Workscape Institute

It all started so simply: Parents, don’t worry about little Johnny or Jenny not finding a job right away when he/she graduates from school, you can keep them covered on your insurance through their 26th birthday. But from the moment the ink from the President’s pen swept across the paper this simple, innocent, well-intentioned solution has been keeping benefits managers, HR departments, and insurance companies up at night trying to figure out how it will all work.

Follow up:

With graduation season upon us and new jobs for grads few and far between in many parts of the country, HR departments and benefits managers are starting to feel the pressure from employees on what to do with their dependents who as of May or June will no longer be eligible for benefits.

This is the time of year many organizations would begin their preparations for summer dependent audits and student status solicitations. However, given that many of those dependents who may be dropped today will be added back in January is it really a cost effective solution?  HR departments are already stretched thin, so is it a wise use of resources and potential additional employee confusion and dissatisfaction? The cost of issuing COBRA notices, and the administrative burden if these children do elect COBRA continuation only to drop and come back on their parents plan in 6 months, seems to be an unnecessary extra expense for employers to bear.

This past week the IRS has swooped in like Robin Hood and issued a notice to reassure employers that neither they nor their workers would face negative tax consequences from expanding coverage immediately. The notice indicates that effective immediately companies offering a cafeteria-style menu of employee benefits can extend coverage to this population.

Like Robin Hood’s faithful merry men, a handful of major national insurers including UnitedHealth, WellPoint, and Humana announced last week they would move up the effective date of the extension allowing recent graduates or those with a birthday making them ineligible in 2010 to not experience a break in coverage. This announcement, however, applies mainly to individual policies and not to employer sponsored plans.

So what will your organization do? Time is quickly running out as the class of 2010 eagerly awaits their commencement ceremonies. There is no one size fits all right answer, but now there are additional options for employers struggling with whether or not to drop dependents only to add them back at the next annual enrollment period.