Adult Child Coverage

For plan years beginning on or after September 23, 2010, health plans that cover dependents must provide coverage to adult children up to age 26 (regardless of marital status, student status, tax dependent status, residency, or parental support). Coverage does not have to be provided to the adult child’s dependents. Regulations imposed notice and special enrollment rules for adult children when this rule first became effective for plan years starting on or after January 1, 2014.

Note: The adult child coverage mandate only applies to certain types of health plans, such as major medical insurance. It does not apply to HIPAA excepted benefits, such as disability, cancer, hospital indemnity, or accident insurance. Click here for more information about the types of benefits that are exempt from the ACA plan design mandates.

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Under the special enrollment rules, must the plan allow other family members to enroll or only the adult child who had previously aged out of the plan?

Under special enrollment rules effective for plan years starting on or after January 1, 2014, plans were required to provide all eligible family members an opportunity to enroll in the plan.

Is the plan required to extend coverage to age 26 or to the end of the year in which the child turns age 26?

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.

May a plan impose support, residency, student status, tax dependent status, or other restrictions on children’s eligibility?

Generally no. Neither the statute nor regulations define "child". Generally the only restriction an employer’s plan may impose on such children’s eligibility prior to turning age 26 is age. However, an employer may impose restrictions on other individuals. For example, the plan could require that an employee’s grandchild or niece must qualify as the employee’s tax dependent in order to be enrolled in the plan.

Neither American Fidelity Assurance Company nor American Fidelity Administrative Services provides tax or legal advice and, given the complexity of these laws, we always recommend working with your legal counsel on how the laws impact your specific situation.

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