Adults age 19-29 years old, are one of the largest and fastest growing groups of the uninsured. Unless they are students, dependents typically lose eligibility on their parent’s insurance on their 19th birthday.
In response, some states have changed the definition of dependents and extended it beyond the age of 18 for commercial insurance for students and non students. States control the definition of dependent coverage in the commercial insurance market, the state employee’s health insurance pool, and other public programs funded by state dollars.
Below is a list of State Initiatives
| State |
Dependent Definition |
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Colorado
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Effective January 1, 2006, unmarried children are considered dependents and remain eligible for health insurance until their 25th birthday, if they (1) maintain the same legal residence of their parent; or (2) are financially dependent on the parent.
Dependent coverage is paid for by the policy holder premium.
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Delaware
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Legislation passed in 2006, requires commercial health insurance to continue coverage for unmarried adult children with no dependents under a pre-existing family policy until those children turn 24 years of age, provided the children live either in Delaware or are full-time students.
There is an additional premium charge if parents opt to cover their dependents. The additional premium may not exceed 102 percent of the policyholder’s cost before the child turned 18.
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Illinois
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Dependents called to active duty between the ages of 19 and 23 shall remain a dependent (as long as they are full time students) after their 23rd birthday for the amount of time they spent serving. Cut off age is 25.
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Maine
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Requires insurance carriers to cover dependent children until age 24 if they have a mental or physical disability which prevent them from being enrolled (or continuing to enroll) in postsecondary education.
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Maryland
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Requires that an insurance company that provides coverage to dependents 18 or older who are enrolled in higher education full-time, may not cut off coverage to dependents of the same age if they are only enrolled in school part-time due to a documented disability.
Requires that a grandchild be a dependent of the policyholder and eligible for health insurance coverage as such if the child is in the court-ordered custody of the grandparent/policyholder, a financial dependent, unmarried, and within the age limitations of the policy.
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Massachusetts
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As part of the Massachusetts Health Care Reform Act, dependents can stay insured via their parents until their 25th birthday or for two years past dependency whichever comes first. In addition, young adults age 19-26 are eligible for a specific product designed for this age bracket.
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Michigan
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Effective January 1, 2007 - Requires any insurance policy that covers a dependent while they are enrolled in school, must continue to cover that dependent for up to 12 months if they take a leave of absence from school due to injury or illness. If the student ages-out of the policy during the 12 month period, the insurance is terminated.
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Minnesota
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Requires that grandchildren be covered immediately from birth under a grandparent’s policy if that child is financially dependent and living with the policyholder from birth. The limited age for dependents is age 19.
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New Hampshire
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Effective June 22, 2006 - Michelle’s Law requires insurance companies to continue coverage for dependents who otherwise would have aged-out of coverage if they are mentally or physically incapable of earning a living. The coverage must continue as long as the incapacity remains. The bill would also require coverage to continue for a year for dependents who are full-time students, even if they have gotten too old for dependent status, if they have had to take a medical leave of absence from school due to injury or illness.
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New Jersey
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At the option of the insured person, a dependent may be covered up to their 30th birthday, as long as they have no dependents of their own.
The insurance provider may charge a higher rate for this coverage, but the increase is not to exceed 3 percent of the premiums.
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New Mexico
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An individual or group health policy may not terminate coverage of an unmarried dependent before the dependent’s 25th birthday. This applies regardless of whether the dependent is enrolled in an educational institution.
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New York
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The state insurance department concluded that the statue NY Insurance Law 4305(c)(1) would be interpreted as including grandchildren as dependents for insurance purposes if they rely on the policy holder for support and maintenance.
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Oregon
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Requires definition of dependent to include elderly parents and disabled adult children.
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Pennsylvania
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Requires that if a full-time student whose studies are interrupted by service in the Reserves or the National Guard must be extended health care benefits as a dependent of their parent until they finish school, regardless of their age.
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Rhode Island
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Insurance carriers must cover unmarried dependent children up until the age of 19 or until 25 if the young adult is financially dependent and is at least a part-time student.
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South Dakota
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Legislation passed in 2005 states that dependents shall have access to insurance up until their 19th birthday. If the young adult is enrolled in an education institution, they are eligible for insurance until their 24th birthday. If the dependent remains a full-time student upon attaining the age of 24 but not exceeding the age of 29, the insurer shall provide for the continuation of coverage for that dependent at the insured’s option. Nothing requires the employer to contribute any portion of the premium for dependents that are full-time students and have attained age 24.
