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January 17, 2011
Readers Ask About Dependent Coverage

Over the past several months, we’ve noticed that BLR subscribers are still trying their best to understand their obligations under the Patient Protection and Affordable Care Act (ACA). One area of the law that has been a source of a lot of questions is the new requirement for dependent coverage until a dependent’s 26th birthday. Here are a few questions our legal editors have fielded about this topic.

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Q. Can we charge employees extra for coverage of adult children up to age 26?

A. The healthcare reform laws prohibit special premiums for coverage of an adult child. The cost for the adult child must be the same as for other children. Some employers have structured their premiums based on the number of children an employee enrolls. Under these plans, an additional premium may be charged for an adult child, but it cannot be more than the amount charged for a minor child.

Q. A plan has grandfathered status and excluded a dependent who is under the age of 26. If they change plans in January, do they lose grandfathered status?

A. The fact that the organization is changing health plans in January may not affect its grandfathered status. An amendment to the regulation on grandfather status allows employers to move to a new plan and maintain grandfather status if the change in plans does not result in a significant cost increase, a reduction in benefits, or other changes described in the original grandfather rule.

For more information, see the DOL’s fact sheet.

Q. Can an employee's adult child be covered on employee's health plan if the child lives in his own home and files his own income taxes?

A. On and after March 30, 2010, both coverage under an employer-provided health plan and amounts paid or reimbursed under such a plan for medical care expenses of an employee’s child who has not attained age 27 as of the end of the employee’s taxable year are excluded from the employee’s gross income under IRC Sec. 105(b) and IRC Sec. 106. An employer may assume an employee’s taxable year is the calendar year. Previously, a child who was not a dependent had to be younger than either age 19 or age 24, if enrolled in school.

For this purpose, a child is the son, daughter, stepson, or stepdaughter of the employee, including those who are legally adopted or lawfully placed with the employee for legal adoption and “eligible foster children,” defined as individuals who are placed with an employee by an authorized placement agency or by judgment, decree, or court order. This provision applies to a child of the employee even if the child is not the employee’s dependent within the meaning of IRC Sec. 152(a). Thus, the age limit, residency, support, and other tests described in IRC Sec. 152(c) do not apply to a child for this purpose.

Q. A dependent under age 26 had coverage via his employer. The dependent lost his job, and has been offered COBRA. Can the parents still add the dependent?

A. Initially, it is important to note, that grandfathered plans (group health plans that were in existence on March 23, 2010) do not have to make coverage available to an adult child if the child is eligible to enroll in another employer-sponsored group health plan until plan years beginning on or after January 1, 2014. Thus, if the plan in your question is a grandfathered plan, it may exclude an adult child who has not attained age 26 from coverage only if the child is eligible to enroll in an employer-sponsored health plan (as defined in section 5000A(f)(2) of the Code) other than a group health plan of a parent.

Internal Revenue Code 5000A(f)(2) provides that:

Eligible employer-sponsored plan. The term ‘eligible employer-sponsored plan’ means, with respect to any employee, a group health plan or group health insurance coverage offered by an employer to the employee which is:

(A) a governmental plan (within the meaning of section 2791(d)(8) of the Public Health Service Act), or

(B) any other plan or coverage offered in the small or large group market within a State.

Although the regulations on the age 26 provision do not address whether an individual on COBRA is considered eligible to enroll in an employer-sponsored plan, the definition in Sec. 5000A(f)(2) states that it must be coverage that is offered by an employer to an employee. COBRA coverage, arguably, does not meet this definition. Thus, a strong argument could be made that an adult child may not be excluded before attaining age 26 based on the fact that the adult child has or is eligible for COBRA coverage.

Q. Under ACA, if both parents have health plans with dependent coverage through their employers, what policy has to cover their 25-year old child?

A. In a situation where a young adult under the age of 26 is not eligible for employer-sponsored insurance and both parents have separate plans that offer dependent coverage, neither parent's plan can deny coverage. Dual coverage will be allowed. (Note that 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.)

For more information about healthcare reform, visit the Healthcare Insurance topic section on Compensation.BLR.com®.

Do you have more questions on healcare reform? Visit Healthcare Reform: A Resource Center for Employers.

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