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Adult Children under ACA - Age 26 Requires Changes to Employer Health Care Plans

Categories: Employment, Article

ACA and it's impact on employee's children

If you are an employer that offers group health insurance to your employees and their children, you will soon be required to offer coverage to your employees' adult children up to the age of 26.  Under current law, young adults typically lose health insurance coverage under their parents' plans at age 19 unless they are enrolled in college full time.*  In addition, young adults covered through public programs, such as Medicaid (AHCCCS in Arizona) or the State Children's Health Insurance Plan lose eligibility for coverage at age 19.

According to the U.S. Department of Health & Human Services (DHHS), young adults have the highest uninsured rate of any age group.  Approximately 30% of young adults are uninsured.  That translates to more than 20% of the uninsured population.  Since young adults frequently work in entry-level or part-time jobs or in small businesses that do not offer health insurance, it is no surprise that a significant number of young adults do not have access to health insurance offered through their employers.  Contrary to popular belief that young adults are healthy and do not need health insurance, over 16% of young adults have chronic illnesses, such as cancer, diabetes or asthma.

Impact of The Affordable Care Act

The Affordable Care Act, enacted on March 23, 2010, is designed to ensure that persons up to the age of 26 are offered health insurance through their parents' employers' health insurance plans.  Effective September 23, 2010 (or such later date as the employer's health insurance plan year begins),** if dependent coverage is offered by the employer, health insurance must be offered to adult children up to the age of 26, regardless of whether the children attend school, are dependents for tax purposes, live away from the parents' home or are married.  (Note that the children's spouses and offspring need not be offered coverage and until 2014 certain existing plans are exempt from offering coverage to young adults who can obtain coverage through their own employers.)  The coverage offered must be the same as the coverage offered to other covered individuals.  The cost of coverage must also be the same as the cost for similarly-situated persons.

Employers must give participants a special enrollment notice and at least a 30-day period to enroll, regardless of whether the employer or the plan offers an open enrollment period. The notice may be distributed at open enrollment; however, the notice and the enrollment deadline must be prominently displayed. Although it is not required, employers may want to also post the notice in high traffic employee areas, such as a lunch or meeting room or on their employee intranet site. The form of the notice can be reviewed at: http://www.dol.gov/ebsa/dependentsmodelnotice.doc.

Tax Impact of the ACA

Under The Affordable Care Act and related guidance issued by the Treasury Department, the value of any employer-provided health coverage for an employee's child is excluded from the employee's income through the end of the taxable year in which the child turns age 26.  The portion of the cost of coverage contributed by the employee is also excluded from the employee's income if their contribution is made through a cafeteria plan.  (Note that the cafeteria plan document may need to be amended to permit this; however, if the amendment is made by December 31, 2010, the benefit would be available immediately.) Employees will also be able to utilize FSA or HSA plans to reimburse health related claims for dependent children up to age 26.

Regardless of an employer's political viewpoint on The Affordable Care Act, employers must implement its extension of health care to adult children in a timely and proper manner, as The Affordable Care Act imposes severe penalties for noncompliance.

Additional information can be found on-line at the following web pages:

*Note that more than 30 states have already extended young adult coverage beyond age 19.  See http://www.ncsl.org/default.aspx?tabid=14497.


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