The Affordable Care Act of 2010 changed the definition of an “eligible dependent” to include Adult Children up to age 26.  For plan years that began on or after September 23, 2010, the definition of an eligible dependent has been changed to include a son, daughter, stepchild, adopted child or eligible foster child under the age of 27 in the relevant taxable year. The child need not be a dependent for tax purposes.

GROUP INSURANCE                For group health plans, the new law requires plans that offer coverage to children on their parents' plan to offer that coverage to the parent’s Adult Children until the Adult Child reaches the age of 26.  Thus, most group health plans renewing on or after September 23, 2010 will be changed to allow Adult Children as dependents “up to” the age of 26 (coverage ending on the 26th birthday.)

FLEX/HRA PLANS                     While the new law requires plans to include dependents up to age 26, it also allows you to offer pre-tax coverage to the Adult Child for the entire taxable year in which the Adult Child attains age 26.  Thus, you can include Adult Children as eligible dependents until the taxable year in which they become age 27 for your Flex Plan benefits (including the Med-FSA and pre-tax health insurance premiums) and for your Health Reimbursement Arrangement (HRA),   The new law also offers a special enrollment period for the Adult Children and allows the Flex Plan (Cafeteria Plan) to offer pre-tax coverage of Adult Children as of March 30, 2010.

For example, let’s say the Plan Year begins 1/1/2011 and the Adult child turns age 26 on 3/31/2011.   While the employer’s group health plans may define the Adult Child ineligible as of the 26th birthday, the Adult Child would be considered an eligible dependent for the Flex Plan (Med-FSA benefit) and Health Reimbursement Arrangement (HRA) for the full calendar plan year of 2011.   In addition, if your company allows COBRA premiums to be deducted out of your paychecks, the employee could use your Flex Plan (Premium Only Plan/Pre-Tax Insurance Benefit) to pay the Adult Child’s COBRA premiums pre-tax for the remainder of that taxable year. 

However, if the child was to turn age 27 on March 31, 2011, then the Adult Child would not be considered an eligible dependent during the entire plan year, even though they were under age 27 for the first three months of the year.

FLEX/HRA PLAN DOCUMENT AMENDMENTS                          If you have begun deducting the cost of COBRA or other health insurance premiums pre-tax during 2010 or allowing the expenses of an Adult Child for the Med-FSA benefit or if you would like to limit the eligibility of Adult Children to end on the 26th birthday, please send us an email (FlexAdmin (at) FlexToday.com) describing your practice (including when you made that change) so we can amend your plan before December 31, 2010.   

The new definition of a dependent for your Flex Plan (Med-FSA and pre-tax insurance premiums) and Health Reimbursement Arrangements will be:

“A dependent is generally someone who you may claim as a dependent on your federal tax return and also includes a child who is under the age of 27 through the end of the calendar year.”

An excerpt from the Department of Labor’s “Fact Sheet” Young Adults and the Affordable Care Act: Protecting Young Adults and Eliminating Burdens on Families and Businesses:

"Tax Benefit Continues Beyond Extended Coverage Requirement. While the Affordable Care Act requires health care plans to cover enrollees' children up to age 26, some employers may decide to continue coverage beyond the child's 26th birthday. In such a case, the Act provides that the value of the employer-provided health coverage is excluded from the employee's income for the entire taxable year in which the child turns 26. Thus, if a child turns 26 in March but stays on the plan through December 31st (the end of most people's taxable year), all health benefits provided that year are excluded for income tax purposes."

For more information on eligibility of Adult Children for your other group health plans, we suggest you contact your health insurance broker.  In addition, you may also refer to the following links:

IRS:
Affordable Care Act Tax Provisions
http://www.irs.gov/newsroom/article/0,,id=220809,00.html

DOL:   
Young Adults and the Affordable Care Act: Protecting Young Adults and Eliminating Burdens on Families and Businesses
http://www.dol.gov/ebsa/newsroom/fsdependentcoverage.html

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