Monday, April 12, 2010

Dependent Coverage Requirements

(Note: For the next few weeks, Health Reform Talk will focus on detailed explanations for specific provisions in the new health reform law.)

So what’s included in Sec. 1001(5) of the Affordable Care Act and Sec. 1004(d)(1) of the Health Care and Education Reconciliation Act, concerning dependent coverage?

A group health plan and a health insurance issuer offering group or individual health insurance that provides dependent coverage of children must continue to make health coverage available for an adult child until the child turns 26 years old, regardless of whether or not the dependent is a full-time student, disabled, or married.. Health plans or health insurers are not, however, required to cover a child of the adult child receiving dependent coverage

Additional Change For Dependent Coverage

Although the Affordable Care Act requires that group health plans and health issuers that cover dependent children must do so "until the child turns 26 years of age,” this provision does not affect the income tax exclusion for employer-provided health benefits under the Internal Revenue Code.

In a separate change made by the Health Care Reconciliation Act of 2010 (Sec. 1004(d)(1)), the tax exclusion for employer-provided health benefits has been extended to include any adult child “who as of the end of the taxable year has not attained age 27,” regardless of whether or not the dependent is a full-time student, disabled, or married.

Note that the basic definition of a dependent in IRC Sec. 152 has not been changed. Under these rules, a child is a dependent for whom a dependency exemption may be claimed only if he or she is a qualifying child (IRC Sec. 152(c)) or a qualifying relative (IRC Sec. 152(d)). For health care purposes however, the two health reform provisions govern.

Thus, employers now need to pay attention to three separate provisions when designing plans to cover dependents:

  • the existing definition of dependent in IRC Sec. 152 (for purposes other than health care);

  • the requirement that children be covered until age 26;

  • the ability to provide a tax exclusion for dependent coverage until age 27.

New Standard Set

The young adult age group tends to have a greater proportion of uninsured than do other age groups because young adults often are employed in low-wage jobs that either do not provide health insurance or provide health insurance that the young workers cannot afford. These two new provisions set a nationwide standard to require employers to cover adult children younger than age 26, and to provide a tax exclusion for this coverage until age 27, regardless of whether or not the dependent is a full-time student, disabled, or married.

Effective date. The provision requiring dependent coverage until age 26 is effective for plan years beginning on or after Sept. 23, 2010 (six months after the date of enactment).  The provision allowing a tax exclusion until age 27 is effective on March 23, 2010 (the date of enactment).

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