How health care dependent coverage laws impact employers, employees Featured

7:57am EDT March 1, 2013
Keith Kartman, Client Advisor, JRG Advisors, the management arm of ChamberChoice Keith Kartman, Client Advisor, JRG Advisors, the management arm of ChamberChoice

Young adults ages 19 through 29 are the largest growing age group in the U.S. at risk for being uninsured. Officials estimate this age group accounts for approximately 13 million of the 47 million Americans living without health insurance.

“As young adults transition into the job market, they often have entry-level jobs, part-time jobs, or jobs in small businesses and other employment that typically come without employer-sponsored health insurance,” says Keith Kartman, client advisor at JRG Advisors, the management arm of ChamberChoice.

The Dependent Insurance Coverage provision in the Patient Protection and Affordable Care Act (PPACA) was designed to address the millions of young adults currently uninsured.

Smart Business spoke with Kartman about how dependent coverage laws work.

What are the dependent coverage laws?

The PPACA requires private insurers that offer dependent coverage to children to allow young adults up to the age of 26 to remain on their parent’s insurance plan.

A number of states also require insured health plans to cover dependents past age 26. Every group health plan purchased by employers from commercial health insurers and health maintenance organizations must comply with Pennsylvania’s dependent coverage laws. However, self-funded plans subject to the Employee Retirement Income Security Act are exempt from this dependent coverage law. Pennsylvania’s dependent coverage only applies to medical. This excludes dental and vision only, hospital indemnity, accident or specified disease only, Medicare supplement, long-term care and individual health insurance policies.

Who qualifies for this dependent coverage? 

Regulations specify a young adult can qualify for this coverage if he or she is no longer living with a parent, is not a dependent on a parent’s tax return or is no longer a student. Both married and unmarried young adults can qualify, although that coverage does not extend to a young adult’s spouse or children.

The law also states that young adults can only qualify for dependent coverage through group health plans in place prior to March 23, 2010, if they are not eligible for another employer-sponsored insurance plan. In other cases, a young adult can choose to remain insured through a parent’s dependent coverage, even if the young adult is eligible for other employer-sponsored coverage.

What do employers need to know?

The Department of Health and Human Services has stated that young adults gaining dependent coverage under the PPACA can’t be charged more for coverage than similar individuals who didn’t lose coverage due to the end of their dependent status. Also, young adults newly qualifying as dependents under the law must be offered the same benefit package as similar individuals who were already covered as dependents.

What are the tax implications?

Treasury Department-issued guidance on the tax benefits states that 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 dependent turns 26. The benefit applies regardless of whether the plan’s coverage is required or voluntarily.

Key elements include:

  • The tax benefit continues beyond extended coverage requirement. Some employers may decide to continue coverage beyond the 26th birthday. In that case, if an adult child turns 26 in April but stays on the plan through Dec. 31 — the end of most people’s taxable year — all health benefits that year are excluded for income tax purposes.

  • Broad eligibility. This tax benefit applies to various workplace and retiree health plans, as well as self-employed individuals qualifying for the self-employed health insurance deduction on federal income tax returns.

  • Health premium shares for both employer and employee are excluded from income. In addition to excluding any employer contribution toward qualifying adult child coverage from income, employees can receive the same benefit by contributing toward the cost of coverage through a cafeteria plan. The IRS states that a cafeteria plan allows employees to choose from two or more benefits consisting of cash or qualified benefit plans.

Keith Kartman is a client advisor at JRG Advisors, the management arm of ChamberChoice. Reach him at (412) 456-7010 or keith.kartman@jrgadvisors.net.

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