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Health Care coverage for adult children to age 26

On May 13, 2010, the U.S. Departments of Labor, Treasury, and Health and Human Services (Agencies) issued guidance for providing health care coverage to young adult children until age 26. In addition to the Interim Final Regulations, the Department of Labor issued a Fact Sheet and a series of 21 Frequently Asked Questions and Answers. The Internal Revenue Service also issued Notice 2010-38, which provides details on the exclusion from taxable income for the value of employer-provided health care coverage and benefits for an adult child until the end of the taxable year in which the child attains age 26.

New law – Coverage of adult children until age 26

Prior to enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act of 2010 (Act), many health plans and insurers (health plans or plans) could remove an adult child from the coverage of the child’s parent due to the child’s age, regardless of whether or not the child was a student or where the child lived. The Act requires a plan that offers dependent coverage to make the coverage available until the adult child attains age 26. Both married and unmarried children qualify for this coverage. For plan years beginning on or after September 23, 2010, a plan must give a child who qualifies an opportunity to enroll that continues for at least 30 days, regardless of whether the plan offers an open enrollment period. This enrollment opportunity (and a written notice) must be provided to each employee with a qualifying child not later than the first day of the first plan or policy year beginning on or after September 23, 2010. A plan sponsor may also elect to provide this opportunity at an earlier date.

This new rule applies to all plans in the individual insurance market and to employer-provided group health plans, with a temporary exemption for certain grandfathered plans discussed below. The Agencies are encouraging covered plans to begin extending this coverage as soon as possible. To this end, more than 65 insurers have volunteered to extend coverage currently in order to prevent a gap in coverage.

Extent of coverage that must be available

A child who lost coverage because of a loss of dependent status must be offered all of the benefit packages available to a similarly-situated individual who did not lose coverage because of a loss of dependent status. Neither an insurer nor a group health plan can require the adult child to pay more for coverage than a similarly-situated individual who did not lose coverage because of a loss of dependent status. Furthermore, the guidance eliminates the ability of an insurer and a group health plan to impose limits on a child who otherwise qualifies for coverage based upon financial dependency, marital status, enrollment in school, residency or other factors.

Grandfathered plans

A grandfathered plan is a group or individual health plan that was in existence on March 23, 2010, the date the initial legislation was signed into law. A grandfathered plan is exempt from certain changes that otherwise are required by the Act and may remain grandfathered indefinitely. Until plan years beginning on or after January 1, 2014, a grandfathered group health plan may exclude coverage of an adult child up to age 26 if the child is eligible for other employer-provided coverage (other than a group health plan of a parent).

The guidance does not clearly define when and how a grandfathered plan may lose grandfathered status. However, offering coverage to an adult child up to age 26 before the required compliance date of plan years beginning on or after September 23, 2010 will not cause a group health plan to lose grandfathered-plan status.

The Act does not require a plan or insurer to offer dependent coverage if it does not already provide for dependent coverage.

Value of coverage and benefits for covered adult children excluded from taxation

Effective March 30, 2010, the value of any employer-provided health care coverage and benefits paid for an employee's child are excluded from the employee’s gross (taxable) income through the end of the taxable year in which the child attains age 26. This tax benefit applies regardless of whether the plan or insurer is required by law to extend health care coverage to the adult child or the plan or insurer voluntarily extends such coverage. The sponsor of a cafeteria plan that takes advantage of this change in 2010 (but not before March 30, 2010), including allowing reimbursement of expenses from a health care flexible spending account for an adult child (up to the last day of the taxable year the child attains age 26), needs to amend its cafeteria plan to reflect this change not later than December 31, 2010.

  • Partner

    Mary is partner with a focus on employee benefits. Her practice includes design and compliance of qualified retirement plans and employee welfare benefit plans, including COBRA, and nonqualified deferred compensation ...

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