Health Coverage for Family Members: Key Do’s and Don’ts Employers Must Know

Health Coverage for Family Members: Do’s and Don’ts Employers Shouldn’t Overlook

Employer-sponsored health plans often extend beyond the employee, offering coverage for spouses, children, and sometimes domestic partners. But with these options come compliance responsibilities that employers must carefully navigate. From COBRA rights to HIPAA special enrollment, overlooking even one rule can create costly compliance issues.

Here are the most important do’s and don’ts employers should keep in mind when it comes to family member coverage:

Spousal Coverage

• Do: Understand tax rules—employer-provided coverage for legal spouses is generally tax-free and can be paid with pre-tax dollars.
• Do: Provide HIPAA special enrollment when an employee marries or a spouse loses other coverage.
• Don’t: Forget about cost-saving options like spousal carve-outs or surcharges, but apply them consistently to avoid discrimination issues.

Children

• Do: Cover children through age 26 regardless of dependency, residence, or marital status, per the Affordable Care Act.
• Do: Provide special enrollment rights for new dependents (birth, adoption, or loss of other coverage).
• Don’t: Vary premiums or benefit terms for children under age 26.
• Don’t: Forget COBRA—children have independent rights to continue coverage after certain qualifying events.

Domestic Partners

• Do: Establish clear eligibility rules and communicate them (affidavits or state registries may be required).
• Do: Provide HIPAA special enrollment rights if coverage is offered.
• Don’t: Forget to impute income for taxable benefits if the partner does not qualify as a tax dependent.
• Don’t: Assume COBRA applies—domestic partners do not have independent rights under federal COBRA.

COBRA Continuation Coverage

Spouses and dependent children are entitled to COBRA continuation in cases such as divorce, termination, or death of the employee. Employers must ensure timely communication and compliance, even when coverage was dropped in anticipation of a qualifying event (such as an impending divorce).

Why This Matters

Employers who fail to comply with family coverage rules risk penalties, lawsuits, and employee dissatisfaction. Regularly reviewing plan documents, Summary Plan Descriptions (SPDs), and communication processes can help ensure compliance and clarity for employees.

Bottom line: Staying proactive with eligibility, enrollment rights, and tax treatment of family coverage isn’t just a compliance requirement—it’s a best practice that supports both your workforce and your business.

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