Employer-sponsored health plans typically offer coverage for employees’ family members, specifically their spouses and children. Some employers also offer coverage for employees’ domestic partners. There are several important “do’s” and “don’ts” for employers to follow when offering health coverage for family members.
In general, before the start of each plan year, employers should review their plan documents, including their Summary Plan Descriptions (SPDs), to ensure they accurately describe the plan’s eligibility rules. Employers should also:
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Offer COBRA coverage to spouses upon a divorce, even when coverage was dropped in anticipation of the divorce
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Avoid varying coverage by age for children under age 26
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Report and withhold taxes on the fair market value of health coverage for domestic partners who are not tax dependents
Legal Spouses
Do: Understand tax rules and provide HIPAA special enrollment rights. Federal law recognizes health coverage for legal spouses as nontaxable. Special enrollment is required after marriage or loss of other coverage, with at least 30 days for enrollment.
Don’t: Overlook cost-saving options. Employers may apply spousal carve-outs or surcharges and can consider spousal incentive HRAs to offset health costs.
Don’t: Forget COBRA. Covered spouses may elect COBRA coverage after divorce, legal separation, death, or Medicare entitlement. Dropping coverage in anticipation of divorce does not exempt employers from COBRA obligations.
Children
Do: Understand tax rules. Coverage for children is nontaxable through the end of the year they turn 26. ALEs must offer affordable coverage to employees and their children to avoid penalties.
Do: Provide HIPAA special enrollment rights for events such as birth, adoption, loss of coverage, or CHIP eligibility changes.
Don’t: Vary coverage terms for children under 26 based on financial dependency, residency, student status, or other factors. Plans must comply with ACA rules and offer consistent terms.
Don’t: Forget COBRA. Dependent children are qualified beneficiaries. Their rights are separate from their parents, including children born or adopted during COBRA coverage.
Domestic Partners
Do: Consider eligibility rules and require affidavits or certifications where registration is not available. Employers must also decide on the eligibility of a domestic partner’s children.
Do: Provide HIPAA special enrollment rights if domestic partners and their children are eligible. Events include loss of other coverage, Medicaid/CHIP changes, or acquisition of a dependent child.
Don’t: Forget to impute income for taxable benefits. If a domestic partner is not a tax dependent, the FMV of coverage must be treated as taxable income unless the employee pays with after-tax dollars. Some employers offer “gross-up” pay to offset taxes.
Don’t: Offer COBRA. Domestic partners are not qualified beneficiaries under federal COBRA law. Employers may choose to offer similar benefits but should coordinate with their carriers or administrators.
Links and Resources
This Compliance Overview is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2025 Zywave, Inc. All rights reserved.