Dependent Coverage for Young Adults

Affordable Care Act Extends Dependent Coverage to Age 26

Dependent Coverage - You can now stay on your parent's insurance until age 26, if eligible. Getty Images

Many parents and their young adult children who worried about losing health insurance dependent coverage after their children moved away from home or graduated from college no longer need to worry.

Since President Obama signed the Affordable Care Act into law in March 2010, the federal government, mostly through the Department of Health and Human Services (HHS), has been publishing regulations to implement provisions in the legislation consistent with the required time lines.

One of the significant provisions in the health reform law that is being implemented in 2010 is an extension of dependent coverage to assure that all young adults have affordable health insurance. Although this provision is scheduled to start on September 23, 2010, the Secretary of HHS, Kathleen Sebelius, obtained a commitment from the country’s largest health insurance companies to start implementation of dependent coverage in May 2010. This will allow students graduating from college in late spring to avoid a gap in coverage.

Why Is Extended Dependent Coverage Needed?

Before the passage of the Affordable Care Act (formerly known as the healthcare reform law), many insurance companies dropped young adults from their parents’ health plans because of their age and the fact that the young adult no longer met the IRS definition of a dependent. This left many college graduates and other young adults with no health insurance.

And, according to information reported by the Administration:

  • Young adults have the highest rate of uninsured of any age group. About 30% of young adults are uninsured – a rate that is higher than any other age group.
  • Young adults have the lowest rate of access to employer-based insurance. As they enter the job market, young adults often have entry-level jobs, part-time jobs, or jobs in small businesses that typically do not provide health insurance.
  • Young adults’ health and finances are at risk. Although many young adults (and others) don’t think they need health insurance, they are, to quote Secretary Sebelius, “one step away from an accident or catastrophic event.” In fact, one in six young adults has a chronic illness like cancer, diabetes or asthma and nearly half of uninsured young adults report problems paying their medical bills.

How Will Health Reform Provide Relief for Young Adults?

The Affordable Care Act requires health plans that offer coverage to young adults on their parents’ plan to make that coverage available until the adult child reaches the age of 26.

On May 10, 2010, the federal Departments of Health and Human Services, Labor, and Treasury (the IRS) issued the necessary regulations to implement the expansion of dependent coverage for adult children up to age 26. Some of the significant rules include:

Coverage Extended to More Adult Children
Health plans that offer dependent coverage must offer health insurance to enrollees’ adult children until age 26, even if the adult children no longer live with their parents, are not dependents on their parent’s tax return, or are no longer students.

This rule applies to both married and unmarried children, although their spouses and children do not qualify for coverage.

All Eligible Young Adults Will Have a Special Enrollment Opportunity
To avoid gaps in coverage, insurers must give young adults who qualify an opportunity to enroll in their parents’ health plan that continues for at least 30 days even if the health plan offers a regular open enrollment period sometime else during the year.

The Same Benefits at the Same Price
Health insurance plans that provide dependent coverage must offer an eligible young adult the same benefits that are available to similar individuals who did not lose health coverage because their dependent status ended. Additionally, the health plan cannot require the young adult to pay more for health coverage.

Affordable Premiums
According to a government analysis of this provision, adding young adult coverage would increase average family premiums by as little as .7% while allowing 1.2 million young Americans coverage under their parents' plan through an employer or the individual health insurance market.

New Tax Benefits for Young Adult Coverage

Under a change in tax law included in the Affordable Care Act, the value of any employer-provided health coverage for an employee's young adult child is excluded from the employee’s income through the end of the taxable year in which the young adult turns 26. This tax benefit applies regardless of whether the plan or the insurer is required by law to extend health care coverage to the adult child or the plan or insurer voluntarily extends the coverage. Additional tax rules include:

  • The tax benefit went into effect on March 30, 2010 and is, therefore, immediately available.
  • The tax benefit also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.
  • Employees can receive the same tax benefit if they contribute toward the cost of coverage through a “cafeteria plan.” This tax benefit is available immediately, even if an employer’s cafeteria plan has not yet been modified to reflect the change.

Premium Increases

Following a commitment from more than 65 health insurance companies to implement extended coverage before the mandated start date, Secretary Sebelius stated, “That’s great news for graduating seniors and their families who will get added security in exchange for premiums that are only expected to rise by .7%.”

Some critics of this provision claim that young adults – the least risky group for a health insurer – can purchase their own insurance at a lower cost than being added to their parents’ insurance. This may be correct in some areas of the U.S. for coverage with limited benefits. However, if available, all young adults should have access to primary care services and preventive care on a regular basis, be protected in case of a serious injury, and have access to health insurance if they have a pre-existing condition.

Note: The information in this article comes from health reform materials posted on the HHS, White House, and websites, linked below.

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