Time Line Requirements for Implementing Dependent Coverage

By Larry Grudzien, J.D.
Attorney At Law

April 2013 – Question: As part of the employer mandate, employers will be required to offer health coverage to the dependent children of their full-time employees. One of my clients has never offered dependent coverage in the past and plans to offer coverage to dependent children in 2015, but will not be ready in 2014.  Will the client be subject to any penalties for such failure in 2014?

Answer: No. Proposed Treasury Regulations Section 54.4980H-1(a) (11) interprets the statutory reference to “and their dependents” to include children who have not attained age 26. The preamble to the proposed IRS regulations released in January notes that a number of employers currently offer coverage only to their employees, and not to dependents. For these employers, expanding their health plans to add dependent coverage will require substantial revisions to their plans and to their procedures for administration of the plans.

To provide employers sufficient time to implement these changes, the IRS has provided transition relief with respect to dependent coverage for plan years that begin in 2014.  Accordingly, any employer that takes steps during its plan year that begins in 2014 toward satisfying the Code Section 4980H provisions relating to the offering of coverage to full-time employees’ dependents will not be liable for any assessable payment solely on account of a failure to offer coverage to the dependents for that plan year.

This means that failing to offer dependent coverage in 2014 will not trigger penalties, as long as an employer is taking steps to add this benefit by 2015.

Larry Grudzien is an attorney practicing exclusively in the field of employee benefits. He has experience in dealing with qualified plans, health and welfare, fringe benefits and executive compensation areas. He has more than 35 years of experience in employee benefit law and is an adjunct faculty member of John Marshall Law School’s LL.M. program in employee benefits and at the Valparaiso University School of Law, where he teaches a number of courses.