Dependent Coverage to Age 26
For new plan years starting on or after September 23, 2010, the Affordable Care Act (PPACA) requires group and individual health plans that cover dependents to continue to make dependent coverage available until age 26.
The Affordable Care Act requires plans and issuers that offer dependent coverage to make the coverage available until a child reaches the age of 26. Both married and unmarried children qualify for this coverage. This rule applies to all plans in the individual market and to new employer plans. It also applies to existing employer plans unless the adult child has another offer of employer-based coverage (such as through his or her job). Beginning in 2014, children up to age 26 can stay on their parent's employer plan even if they have another offer of coverage through an employer.
Same Benefits/Same Price
Under the age 26 requirement, any qualified young adult must be offered all of the benefit packages available to similarly situated individuals who did not lose coverage because of cessation of dependent status. The qualified individual cannot be required to pay more for coverage than those similarly situated individuals. The new policy applies only to health insurance plans that offer dependent coverage in the first place: while most insurers and employer-sponsored plans offer dependent coverage, there is no requirement to do so.
Special Enrollment and Notice Requirements
Interim final rules issued require a plan or issuer to give a child whose coverage ended, or who was denied coverage (or was not eligible for coverage) under a group health plan or health insurance coverage because, under the terms of the plan or coverage, the availability of dependent coverage of children ended before the attainment of age 26, an opportunity to enroll that continues for at least 30 days (including written notice of the opportunity to enroll), regardless of whether the plan or coverage offers an open enrollment period and regardless of when any open enrollment period might otherwise occur. This enrollment opportunity (including the written notice) must be provided not later than the first day of the first plan year (in the individual market, policy year) beginning on or after September 23, 2010. Thus, many plans can use their existing annual enrollment periods (which commonly begin and end before the start of the plan year) to satisfy the enrollment opportunity requirement.
Income Tax Exclusion
As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee's children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.
The IRS announced that these changes immediately allow employers with cafeteria plans to permit employees to begin making pre-tax contributions to pay for this expanded benefit. For additional information on cafeteria plans, please click here. These changes are explained in IRS Notice 2010-38, which provides further guidance to employers, employees, health insurers and others.
Employees with children who do not reach age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010, forward, if the children are already covered by or added to the employer’s plan. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child.
The notice also states that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Then, plan sponsors have until the end of 2010 to amend their cafeteria plan language to incorporate this change.
To view Notice 2010-38, please click here.
Note that the Affordable Care Act did not amend the Internal Revenue Code’s basic definition of “dependent” in Section 152. Thus, employers designing benefit plans will need to be mindful of at least three different provisions relating to dependents:
- The Dependent Coverage requirement until age 26;
- The income tax exclusion for employer-provided benefits to dependents until age 27; and
- The qualifying “dependent” definition under the Internal Revenue Code for other purposes
Frequently Asked Question
Q: It seems like plans and insurers can terminate dependent coverage after a child turns 26, but employers are allowed to exclude from the employee's income the value of any employer-provided health coverage through the end of the calendar year in which the child turns age 26. This is confusing.
A: Under the law, the requirement to make adult coverage available applies only until the date that the child turns 26. However, if coverage extends beyond the 26th birthday, the value of the coverage can continue to be excluded from the employee's income for the full tax year (generally the calendar year) in which the child had turned 26. For example, if a child turns 26 in March but is covered under the employer plan of his parent through December 31st (the end of most people's taxable year), the value of the health care coverage through December 31st is excluded from the employee's income for tax purposes. If the child stops coverage before December 31st, then the premiums paid by the employee up to the time the plan was stopped will be excluded from the employee's income.
From the DOL: Access to Insurance: What Young Adults and Parents Need to Do
Check for Immediate Options: Private health insurance companies that cover the majority of Americans have volunteered to provide coverage earlier than the implementation deadline for young adults losing coverage as a result of graduating from college or aging out of dependent coverage on a family policy. This stop-gap coverage, in many cases, is available now. Ask your employer and insurer about this option.
Watch for Open Enrollment: If early coverage is not an option with your employer or insurance company, then young adults will qualify for an open enrollment period to join their parents' family plan or policy beginning on or after September 23, 2010. Insurers and employers are required to provide notice for this special open enrollment period. Watch for it or ask about it.
Expect an Offer of Continued Enrollment: Insurers and employers that sponsor health plans will inform young adults of continued eligibility for coverage until the age of 26. To get the coverage, young adults and their parents need not do anything but sign up and pay for this option.
Fact Sheet and FAQs from the Department of Labor
The U.S. Department of Labor has released a Fact Sheet and set of Frequently Asked Questions regarding dependent coverage under the Affordable Care Act. Under the Act, for plan years starting on or after September 23, 2010, group and individual health plans that cover dependents must continue to make dependent coverage available until age 26. The Fact Sheet and FAQs cover topics that include enrollment, new tax benefits, grandfathered plans, and a list of companies that have agreed to implement the program before the September 23, 2010 deadline.
The Young Adults and the Affordable Care Act Fact Sheet and FAQs were released around the same time as regulations from the U.S. Treasury, Labor, and Health and Human Services Departments implementing the dependent care requirements under the Affordable Care Act. To view the regulations, please click here. To view the Fact Sheet, please click here. To see the FAQs, click here.
State Dependent Coverage Requirements
Although the health reform law applies in every state, several states have more favorable dependent coverage requirements. According to the interim final rules on dependent coverage, state laws that impose stricter requirements on health insurance issuers than those imposed by the Affordable Care Act will not be superseded by the Affordable Care Act. Therefore, employers and plan administrators should consult with their state insurance departments to ascertain requirements of their health plans. To contact your state insurance department, please click here.