Young Adult Coverage

Frequently Asked Questions (FAQ)

Does the provision for coverage of dependents up to age 26 include their children or spouses?

Coverage of dependents up to age 26 does not extend to a spouse or a child of the adult child dependent.

When is the provision to provide coverage for dependents up to age 26 effective?

Effective September 23, 2010, or January 1, 2011, for calendar year plans, employers who already offer insurance coverage for dependents must provide coverage for dependent children up to age 26 under group and individual policies. Grandfathered plans are not required to provide coverage to dependents that do have access to an employer-provided health care plan until after January 1, 2014.

Will the provision for coverage of dependents up to age 26 cause insurance rates to increase?

The law prohibits insurers from raising rates based on the age of the dependents. According to regulations released by the U.S. Department of Health and Human Services, policy holders with dependents will generally see an across-the-board increase in premiums of 0.7 percent in 2011, which will likely be followed by a 1 percent increase each year for the next two years. This is in addition to regular annual insurance rate increases.

Can plans open up and give adult child dependents coverage now, or do the plans have to wait until September 23, 2010, or January 1, 2011?

They don't have to wait. A plan can bring on adult child dependents early. Some carriers have chosen to do so, but it is also up to the employer to agree to allow the adult dependent child to be covered. Participants should consult with their employer to see if coverage will be offered. It should also be noted that employers that currently do not offer health care to dependent children will not be under any obligation to do so until January 1, 2014.

If dependents were enrolled and then dropped at age 23, can they re-enroll for coverage up to 26?

There are special enrollment provisions for children that either lost coverage or had been denied coverage because of their age but are now eligible for coverage under the adult child rules. Eligible dependents must be provided a written notice detailing their enrollment rights, as well as a 30-day special enrollment period during which they elect coverage. These must be provided no later than the first day of the plan year beginning on, or after September 23, 2010 (January 1, 2011, for calendar year plans). The effective date of this coverage will be the first day of the plan year in which the dependent is enrolling.

Is it mandatory for dependents age 18-26 to be enrolled under their parents' health care plan or can they still enroll on their own?

The adult dependent provision does not require that dependents remain enrolled under their parents' plan.

Does the provision for coverage of dependents up to age 26 affect all businesses?

Employers that provide dependent coverage under the group health plan must continue to provide coverage to adult children until they reach age 26.

Does the provision for coverage of dependents up to age 26 apply if a 26-year-old files his own taxes and is not considered a dependent of an employee?

This adult dependent coverage is dependent upon a parent-child relationship existing between the dependent and the participant. It cannot be dependent upon any other factors, such as tax-dependent status, financial dependency, or residency. The only exception permissible is that before January 1, 2014, grandfathered plans are not required to provide coverage if the dependent is eligible for coverage under an employer-sponsored health plan (such as through their own job).

Are employers required to cover any full-time employee's adult child if requested by the employee?

Employers that provide dependent coverage under the group health plan must continue to provide coverage to adult children until they reach age 26; however, there is not a requirement for an employer to provide dependent coverage under their group health plan.

We already cover dependents up to age 25. What will we need to do when it changes and we need to cover until age 26?

Some carriers are currently providing coverage. So, you may have a choice if you wish to offer coverage earlier than your next plan year, on or after September 23, 2010. If you do want to offer coverage before that plan year, consult your carrier(s) to see if they are offering this early coverage. If so, allow them to walk you through the enrollment process. Otherwise, if you are going to offer coverage beginning at your next open enrollment, on or after September 23, 2010, the dependent child may be enrolled on the health care application as any other dependent child; however, keep in mind that the dependent cannot have healthcare available from his employer.

How does the age 26 regulation change when the adult dependent is eligible for other coverage?

Plans that offer dependent coverage must make that coverage available until the child reaches age 26. This applies to married and unmarried children, as well as children that have other coverage available to them. The only exception is for grandfathered plans, which are not required to continue coverage if the child has access to coverage through his employer; however, this exception will no longer apply beginning 2014.

What happens in the year a dependent turns 27?

Under the federal law, adult dependent coverage only applies until the date the dependent reaches age 26; however, some plans may allow for coverage to continue beyond the dependent's 26th birthday. If coverage extends beyond the dependent's birthday (for example through the end of the plan year), the value of the coverage can continue to be excluded from the employee's income for the full tax year in which the child reached age 26. In addition, some states may require that adult dependent coverage continue beyond age 26. (Please check with your state's department of insurance to see if your state has such a requirement.) Once the dependent ages off the plan, he or she may be eligible to continue coverage through federal COBRA or state continuation regulations.

We charged imputed income for adult dependent coverage. Do we have to refund the April imputed amounts?

