Benefits Q&A: When Should Coverage be Terminated for A Dependent Turning 26?

Question:

Our company sponsors a group health plan that offers coverage to eligible employees, spouses and dependent children. We understand that we must make coverage available to dependents up to the age of 26. But what does that mean, exactly? Should coverage be terminated on the dependent’s 26^th birthday, the end of the month, or some other date?

Answer:

The Affordable Care Act (ACA) generally requires group health plans to offer dependents coverage until the day before they turn 26, even those who are married, tax dependents or students. As an example, assume an employee’s dependent is turning 26 on July 17. The employer’s plan is required to offer them coverage through July 16.

However, if you are subject to the ACA’s employer mandate (generally, if you average 50 or more full-time employees) you may need to allow dependents to keep their coverage through the last day of the month in which they turn 26. In the example above, coverage would need to be offered through July 31 to avoid potential ACA penalties.

Finally, here are some more issues to keep in mind about adult dependents:

• Not all health plans handle termination at the age of 26 the same. Some even allow coverage to continue through the end of the year in which a dependent turns 26. Check your plan document or insurance certificates to determine whether this is the case.
  • Group health coverage for an employee’s child is excludable from the employee’s gross income through the end of the year in which the child turns 26.
• In addition, employees may use their FSA to pay unreimbursed medical expenses of their dependents through the end of the year in which the dependent turns 26.
• However, employees may not reimburse themselves from their HSAs for a dependent’s medical expenses unless they are the employee’s “tax dependent.” Dependents who are not “tax dependents” would be eligible to open their own HSAs.

For more information or if you have any additional questions, please reach out to your account team or a trusted advisor.