ACA coverage rule for dependents up to age 26

One of the most notable changes brought about by the Affordable Care Act (ACA) is the ACA coverage rule for dependents up to age 26. Employers offering health care plans to employees must include this extended coverage.

Purpose of the ACA coverage rule for dependents up to age 26

The ACA extended the eligibility for a child to be covered under a parent’s health plan from (usually) age 21 and if a full-time student to age 26 regardless of student status. The goal is to provide peace of mind to parents and their young adult children during a time in life when the dependent is likely to be completing their formal education or starting their career as an intern or in an entry-level job that may not be eligible for insurance coverage through the employer.

Plans included under the rule

The new law applies to all health plans on the market, both employer-sponsored health plans as well as to any plan offered on the individual market.

There can be no additional charge or separate policy required to cover a dependent through age 26 other than the normal cost of dependent coverage, and no limits or special rules can be added to dependents insured under the rule.

When coverage rules no longer apply to the young adult dependent – on the 26th birthday or at the end of the plan year following that date – COBRA rules apply.

When coverage actually ends

The choice of whether coverage ends on a dependent’s 26th birthday or at the end of the plan year during which the dependent turns 26 years old is up to the employer and its insurer.

Impact on employee taxable income

If the health plan extends coverage to the end of the plan year following the dependent attaining age 26, the employee’s (parent’s) premium payment for that coverage between the dependent’s 26th birthday and the end of the plan year continues to be excluded from taxable income.

For example, a dependent turns 26 years old on June 4 but coverage continues under the health plan until the end of the plan year on December 31. The premium paid by the employee on behalf of the dependent from June 5 through December 31 continues to be paid on a pre-tax basis.

Options for dependents turning 26 years old

When a dependent “ages out” of the ACA coverage rule for dependents up to age 26, he or she suffers loss of coverage under the parents’ plan. That loss may occur for a dependent on his or her 26th birthday or at the end of the plan year in which the dependent turns 26 years old. It is advisable that parents or the dependent check with the employer, agent, or plan administrator prior to that date to determine when loss of coverage occurs.

At that point, the dependent suffering loss of coverage usually has 3 options:

• The dependent may be eligible for a Special Enrollment Period (SEP) in another employer health plan. For example, the dependent may be eligible for health coverage under his or her own employer, but the change in their life situation (loss of coverage through their parents’ plan) comes in the middle of that employer’s plan year, not during open enrollment.

IMPORTANT: The dependent must contact their employer within 30 days of loss of coverage under the parents’ plan to have an SEP for the new plan.

• If the parents’ coverage comes from an employer with 20 or more employees, the ‘aged-out’ dependent may be eligible to purchase up to 36 months’ coverage from the employer through the Consolidated Omnibus Budget Reconciliation Act (COBRA).
• When neither of these is available, the dependent may be eligible for an SEP on the Health Insurance Marketplace. The deadline for the Marketplace SEP is 60 days following loss of coverage.

Ref: Young Adults and the Affordable Care Act: Protecting Young Adults and Eliminating Burdens on Businesses and Families FAQs

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