If you are speaking of tax you withheld because this imputed value before March 30 was taxable for federal income tax, then for federal purposes (only as of March 30) adult children who have not reached the age of 27 by the end of the tax year have the value of their health coverage tax-free; however, keep in mind that this may not apply at the state level, so imputed income may need to be reported and tax withheld and paid at the state level.

I am a young adult under the age of 26, and I am on my parents' plan now. I am scheduled to lose coverage soon. How can I keep my health insurance?

You have a number of options. First, check with your insurance company. Private health insurance companies that cover the majority of Americans have volunteered to provide coverage for young adults losing coverage as a result of graduating from college or aging out of dependent coverage on a family policy. This stop-gap coverage, in many cases, is available now.

Second, watch for open enrollment. Young adults may qualify for an open enrollment period to join their parents' family plan or policy on, or after, September 23, 2010. Insurers and employers are required to provide notice for this special open enrollment period. Watch for it or ask about it.

Finally, expect an offer of continued enrollment for plans that begin on, or after, September 23, 2010. Insurers and employers that sponsor health plans will inform young adults of continued eligibility for coverage until age 26. Young adults and their parents need not do anything but sign up and pay for this option.

I work in New York and there is a provision that indicates that dependents up to the age of 29 can be added to an insurance plan. Does the federal or state regulation take precedence?

The requirements for adult dependent coverage in New York apply to individual and group policies that provide dependent coverage, are issued in New York state and subject to New York state laws, and are fully insured plans. In addition, the young adult must meet certain eligibility requirements. (Information on adult dependent coverage can be found on the New York State Department of Insurance Website at: http://www.ins.state.ny.us/faqs/faqs_S6030_Age29_make.htm). The adult dependent coverage requirements apply to all group health plans and individual health insurance policies that provide dependent coverage. The only exception is for grandfathered plans that are not required to extend coverage if the adult dependent has access to other group coverage provided by their employer until 2014. The determination of which rule will apply will be based upon your specific plan.

How long can participants submit FSA claims for their adult dependents?

Participants can submit FSA claims for eligible expenses incurred by their adult dependents on or after March 30, 2010, through the end of the calendar year in which the dependent turns 26. Adult dependents no longer need to live with parents, attend school, or be a dependent for tax purposes. In addition, the dependent can be married; however, the spouse is not eligible. For example, Jane is a participant in her company's 2011 health FSA plan. She has a son who turns 26 on December 15, 2011. Because her son is considered an adult dependent through the end of the calendar year in which he turns 26, Jane can continue to submit expenses through the end of 2011 for her adult dependent son's expenses.

Can a dependent under age 26 who is employed in a family business remain on his parent's plan with the group or should he obtain his own coverage?

Under Health Care Reform, group health plans that offer coverage for dependent children must make that coverage available to certain adult children until they reach age 26. However, there is an exception for grandfathered plans (a group health plan that was in existence on March 23, 2010). Until plan years beginning on or after January 1, 2014, grandfathered plans can exclude an adult child from coverage if he is eligible to enroll in his own employer-sponsored group health plan. Since the adult child is eligible for his own coverage under his employer's plan, as long as the employer's plan is considered a grandfathered plan, he can be excluded from coverage under the parent's plan.

What is the maximum credit for a tax-exempt qualified employer?

For tax years 2010 through 2013, the maximum credit for a qualified tax-exempt employer is 25 percent of the employer's premium expenses. However, the amount of the credit cannot exceed: the total amount of income and Medicare (i.e., hospital insurance) tax the employer is required to withhold from employees' annual wages, and the employer's share of Medicare tax on employees' annual wages.

Paychex Insurance Agency Can Help

Paychex Insurance Agency is a full-service organization ready to provide information and guidance about dependent coverage and other provisions of Health Care Reform. We can also:

• Determine if your carrier(s) will allow dependents to remain on the policy until the plan renewal date
• Help you enroll dependents not already on an employee's policy
• Adjust deductions if there is a change in premium
• Follow the latest regulations to keep you informed about any legislative changes that affect you and your business.

Health Care Reform Updates

With access to legislative and regulatory specialists in Washington, D.C. and expert, in-house sources of legal and compliance guidance, Paychex Insurance Agency is your source for Health Care Reform knowledge, tools, and resources.

Whether you're looking for a Business Owner Policy, Workers' Compensation insurance or group health and life insurance, Paychex Insurance Agency offers flexible, scalable insurance solutions for you, your business and your employees. To learn more about how we can meet your insurance needs, call 877-393-8868 or have an agent call you.

The Department of Health and Human Services and the Internal Revenue Service (IRS) continue to provide specifics and guidance on the Health Care Reform Act. Paychex will monitor these regulatory developments and provide updates as appropriate.

The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. It is provided for informational purposes only. If you require legal or accounting advice, or need other professional assistance, you should always consult your licensed attorney, accountant, or other federally licensed tax professional to discuss your particular facts, circumstances, and business needs.

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