ACA: Health Care Coverage for Adult Children

Under the Affordable Care Act (“Act”), group health plans and individual insurance policies providing coverage to dependent children must allow adult children to remain eligible for coverage until the child’s 26th birthday, regardless of full-time student, marital status, financial dependency, residency, or any other factor other than the relationship to the participant. As of March 30, 2010, the tax exclusion for this coverage was also extended with respect to an employee’s child who has not attained age 27 by the end of the taxable year. Details of this mandate have been further defined through interim final regulations (“Regulations”) published by the Departments of Labor and Health and Human Services on May 13, 2010.

WHAT YOU SHOULD KNOW

Plans Covered

The coverage mandate applies to all plans otherwise subject to the Act, but not those that are excepted from coverage (such as health flexible spending accounts and limited-scope dental or vision plans that are “excepted benefits” under HIPAA).

Effective Date

The coverage mandate is effective for plan years beginning on or after September 23, 2010.

Eligibility

The Regulations provide that if a plan or policy provides dependent coverage, eligibility for the child of an employee may not be conditioned on any factor other than the child’s relationship to the employee. This means that Plans which limit a child’s eligibility based on factors such as the financial support provided by the employee, the child’s primary residence, the child’s marital or student status, or the attainment of a limiting age younger than age 26, must have been revised to remove these restrictions. For purposes of the Act, a “child” does not include a grandchild. In addition, although the extended eligibility provision applies to married children, it does not require that eligibility be extended to the spouse of a married child.

Minor Children

Because the Regulations do not distinguish between coverage for minor children and coverage for adult children under age 26, the eligibility criteria noted above for adult children will also apply to minor children.

Limited Exception for Grandfathered Plans

A grandfathered plan may exclude an adult child who has not attained age 26 from coverage if the child is eligible to enroll in an employer-sponsored health plan other than the plan of a parent, until the plan year beginning after January 1, 2014.

Age Verification

The Regulations state that the employer may rely on the employee’s representation of the child’s age.

Special Enrollment

A group health plan must have offered a special enrollment opportunity to an employee to elect coverage for any child who lost or was denied coverage before his or her 26th birthday. A one-time notice should have been sent to employees eligible to participate in the plan that explained this special enrollment opportunity when it was first effective. Plans should maintain a copy of this notice with their plan records.

Premium Adjustment

Separate premiums for covered children are not allowed if they are based solely on the age of a child. Thus, the plan cannot charge a higher premium for an adult child than is charged for other dependents. However, if a plan has a tiered premium structure for single coverage as opposed to single plus a certain number of dependents, the plan is allowed to charge the employee for the appropriate number of dependents as long as it is without regard to age.

As of March 30, 2010, employers could permit employees to immediately make pre-tax salary reduction contributions for accident or health benefits under a cafeteria plan, and obtain reimbursement of claims for qualified medical expenses under a health flexible spending account, for children who were under age 27 at the end of the employee’s taxable year, even if the cafeteria plan had not been amended to cover these individuals. (This is an exception to the general rule provided in the proposed Treasury regulations applicable to cafeteria plans, which generally prohibits retroactive cafeteria plan amendments.)

However, a retroactive amendment to a cafeteria plan to allow tax-free payment of premiums for coverage provided to children who fall into this category had to be made no later than December 31, 2010, and had to be effective retroactively to the first date in 2010 when employees were permitted to make pre-tax salary reduction contributions for this coverage (see IRS Notice 2010-38 Implementing Tax-Free Treatment of Health Plan Coverage for Participants’ Children Under Age 27 ).

COBRA Considerations

The mandate for covering dependent children up to age 26 must be extended to qualified beneficiaries under COBRA coverage. Therefore, if a former employee is participating pursuant to a COBRA election, that COBRA participant will have the same right to add an adult child up to age 26 as a similarly situated active employee. The one-time written notice of special enrollment opportunity also had to be provided to COBRA participants.

In addition, a child who qualified for an enrollment opportunity under this section and was covered under a COBRA continuation provision due to a prior loss of eligibility must have been given the opportunity to enroll as a dependent of an active employee (i.e., other than as a COBRA-qualified beneficiary). In this situation, if the child subsequently experienced another COBRA qualifying event (including attaining the plan’s limiting age at age 26), the child must have been given another opportunity to elect COBRA continuation coverage. (If the adult child’s qualifying event was attaining the plan’s limiting age, COBRA continuation coverage must have been provided for a maximum coverage period of 36 months.)

State Law

State laws that impose stricter requirements on health insurance issuers ( through fully insured plans) than those imposed by the Act are not preempted. Therefore, employers offering group health plans through an insurance policy in states that already require dependent coverage to continue beyond age 26, must continue to meet these state law insurance requirements.

Self-insured ERISA plans remain exempt from State insurance law requirements, but are required to follow the Act’s provisions.

Additional Resources

IRS Notice 2010-38 Implementing Tax-Free Treatment of Health Plan Coverage for Participants’ Children Under Age 27

DOL FAQ: Young Adults and the Affordable Care Act