At Age 26 the Young Adult May Continue Coverage With a Self Only Plan for Up to 18 Months

President Obama signed the Affordable Care Act (ACA, often known as Obamacare) into law in March 2010. Most of its provisions were delayed until at least 2014, but some parts of the law—including extended dependent coverage for young adults—began to take effect in the first few months after the legislation was enacted.

This article will explain the dependent coverage rules in the ACA, and what you need to know about obtaining coverage for yourself or your young adult child.

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As soon as the ACA was signed into law, the Department of Health and Human Services (HHS), began publishing regulations to implement provisions in the legislation consistent with the required timelines.

One of the significant provisions in the ACA was an extension of dependent health insurance coverage to age 26, in an effort to ensure that young adults would have access to affordable health insurance.

Although this provision was scheduled to start on September 23, 2010, the then-Secretary of HHS, Kathleen Sebelius, obtained a commitment from the country's largest health insurance companies to start the implementation of dependent coverage in May 2010. For many young adults who were graduating from college that spring, this allowed them to avoid a gap in coverage.

Why Was Extended Dependent Coverage Needed?

Before the passage of the Affordable Care Act, many insurance companies dropped young adults from their parents' health plans because of their age and/or the fact that the young adult no longer met the IRS definition of a dependent—generally as soon as the young adult was no longer a full-time student. This left many high school and college graduates and other young adults with no health insurance.

And, according to information reported by the Obama administration:

• Pre-ACA, young adults were much more likely to be uninsured than other age groups. About 30% of young adults were uninsured—a rate that was higher than any other age group.
• Young adults have the lowest rate of access to employer-based insurance. Because young adults are new to the job market, they often have "entry-level jobs, part-time jobs, or jobs in small businesses that typically do not provide health insurance." This continues to be the case several years later, but access to parental health insurance has helped to bridge the gap. (Note that under the ACA, employers with 50 or more workers are required to offer affordable health coverage to employees who work 30+ hours per week, and waiting periods cannot exceed three months. For some young adults in entry-level positions, this rule has made coverage more available than it was pre-ACA.)
• Young adults' health and finances were 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 serious health problem like cancer, diabetes or asthma and prior to the ACA, almost half of uninsured young adults reported having difficulty paying their medical bills.

How Did Health Reform Provide Relief for Young Adults?

The Affordable Care Act requires health plans that offer coverage to dependent children on their parents' plan to make that coverage available until the adult child reaches the age of 26, regardless of whether the young adult is still considered a dependent for tax purposes.

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 the plan does not have to extend coverage to their spouses and children. And although prenatal care is covered for dependents, labor and delivery charges—which are the most expensive part of maternity care—do not have to be covered for dependents.

The rule applies in both the individual and group health insurance markets: It doesn't matter if the parents get health insurance via an employer or purchase it on their own, their young adult children can be covered on the plan as long as the plan extends coverage to any dependent children.

All Eligible Young Adults Had a One-Time Special Enrollment Opportunity: The requirement that young adults be allowed to remain on their parents' plans until age 26 applied to plan/policy years beginning on or after September 23, 2010. Many insurers implemented the provision earlier, but they all had to do so by their first renewal after September 23, 2010.

And all plans had to implement a special enrollment period—lasting at least 30 days—during which young adults who were not already on their parents' coverage were given an opportunity to be added to the plan.

This enrollment period was available regardless of whether it coincided with the plan's regular open enrollment period. It was available to young adults who had previously aged off of their parents' plans (under pre-ACA age limit rules), as well as young adults who had opted not to be covered on their parents' plans for other reasons.

Since then, young adults have been able to remain on their parents' plans until age 26, but have only been able to rejoin their parents' plans during regular annual open enrollment periods, or during a special enrollment period triggered by a qualifying event—young adults cannot simply join a parent's health plan whenever they like.

Premiums

A young adult who is 25 and covered under a parent's health plan may have higher premiums than a younger sibling on the same plan.

Under ACA implementation rules for plans sold in the individual/family (on-exchange or off-exchange) and small group markets, premiums are only charged for up to three children under the age of 21 in each family. So if a family has more than three children under age 21, premiums are only charged for three of them.

