YOUR MONEY : New Law Will Help Adoptive Parents

Thousands of parents who have had difficulty securing health coverage for their adopted children are expected to benefit from a little-noticed law passed last August.

The aim of the law, which was passed as part of the 1993 tax act, was to put adopted children on an even plane with kids who were born into the family. In effect, the law says that if your health plan provides coverage for “biological” children, it must provide substantially identical coverage for adopted children too.

Additionally, the coverage must start from the moment the parents assume “total or partial” financial obligation for the child--rather than when the adoption is finalized.

That’s pivotal because many adoptions take months--even years--before they are complete. In the past, insurers were able to deny coverage during the placement period and, if a medical condition cropped up before the adoption was final, they could bar reimbursements related to that condition indefinitely.

It’s worth noting that many states, including California, already have insurance laws that bar discrimination against adopted children. However, state insurance laws generally do not apply to companies that self-insure and are regulated by the federal Employee Retirement Income Security Act (ERISA), says Steve Humerickhouse, legislative affairs director with Adoptive Families of America Inc., a Minneapolis-based support group. And some experts estimate that these companies employ 40% of the nation’s workers.

Already, some parents say the impact of the law has been dramatic.

Consider Jim and Patty McLaughlin, Midwestern parents of two adopted children. When the McLaughlins adopted Nathan in 1991, they battled for 11 months to secure his insurance coverage. (Their state has a law barring adoption discrimination, but their group plan was covered by ERISA.) But when Bethany was adopted four months ago--after the federal law was passed--the insurer covered her without a peep. That was a huge relief, Jim says, because Bethany was hospitalized for a heart condition before the adoption was final.

However, others note that their insurers had to be notified about the new law before they would agree to coverage.

Sharon Alestalo, a Syracuse, N.Y., adoptive parent, for example, says she sent a copy of the law to her insurer when she realized the company planned to deny coverage for her son’s heart condition. Kristofer was born with a small hole in a heart muscle, she notes. If he were her biological child, coverage would be automatic. But the insurer previously imposed an 11-month waiting period for coverage of adopted children’s pre-existing conditions.

“There are still many insurance companies that haven’t figured the law out yet,” Humerickhouse says. Adoptive Families of America suggests parents get copies of the law to send to recalcitrant insurers. Usually, after the insurer receives the information, the adopted child’s medical expenses are reimbursed, he says.

But there are exceptions. Despite the law, some insurers can and do deny coverage to adopted kids. They are legally able to do this because of exceptions to the law and because of technical provisions in the law.

First, the law, which revised the ERISA of 1974, has some exceptions: Specifically, it does not cover plans offered by federal, state or local governments, including military plans. It also exempts churches and church-related organizations that are not covered by ERISA. And, if you buy private insurance--in other words, your coverage is not provided through an employer--your health plan may also be exempted. (Some of these plans are covered by state laws, however.)

The new ERISA revisions also allow insurers to legally exclude coverage for some kids. How so? The law says an insurer can’t discriminate against adopted kids by covering an ailment for the family’s newborn but not for its adopted child. But if the insurer excludes coverage for newborns and adopted children, there’s no discrimination. And that’s legal.

In other words, the insurer can say it will not cover children who are HIV-infected as long as the rule applies to “birth” kids as well as adopted kids, says Humerickhouse.

Additionally, some insurers say all kids are covered as long as they are IRS dependents. That test isn’t necessarily discriminatory, but it primarily excludes adoptees. That’s because employed parents are generally assumed to be the primary source of support for their newborns.

But adopted children, particularly those with special needs, may not qualify. That’s because the parents are frequently provided with some government subsidy to offset the cost of the adoption, or the cost of counseling or of special schooling for kids with emotional problems or drug addictions, for example. The subsidy amount is compared to the “imputed value” of parental support--a complicated formula that takes into account the amount you earn, the amount you spend and the number of children you have. If the subsidy appears to be greater than the value of parental support, the child is not an IRS dependent and is consequently not covered under these insurance plans.

“The more children you have, the harder it is to prove dependency,” says Connie Farquhar, a Maryland mother of 10. Partly because Farquhar is a nurse by training, the Farquhars make a point of adopting medically needy children. Six of their children are considered IRS dependents, she says. But four are not.