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DEPENDENT COVERAGE UNDER YOUR MEDICAL INSURANCE – A WARNING TO PARENTS WHO "THINK" THEY HAVE COVERAGE FOR THEIR CHILDREN!

By: Guy O. Kornblum, Certified Civil Trial Advocate, National Board of Trial Advocacy and Member, Million Dollar Advocates Forum

For those of you who have children in college who you have claimed as "dependents" on your employer sponsored or group medical insurance coverage as a covered "dependent," I have news for you. Watch out! Companies providing medical coverage for employer sponsored groups may be playing games with your coverage, and you may not have coverage for your under age children.

As a general proposition, once a child reaches college age, 18 or 19, any coverage under a parent’s group medical plan through an employer terminates for that child unless the child is a "covered dependent." This term usually has two components to be eligible for this extended coverage: a) the child must be enrolled "full time" in school, and b) the child must be "dependent" on the parents for support. By continuing full time in college a child can remain a "covered dependent" for the time in college up to a maximum age, which is customarily 24 or 25 years old.

What do these terms mean? What if a child drops out mid-semester? Does coverage continue even though the child is no longer attending classes? What if the child enrolls but decides to skip a quarter or semester, as many kids do today to get a better focus on careers, travel or earn some money to help pay college expenses, or simply because they or the parents run out of money to support continued attendance at college? What if the child withdraws from some but not all of his or her classes and is, thus, not taking a "full load"? Your medical insurance plan with your employer may require you to notify the insurance company or its administrator of any change in your dependent’s status at school.

A California Court of Appeal, in a very recent decision in which our office represented the Plaintiff, a college student who enrolled initially, but decided to take a quarter off to heal some emotional scars (because a friend had died), earn money to help pay for college expenses, and get a better focus on academics, was denied benefits under her father’s policy. The Court said that the phrase "enrolled as a full time student" was not ambiguous and it required the dependent to be in "substantial attendance" in class to be eligible for coverage. The student was injured in a tragic auto accident that rendered her a quadriplegic.

The insurer, Prudential, denied coverage but did provide some additional coverage because it was federally mandated for a period of three years. Once that period ended, our client received only government benefits, which did not adequately provide for her medical needs. (Fortunately, her mother was able to start a private foundation with contributions from the community to provide space and medical support for a small group of similarly injured young people, which helped somewhat.)

Because our client was not physically attending classes, Prudential dropped her from the "eligibility list," claiming that it gave notice to her parents who did not find out about this until after the accident. They unknowingly then consented to their child’s enrollment for the federally mandated benefits.

We tried to establish that our client had every intention of returning for the next quarter, that she was on an approved leave from her college for that missed trimester, that Prudential admitted there was continued coverage for the summer vacation, and that a larger percentage of students statistically do not complete their college studies in four years, but take longer and often skip a quarter or semester for acceptable reasons. The Court ignored our arguments and this evidence, thus creating a "trap" for the unwary parents whose college kids might not be taking a full load, or drop out or otherwise do not continuously attend college.

What we have also found out is that many insurers will continue to collect premiums for this coverage if the carrier is not aware or does not inquire as to the student’s status in school. I am sure that many parents don’t even think about whether their child has continued coverage under the parents’ group medical coverage when a change from "full time" attendance occurs.

Another case we had, which eventually settled, involved an international student who was covered under a group policy which the school required non-domestic students to purchase at the time of paying tuition. In that case, our client purchased the coverage and then contracted colorectal cancer which forced her to withdraw from the balance of the school year. That is, the illness which caused her medical expenses occurred while the insurance coverage was in force. However, that was not enough for the insurer, Pan American, which took the position that since our client had to drop out of school because of her illness, she was no longer a student eligible for continued medical coverage for the very illness that caused her to have to withdraw! That is, she was no longer a "student" and therefore was not eligible for coverage for medical expenses resulting from treatment for that illness.

We argued that her international student’s coverage "vested" as of the date her illness manifested itself, relying on a case decided several years ago that we believed was a precedent for this theory. Since the case settled, we will never know the outcome of a court decision on this issue. However, it is logical to assume that once the "risk" insured becomes a reality, the insurance should cover the financial consequences of that risk – that is, the ongoing medical expenses resulting from a severe illness or catastrophic illness which occurs while coverage is in effect. Otherwise, there is no such thing as medical insurance which provides continued coverage for such if the policy is terminated later on. That is equivalent to an insurance company calling you up while your house is burning down and saying: "We are terminating your insurance and will only provide coverage for that portion of your house which has burned so far!"