But premiums for people ages 21 and older are not limited by this rule, so a family will have to pay premiums for all children who are 21+, regardless of how many there are. Depending on the state, a dependent who is 25 may have slightly higher premiums than a dependent who is 21. And they will almost certainly have higher premiums than a dependent who is 15.

The ACA's premium rating rules do not apply to the large group market (50+ employees in most states, but 100+ employees in four states), where it's more common to see rates that are based on whether the employee has self-only coverage, employee + spouse coverage, employee + children coverage, or family coverage.

In this sort of scenario, an employee with family coverage (and more than one child) might pay the same premiums regardless of whether one child remains on the plan under the extended dependent coverage rules.

New Tax Benefits for Employer-Sponsored Young Adult Coverage

One of the sometimes unnoticed benefits of employer-sponsored health insurance is that the value of the coverage is excluded from the employee's income. If your health insurance costs $15,000 for the year (paid partly by you and partly by your employer), you don't pay tax on that $15,000. This is in contrast to people who buy their own health insurance, who face much more convoluted rules in terms of the tax-deductibility of their health insurance.

Under the Affordable Care Act, this benefit is extended to young adult children up to age 26. If employees choose to cover their young adult children until age 26, the value of the employer-provided health insurance for the young adult is excluded from the employee's income.

This benefit continues until the end of the taxable year in which the young adult turns 26 (some employers choose to let young adult children remain on the plan until the end of the year in which they turn 26, rather than dropping them from the plan as soon as they turn 26).

• The tax benefit went into effect on March 30, 2010, making it immediately available when the ACA was enacted.
• The tax benefit also applies to people who qualify for the self-employed health insurance deduction on their federal income tax return. Health insurance isn't always tax-deductible, but self-employed individuals can deduct their premiums without having to itemize deductions. In that case, they're allowed to deduct the premiums for young adult children who remain on their plan until age 26.

The Result

6.1 million young adults (ages 19 to 25) had gained coverage under the ACA by early 2016. More than half of them had gained coverage since the exchanges, premium subsidies, and Medicaid expansion became effective in 2014. But 2.3 million young adults gained coverage between 2010 and 2013, as a result of the ACA provision that allowed them to remain on a parent's health insurance plan until age 26.

And more than a decade later, kids who were in middle school when the ACA was enacted are still allowed to be on their parents' health coverage if that's what works best for them and their families.

Remaining on a parent's health insurance isn't always the best option: Sometimes it's less expensive to enroll in a plan offered by their own employer, or to enroll in a marketplace plan or Medicaid (based on their own income after they're no longer a tax dependent).

And sometimes a parent's plan is no longer a viable option because the young adult has moved to a different area of the country and there are no in-network medical providers nearby.

Or maybe a young adult would prefer the medical privacy that goes along with having their own coverage. Or perhaps they need more robust maternity coverage than they would have as a dependent on a parent's plan, and find that it's better to obtain their own coverage.

But giving families the option of keeping young adults on their parents' health plan until age 26 has reduced some of the stress that parents and their young adult kids would otherwise face during this transitional time, and provided a fallback option that helps millions of people maintain continuous coverage.

Summary

As a result of the Affordable Care Act, health plans that offer dependent coverage must allow dependents to remain on the plan until they turn 26. This applies to individual/family plans as well as employer-sponsored plans. Remaining on a parent's health plan may or may not be the best solution, depending on the family's specific circumstances.

A Word From Verywell

If you're a young adult or have a young adult child, it's important to consider all of the available coverage options before settling on the best choice. Keeping a young adult on a parent's health plan might be a good fit for one family, but a poor fit for another. This will depend on factors such as location (ie, are there in-network providers in the area where the young adult lives?), cost, and overall benefits provided by the plan. Some families will find that it's better for the young adult to obtain their own coverage (either in the marketplace, through Medicaid, or through their own or a spouse's employer-sponsored plan). But others will find that the best choice is to keep the young adult on a parent's health plan until they turn 26, and then seek another option at that point.

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Source: https://www.verywellhealth.com/dependent-coverage-for-young-adults-1738926

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