e., the share of individuals with access to health insurance who end up obtaining coverage) to develop estimates on the number of children with preexisting conditions who could gain coverage under the regulation. In developing these estimates, the Departments acknowledged "substantial uncertainty," but, nonetheless, assumed that

50 percent of uninsured children whose parents have individual coverage will be newly insured, 15 percent of uninsured children whose parents are uninsured will be newly insured, and that very few children whose parents have ESI [employer-sponsored insurance], are offered ESI, or who do not live with a parent will become covered as a result of these interim final regulations.

These take-up rates formed the mid-range estimates of the number of uninsured children with preexisting conditions who will gain coverage. As shown in Table 2 , of the 51,000 children who could gain coverage under the mid-range estimates, most would be enrolled in the individual health insurance market (45,000). Given the uncertainty regarding take-up rates, the Departments also developed high-end and low-end estimates.

Dependent Coverage for Children Under Age 26

Summary of Provision

The requirement relating to coverage of children under age 26 will also take effect for the plan years beginning on or after September 23, 2010. The statute requires that if a plan provides for dependent coverage of children, the plan must make such coverage available for a child under age 26.

Plans that offer dependent coverage must continue to make that offer available until the adult child turns 26 years of age. As an example, an adult child who is 26 years and 1 month old would no longer be required to be covered. Plans that offer dependent coverage must make it available for both married and unmarried children under age 26, but not for the children's children. The requirement affects individuals enrolled in group and individual health plans, including self-insured plans. With one exception, these provisions apply to grandfathered plans. Prior to 2014, grandfathered group health plans are not required to make dependent coverage available to adult children who can enroll in an eligible employer-sponsored health plan based on their own employment. (However, a plan may make dependent coverage available to such adult children if it wishes.)

The statute does not require plans to offer dependent coverage in the first place, so that if a plan chooses not to provide such coverage, nothing in this statute would require them to do so. The age requirement affects only plans that choose to offer dependent coverage.

On May 13, 2010, the Departments of Health and Human Services, Labor, and Treasury ("Departments") issued joint interim final rules in the Federal Register on dependent coverage under ACA. The rules clarify that "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."

The federal requirements are a floor. That is, they provide a minimum requirement. States that already impose requirements beyond attaining age 26 may continue to do so. For example, New Jersey requires dependent coverage to be available up to the age of 31, as long as the adult child is unmarried and has no dependents. To the extent that the state law is more restrictive than the federal law (e.g., New Jersey's requires that the individual not be married), the federal statute would apply, therefore covering the married adult child under the age of 26.

Estimated Effect

As part of the interim final rules for dependent coverage of children under age 26, the Departments of the Treasury, Labor, and Health and Human Services estimated the impact of the regulation on the health insurance coverage for this group. In order to estimate the number of individuals potentially affected, they examined several criteria including whether or not the parents of these adult children had existing employer-sponsored insurance (ESI) or individual insurance, and whether the adult children themselves were insured. Using this information, they estimated the take-up rates, that is, the number of individuals who are likely to accept coverage if offered it.

The Departments estimated that in 2010 there were approximately 29.5 million individuals between the ages of 19 and 25. Of those, 9.3 million such individuals were estimated to have no access to dependent coverage, because their parents did not have ESI or non-group coverage. That left 20.2 million adult children whose parents were covered either by ESI or by non-group insurance. The 20.2 million are further broken down, as follows:

3.42 million were uninsured, 2.42 million were covered by their own non-group coverage, 5.55 million were covered by their own ESI, 5.73 million were already on their parent's or spouse's ESI, and 3.01 million had other coverage, such as Medicaid.

The Departments assumed that the initial group of potential individuals for dependent coverage would only include those who were either uninsured or those who were covered by individual insurance (3.44 million + 2.42 million, for a total of 5.86 million).

Of the 5.86 million, the Departments estimated that 3.49 million would choose not to enroll in their parent's plan, because (1) they are already allowed to enroll in their parent's plan under their state's existing laws, but have chosen not to do so; (2) they have their own offer of ESI and their parent's plan will not extend coverage to them; or (3) their parent's coverage in the nongroup market is underwritten (based on health status and other factors), so that there is no financial benefit for the adult child to enroll in the parent's plan.

Subtracting out these 3.49 million individuals leaves a potential pool of 2.37 million. However, as they noted in the regulation, it is difficult to estimate how many of these 2.37 million individuals would likely take up the insurance. Recognizing the uncertainly in the estimates of take-up rates, the Departments produced a range of assumptions, shown in Table 3 .

Attributed Impact

The most current national data on the uninsured from the Census Bureau showed a decline in the uninsured rate for young adults. For 19- to 25-year-olds, the rate of uninsurance declined from 31.4% in 2009 to 29.7% in 2010. Not only was this a statistically significant change from one year to the next, but young adults were the only adult age group that experienced a decline in their uninsured rate. All other adult age groups experienced slight increases in their uninsured rates. Another national data source also found a decrease in the uninsured rate for young adults, from 2010 to the first half of 2011. Some observers have attributed the uninsured rate decline to ACA's coverage provisions, specifically the dependent coverage requirements.