Most group medical policies provide some maximum amount of medical coverage, often $1 Million or $2 Million, which is a "lifetime cap" on coverage for any person who is insured. That would seem to be sufficient protection against very large claims and should provide the insurer a basis for properly "pricing" this coverage. They have considerable experience in medical claims and should know how many large claims they will have within a population group, depending on age, sex, and other factors which actuaries – those who create the rate base for insurance – compute.

It is not fair for insurers to be able to stop payment for claims from ongoing serious illnesses and catastrophic injuries which occur while there is coverage by terminating the insurance after that claim is made. There should be continued coverage for the medical expenses incurred as a result of that illness and accident even after that termination up to any "cap."

However, our Courts in California have not been very receptive to this argument. They have struggled with this "vesting" issue in a few cases since the earlier precedent we relied on in our international student case. They have allowed insurers to end coverage upon termination of the policy by using "anti-vesting" language. This means that the insured with a serious illness or catastrophic injury whose policy is terminated will only have coverage for medical expenses incurred while the policy is in force, and not after.

Where does the student who is no longer a covered dependent because of interrupted attendance at college go for coverage? What happens to the student (or any insured for that matter) who suffers a serious illness or catastrophic injury while covered and has to leave school and is no longer eligible for coverage available as a student for ongoing medical expenses? Employer group medical plans do provide for some options for limited continued coverage once a dependent is no longer eligible as a "covered dependent" for that coverage. Usually these are limited to COBRA continuation coverage (see below), extended benefits coverage if the dependent is totally disabled at the time of termination, and a conversion privilege for individual health care products. None of these provides the same type of coverage which was available under the group coverage previously enjoyed. They are limited, but they can help someone who is about to lose that group coverage while they transition out of that plan.

Here is what I recommend you do if you have a student who is covered:

1. First and foremost, stay on top of your college student’s course work. If he or she is not attending as a "full time" student taking the required hours for being considered such, call the medical insurance company’s representative and determine if they will continue coverage for that student while taking a reduced load or has dropped out. Sometimes they will IF there are no serious claims pending. The insurance company is pleased to continue collecting a premium if there are no claims to pay. No surprise there!

2. If the insurance company is not willing to continue coverage as a "dependent," then request continued coverage under COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985, 29 U.S.C. sec 1161-1167; 42 U.S.C. sec 300bb-1 through 300bb-8). This is the federally mandated coverage which must be offered once an insured, such as a dependent, leaves the group as a covered person. COBRA is a federal statute mandating that certain employees and their dependents be offered the option of paying premiums to continue medical coverage for a limited time period after termination of coverage under a group health plan. Coverage must be offered under the same medical coverage provisions as the original group coverage except that the student (or the parents) must pay the premium for the coverage. But it is worth the price to close the "gap" in coverage so if the child needs medical insurance protection while transitioning from full time student to a reduced load or leave, back to full time, there can be protection provided.

3. If your child is going to work during any gap in attendance in college, inquire about health coverage through the employer. Often there are "waiting periods" for coverage for pre-existing conditions, so be sure you know what these are. That is, you may need to buy COBRA coverage for illnesses or injuries which "pre-exist" any new coverage which this employer might provide. Once the pre-existing "waiting period" expires, then the COBRA coverage can be dropped.

4. As to the other problem of "vested coverage" for the insured who is seriously injured or catastrophically injured while coverage is in effect and has continued medical expenses after the group coverage is terminated, there are no quick "fixes." Most carriers will try to get from under a large risk in any way they can. If the language is susceptible, even if unreasonably, to interpretation that coverage does not "vest," it is likely that the insurance company will end paying the bills claiming that only expenses incurred for the illness or accident while the policy is in force are covered. At that point, the solution is to contact a lawyer who is well schooled and experienced in handling cases against medical insurance companies.

Frankly, the California Legislature should mandate "vesting." Otherwise, you are buying band aid coverage for any insured who has a very large claim. Once this claim becomes part of the insurance company’s inventory, the price will go up on the group coverage at renewal time. That means the employer may not be able to afford to continue with that insurance company and may have to shop for another or become self-insured. If the employer switches to another group, any insured on claim has to be absorbed into the new coverage on a "no loss-no gain" basis. That sounds OK at first blush. But what if the insured is a "dependent" who is so sick or injured that he or she is no longer "eligible" for dependent coverage? Can the second insurer take the position that coverage does not "vest," the dependent no longer qualifies, and no more coverage exists for expenses incurred once the dependent leaves the group, except what might be provided under COBRA?

A can of worms? Insurer friendly courts? A quagmire of complicated and intricate traps for the unwary parents of their dependent children? All these are true? So beware, be warned, and be alert for events which impact whether your college kid is covered under your medical coverage with your employer in this age of interrupted matriculation through what used to be the four year college course.

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