May Compliance Corner: A Primer on Qualified Medical Child Support Orders

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Employers sponsoring health plans for their employees will undoubtedly receive a Qualified Medical Child Support Order (“QMCSO”) related to one of their employees at some point if they have not already; however, we regularly field questions from employers on how to handle QMCSOs, indicating there is a knowledge gap regarding what rules apply in this situation. This month’s Compliance Corner is intended to provide a primer on QMCSOs, including an explanation of what is a QMCSO, what rules apply, and what procedures employer plans sponsors should implement for compliance purposes.

Background

Under the Employee Retirement Income Security Act of 1974 (“ERISA”), employer-sponsored group health plans are required to offer health coverage to children of plan-eligible employees pursuant to any “qualified” medical child support order issued by a state court or agency under state domestic relations law (or other law related to child support). This generally occurs in the context of a divorce or separation between an employee (who is often the non-custodial parent) and his or her spouse or partner.

Generally, a medical child support order is completed by the parties through a child support proceeding and is intended to provide health plan coverage for the child (or children) of a participant in the employer’s group health plan.

Once completed by the partners or state court or agency, the medical child support order is provided to the plan administrator for qualification. The plan administrator must review and determine that the order is “qualified” before coverage can be extended to the child or children under the order. Essentially, the plan administrator must determine if the order meets various required under ERISA Section 609 (as detailed below). This determination must be completed within a reasonable time and must be done pursuant to the health plan’s written procedures.

The QMCSO rules are applicable to any “group health plan” under ERISA.  This generally includes any welfare plan that is established or maintained by an employer that provides “medical care” to employees, former employees, or their dependents directly or through insurance, reimbursement, or otherwise. As a reminder, “medical care” includes amounts paid for: (i) diagnosis, cure, mitigation, treatment or prevention of a disease; (ii) the purpose of affecting any structure or function of the body; (iii) transportation primarily for or essential to such care or services; and (iv) insurance coverage care or services. While medical child support orders generally require major medical plan coverage, some may extend to dental or vision coverage as well. Although ERISA does not generally cover governmental or church plans, such plans are generally still subject to similar medical child support order rules under the Child Support Performance and Incentive Act of 1998.

One reason that employers may not see medical child support orders very frequently is because of changes made to dependent coverage under the Affordable Care Act (“ACA”). Under the ACA, group health plans that offer coverage to children must continue to do so through age 26 (regardless of whether an adult child is technically a dependent for income tax purposes). Consequently, plans can no longer condition dependent coverage on factors such as residency or financial support, which has resulted in an increase in coverage for dependent children (which lessens the need for medical child support orders). That being said, QMCSOs still come up in the context of health plan administration, and it is important for employees administering the employer’s health plan to know and understand the plan’s compliance obligations in this regard.

In addition to ERISA and the ACA, QMCSOs are affected by other federal laws including HIPAA, COBRA, and the Internal Revenue Code’s rules on cafeteria plans (under Section 125).

Qualification Requirements

When a covered plan receives a medical child support order, the plan administrator must determine if it is “qualified”. If it is qualified, it means that the order contains the correct and necessary information regarding the parties and as required under law and generally does not require any benefits not otherwise provided under the health plan. More specifically, the order must include: (i) the name and last known mailing address of the participant and each alternate recipient (i.e., the child or children to receive coverage under the order), except that the order may substitute the name and mailing address of a state or local official for the mailing address of any child; (ii) a reasonable description of the type of health coverage to be provided to each alternate recipient (or the manner in which such coverage is to be determined); and (iii) the period to which the order applies.

A medical child support order may be in the form of a “National Medical Support Notice” (“NMSN”), which is a standardized model form supplied and used by state child support enforcement agencies  that if correctly completed is automatically deemed to be a QMCSO. If a NMSN is properly completed and deemed to be a QMCSO, a group health plan subject to ERISA must comply with it (as do non-ERISA governmental plans and church plans pursuant to other federal and state laws). A NMSN will be qualified if it includes: (i) the name of an issuing state child support enforcement agency; (ii) the name and mailing address of the employee, whether the employee is enrolled or eligible for enrollment, and who is obligated to provide child medical support; and (iii) the name and mailing address of each child covered by the NMSN. Notably, if any omitted information is reasonably available to the plan administrator, then the administrator cannot reject the NMSN solely because of this incomplete or unsupplied information.

QMCSO Administration Considerations

As mentioned above, when a plan administrator receives a medical child support order, it must determine if the order is “qualified” pursuant to the applicable legal rules and the plan’s procedures. As such, group health plans subject to these rules must implement and maintain reasonable, written procedures to assist in this determination. Plan administrators should also make such procedures available to participants, either as part of the health plan’s summary plan description (“SPD”) or separately (with a statement included in the SPD that such procedures are available upon request). As a part of those procedures, and a next step, the plan administrator must promptly notify the participant and the child (or children) to receive coverage that it received the order and provide an explanation of how it will determine whether the order is a QMCSO (e.g., by providing a copy of the plan’s written procedures).

Next, the plan administrator must determine whether the order is a QMCSO within a reasonable time after receipt of the order. It must also send the child (or his or her representative) any election or other forms required in order to provide coverage under the plan.

