To age 26. There are two separate ACA rules related to adult children: the coverage mandate and the tax change. Under the coverage mandate, a group health plan that covers children must offer coverage to any child up to age 26 for plan years beginning on or after September 23, 2010. In addition, Congress made a corresponding tax change so that employment based health coverage for such children would be excluded from the employee’s income. That rule allows an employer to extend coverage for the child on a tax advantaged basis through the end of the calendar year in which the child turns age 26.
Putting the two rules together, for plan years beginning on or after September 23, 2010, an employer’s plan must cover adult children to age 26 and may cover children on a tax-free basis through the end of the year in which the child turns age 26. The health plan may provide coverage even longer than age 26 (and may be required to do so under state law), but the value of the coverage would have to be imputed as income to the employee unless the child otherwise qualifies as a tax dependent (perhaps because the child is disabled). Having said that, the employer may not extend eligibility for Health FSA or HRA reimbursements for individuals who are not eligible to receive benefits on a tax-free basis.
ACA rules only require dependent coverage to extend until the dependent’s 26th birthday, so it is permissible to elect a plan design which terminates coverage on the day a dependent attains the age of 26. Employers should keep in mind, however, that a potential Employer Mandate penalty may apply to any month in which an employer fails to offer coverage to substantially all full-time employees and their dependent children. Under section 4980H, a child is a dependent for the entire calendar month during which he or she attains age 26. While the risk of a potential Employer Mandate penalty in this situation may be small, employers may wish to continue coverage to the end of the month for administrative simplicity and reporting purposes.