EMPLOYMENT LAW

Definition of Dependent Expands under New Hampshire Medical Plans

September 2007

By Dana R. Scott, HR and Benefits Consultant

In July of this year, New Hampshire enacted legislation (HB 790-FN) changing the definition of a "dependent" under medical plans provided by health insurance companies in New Hampshire. Under this new bill, which was signed into law on July 17, 2007 (with an effective date of September 15, 2007), a dependent is defined as a subscriber's child who:

• is under the age of 26,
• is unmarried,
• is a resident of NH or is enrolled as a student in a public or private institution of higher education, and
• is not covered under any other group health plan, individual plan, church plan, or a health plan entitled to benefits under Title XVII of the Social Security Act.

Open Enrollment Requirement

For purposes of implementing the changes required under this bill, a Special Open Enrollment Period must be provided to subscribers in order to allow them to enroll any newly-eligible dependents as defined under the law. Insurers may meet either of the two enrollment standards noted below:

1. Insurers must have provided notice to eligible current subscribers on or before July 31, 2007, with the Special Open Enrollment Period running from August 1, 2007 through September 30, 2007.

2. Insurers who did not elect the first option must notify eligible subscribers on or before October 1, 2007, with the Special Open Enrollment Period beginning no later than November 1, 2007 and lasting for 60 days.

The insurer must provide coverage to the dependent no later than the first of the month following the insurer's receipt of a completed application (and Standardized Health Form, if applicable).

There are a few more details in conjunction with this dependent expansion:

1. Only subscribers who currently have dependent coverage (Family, Parent/Child(ren), e.g.) may take advantage of this Special Enrollment Period. Current single subscribers or those with Couple/Two-Person coverage will be able to enroll their dependents during their employer's normal Open Enrollment Period.

2. If a now-eligible dependent was previously terminated from his/her parent's plan due to attaining age 25 and/or graduating from college), s/he can now be added back on to the parent's plan during the Special Enrollment Period (provided the parent's current coverage is Family, Parent/Child(ren), etc.). However, if the dependent did not convert to COBRA or an individual plan once his/her eligibility under the group plan ended, s/he will be subject to the plan's pre-existing condition limitations if s/he was without coverage for 62 days or more. The only exception to this exclusion is pregnancy.

Tax Issues

The revised definition of dependent under New Hampshire law is different than that defined under the federal Internal Revenue Code. Under the IRC, a dependent is either a “qualifying child” or a “qualifying relative.”

A Qualifying Child

• is under the age of 19, or 24 if a full-time student;
• lives in the same home as the taxpayer (employee) for more than half the year;
• does not provide over 50% of his/own support for the year.

A Qualifying Relative

• may not be a Qualifying Child as described above;
• is a resident of the US, Mexico or Canada;
• earns less than the current federal exemption amount ($3,400 for 2007);
• receives 50% or more support from the taxpayer (employee).

To the extent New Hampshire’s new definition of dependent does not track either of the IRC’s definitions, any employee’s contribution toward this dependent’s coverage under the employer’s group health plan may not be made with pre-tax dollars. The contributions must be made on a post-tax basis, and the “fair market value” of the benefit for the dependent is includable in the employee’s taxable income.

Employers should be aware that in January, when employees who currently have Single or Couple health care coverage can add the newly qualified dependents, the employer’s health care premiums will increase accordingly. To the extent that employees will have additional taxable income as a result of adding a non-federally-qualified dependent to their coverage, employers should also be aware that they, too, will bear increased costs, chiefly in the area of payroll taxes, and other costs associated with employee income (401(k) match, profit sharing contributions, e.g). Employees should also be encouraged to consult with their tax advisor.

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