As mentioned above, the plan administrator may receive a NMSN issued by a state agency rather than a customized order prepared by and submitted by the named parties.  Like a regular order, the plan administrator must review the NMSN and determine whether it is complete, as discussed above. The NMSN is made up of two parts (Part A (“Notice to Withhold for Health Care Coverage”)  and  Part B (“Medical Support Notice to Plan Administrator”)) and is completed by a state agency that sends the notice to the plan administrator. Part A directs the employer enroll the child in certain coverage and make appropriate payroll deductions and contains a form to be completed by the employer. Part B contains information on the child to be covered and the type of coverage the child is to be enrolled in, along with the “Plan Administrator Response”, which reflects the administrator’s ultimate qualification determination and must be returned by the plan administrator to the issuing state agency within 40 days of receipt. After the plan administrator informs the issuing state agency that the NMSN is qualified and when coverage will begin, it will need to provide the custodial parent of the child (or, a state official, as necessary) with information about the child’s coverage under the plan, including any forms or documents necessary for election or claims purposes. The plan administrator must also notify the state agency in the event that the employee parent is not enrolled in the employer’s plan or if the plan offers multiple coverage options. If the plan administrator does not receive a specific election or response from the state agency, the child can be enrolled in the plan’s “default option,” if any.  

As mentioned above, there may be situations where a plan receives a medical child support order for a child of an employee who is not a participant in the employer’s health plan. In cases where the employee is eligible for the plan but not enrolled, the plan administrator must provide coverage to the child if qualified. If the employee must be enrolled in order for the child to enroll (per plan terms), then the plan must enroll both the employee and child.  In this situation, employers should review their cafeteria plan (or Section 125) document to ensure it allows mid-year election changes to add a dependent child pursuant to a QMCSO (and the employee, if necessary).

In the event the plan administrator receives an order for a child of an employee who is not eligible to enroll in the employer’s plan, the plan is not required to provide coverage for the child until the employee becomes eligible to enroll.

Enrollment & Payment

While there is not a specific QMCSO rule on this, the DOL has explained that once a medical child support order is determined to be qualified, the plan administrator should enroll the child in coverage as soon as possible, subject to a plan’s entry date rules.

Generally, the coverage option in which to enroll the child will be identified in the order (or alternatively, a process regarding how to make this decision will be provided therein). If the order does not designate an option or process, the plan can use a “default” option that will apply if another option is not otherwise elected within a certain time frame).

If the order provides that the child is to receive coverage that the employee parent is not enrolled in (but that is offered under the plan), the plan administrator may have to enroll the employee parent in such coverage. Alternatively, the plan may allow the employee parent to remain in his or her coverage (e.g., single coverage) and allow the child to enroll in the specific coverage set forth in the order (subject to any limits under the Plan itself or by the carrier). If the order requires that the plan provide coverage that it does not otherwise offer at all, the plan administrator will be unable to qualify the order as written. Generally, in such case, after the plan administrator notifies the parties of this issue, the order will be amended as necessary to effectuate coverage within options provided under the plan.

In terms of when a child can be dropped from coverage provided under a QMCSO, a plan may discontinue coverage for a child provided under a QMCSO at the same time and for the same reasons as any other dependents in the plan (e.g., when the employee parent terminates employment and COBRA continuation coverage is not elected for the child).

With regard to paying for coverage provided under a QMCSO, generally, the order will specify which parent will be paying the required premium contributions for the child’s coverage. Usually, this is the responsibility of the non-custodial parent who is the employee/participant in the employer’s group health plan subject to the order.

With regard to determining premium costs, the child’s coverage will be subject to the plan’s normal rates for other participants and will depend on the employee parent’s current coverage option, if any. For example, if the employee parent is enrolled in single coverage but will now have to enroll in family coverage due to the added dependent child, the employee will be subject to family coverage premium rates. However, if the employee was already enrolled in family coverage, it is possible that the current family coverage rate will not change with the addition of a new dependent (depending on the plan’s terms).

Related to this, if the employer must increase an employee parent’s plan contributions to provide coverage for a child under a QMCSO, the employer must ensure that such increase does not go beyond any applicable state or federal withholding limitations. Generally, under federal law, an employer may not withhold more than 50% of the employee’s disposable weekly earnings (or 60% if the employee is not supporting a spouse or dependent child (other than the child subject to the QMCSO)). In addition to federal limits, the Employer must also comply with applicable state wage withholding limitations. In the event that the employee’s premium costs, with the addition of the child under the QMCSO, exceed the applicable withholding limits, the employee parent can voluntarily agree (in writing) to withhold beyond such limits, or the employer can refuse to provide such coverage unless contributions are made from another source like the other parent or applicable state agency.

Next Steps

Employers should take steps to implement QMCSO procedures in the event they do not already have some in place. Employers with existing QMCSO procedures should use this opportunity to review their procedures and internal processes to ensure they are consistent with the rules discussed herein. Employers should also provide individuals handling QMCSO with adequate information on the process and the health plan’s benefit offering.  Employers relying on carriers or third-party administrators to handle any medical child support orders should discuss with such entities how those entities are complying with the applicable rules. Regardless of assistance from third-parties, employers, as plan sponsors and fiduciaries, are generally ultimately responsible for the legal compliance of their benefits plans, including that related to QMCSOs.

QMCSOs may seem unlikely to come up in the day-to-day operations of a human resources or benefit department; however, a QMCSO is bound to surface at some point, and it is important to have sufficient policies and procedures in place for that event. Generally, QMCSO procedures should address the following: (i) initial steps once an order is received (e.g., notify employee and child regarding receipt and provide procedures); (ii) rules regarding the determination of whether an order is “qualified” including, who can make such decisions and what information is necessary for the order to be qualified (as detailed herein); (iii) next steps if the order is qualified (e.g., notify the parties; instruct carrier or third-party administrator regarding commencement of coverage) or not qualified (e.g., what information is required in a denial notice); (iv) how to handle disputes or appeals; and (v) how to handle any administrative fees incurred as part of the qualification determination. If you are unsure about how your organization is handling QMCSOs, reach out to your benefits consultant for assistance on the process and applicable rules.