Plan Changes:
Dependent Coverage Up to Age 26
The Affordable Care Act (ACA) provides that health plans and issuers that offer dependent coverage to children on their parents’ plans must make the coverage available until the adult child reaches the age of 26. The extension of coverage to young adult children took effect on the first day of the first plan year that began on or after September 23, 2010.
What Does The Law Require?
Group health plans and health insurance issuers offering group or individual health insurance policies that provide dependent coverage of children must make coverage available for adult children up to age 26, regardless of the child’s marital status.
Example: For the plan year beginning January 1, 2012, a group health plan provides health coverage for employees, employees’ spouses and employees’ children until the child turns 26. On the birthday of a child of an employee, July 17, 2012, the child turns 26. The plan must cover the child up through July 16, 2012.
The mandate applies to plans that have “grandfathered” status under ACA and to non-grandfathered plans. However, for plan years beginning before January 1, 2014, grandfathered plans are not required to cover adult children under age 26 if they are eligible for other employer-sponsored group health coverage.
Parents can decide whether to add adult children to their plan. ACA’s extension of dependent coverage did not create independent enrollment rights for dependents. In addition, there is no requirement to cover the child of a dependent child (that is, a grandchild).
Restrictions on Definition of “Dependent”
ACA restricts the definition of “dependent” that health plans and issuers may use for children under the age of 26. A plan or issuer may not define dependent for purposes of eligibility for this coverage other than in terms of the child’s age and the relationship between the child and the participant.
For example, a plan or issuer may not deny or restrict coverage for a child who is under age 26 based on one or more of the following factors:
- Financial dependence on the participant or any other person;
- Residency with the participant or with any other person;
- Student status;
- Marital status;
- Employment status; or
- Eligibility for other coverage (unless the plan or coverage has grandfathered status and the child is eligible for other employer-sponsored group health coverage for plan years beginning before January 1, 2014).
Although the term “child” is not specifically defined in ACA, guidance indicates that it means an individual who is a son, daughter, stepson, stepdaughter or adopted child of the participant. There is some suggestion that a foster child would be included as well, although this is not entirely clear.
Uniformity in Plan Terms
The terms of the plan or health insurance coverage providing dependent coverage of children, including the premiums charged, cannot vary based on age (except for children who are age 26 or older). This means that adult children must be offered all of the benefit packages available to other plan participants, and these dependents cannot be required to pay more for coverage.
When did the Law Become Effective?
The extension of dependent coverage provision took effect for plan years beginning on or after September 23, 2010, though some plans and issuers extended coverage to adult children before this date. All plans and issuers should now be in compliance with the age 26 dependent coverage requirement.
What if State Laws Differ From Federal Law?
More than two-thirds of states have passed laws that require insured group health plans to cover dependents after they turn 18 years old, often into their mid to late 20s and in some cases later. For example, in New Jersey, unmarried children can stay on a parent's plan until they are 31 years old. These state mandates, to the extent they require coverage past age 26, will continue to apply to insured health coverage.What are the Tax Effects of the Extended Dependent Coverage?
Under federal tax law, employers can offer tax-free health coverage to employees’ adult children through the end of the year in which the children turn age 26. It does not matter whether the children are tax dependents for federal income tax purposes. All states have passed tax laws conforming to the federal tax law.
Often, adult children that obtain coverage pursuant to state law are not tax dependents for federal income tax purposes. In the event state laws mandate coverage past age 26, federal tax law generally requires employers to impute the fair market value of the dependent coverage as income to employees for tax years after the children turn age 26, unless employees pay for the coverage on an after-tax basis.