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Texas
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Effective September 1, 2003 - Dependents remain eligible for insurance up to their 25th birthday. Legislation passed in 2003, extends eligibility for health insurance to students 25 and over as long as they are full-time.
Also requires that, if a grandchild is a legal dependent of the insurance policyholder, the grandchild must be covered until their 25th birthday and as long as they remain unmarried. Coverage may not be terminated if the grandchild is no longer a dependent for tax purposes.
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Utah
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Utah requires insurance carriers to provide coverage for unmarried dependents until their 26th birthday. This requirement applies to dependents regardless of their educational status.
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Vermont
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Requires that an insurance company covers dependents after the age of 18, they must continue coverage for a dependent’s medically necessary leave of absence from school for up to 24 months. The Law also states that if a dependent is mentally or physically incapable of self-sustaining employment and chiefly dependent on the policyholder, they must not be dropped from the plan once they reach the limiting age.
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Washington
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Based on the Blue Ribbon Commission on Health Care Cost and Access, the State requires that, at the option of the insured person, a dependent may be covered up to the age of 25.
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Please remember the effect of the Working Families Tax Relief Act of 2004 (AFTRA) amended the definition of a dependent under Code 152.
The bottom line is that the value of reimbursements made on behalf of a dependent through a health care spending account, and premiums paid by the employer (or the employee pre-tax) toward health coverage for dependents, will not be included in the employee’s gross income, so long as the dependent is deemed either a qualifying child or qualifying relative .
For these purposes, in order to be a qualifying relative, the individual must meet all the elements of the definition except the gross income limitation.
What is a Qualifying Child?
In the new dependent definition of qualifying child, the child must meet four conditions:
- Bears a “relationship” to the taxpayer (must be a child of the taxpayer, or a descendent of that child, or a brother, sister, stepbrother or stepsister of the taxpayer, or a descendent of such a sibling); AND
- Has the same principal place of abode as the taxpayer for more than one-half of the taxable year; AND
- Does not turn 19 by the close of the calendar year in which the taxable year of the taxpayer begins, or is a student who does not turn 24 as of the close of that calendar year; AND
- Has not provided over one-half of his or her own support.
The definition of “qualifying child” makes two significant changes: it mandates that the child’s principal place of abode be with the taxpayer for more than one-half the taxable year, and it adds an age limitation. Thus, for example, an employee’s child who previously qualified as a tax code dependent under section 152 because of the amount of support the parent provided to the child may no longer qualify if the child exceeds the age limits. (Careful: In this case, however, the child may meet the definition of qualifying relative, and thus still be considered a dependent.)
What is a Qualifying Relative?
In the newly created dependent definition of qualifying relative, the relative must meet four tests:
- Bears a “relationship” to the taxpayer (or residency if no relationship); AND
- Gross income does not exceed, for 2005, $3,200; AND
- The taxpayer provides over one-half of the individual’s support; AND
- Is not a qualifying child of the taxpayer.
For purposes of the qualifying relative definition, a different definition of “relationship” was created. A person has a relationship to the taxpayer if he or she is a child of the taxpayer or a descendent of a child; a brother, sister, stepbrother, or stepsister; the father or mother, or ancestor of either; a stepfather or stepmother; a son or daughter of a brother or sister; a brother or sister of the father or mother; a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law; or, if not so related, an individual who has the same principal place of abode as the taxpayer and is a member of the taxpayer’s household for the taxable year.
What is the impact on employer-sponsored health plans?
IRC Section 105 generally excludes from an employee’s gross income employer-provided medical care reimbursements paid directly or indirectly to the employee for the medical care of the employee, the employee’s spouse and the employee’s dependents (as defined in IRC Section 152). WFTRA added an amendment to section 105 so that an individual’s status as a dependent under section 105 is determined without regard to the gross income limitation of the qualifying relative definition. In other words, individuals who make over $3,200 may still qualify as tax code dependents for section 105 purposes (so long as they meet the other elements of the definition).
IRC Section 106 provides that the gross income of an employee does not include employer-provided coverage under an accident or health plan. Thus, premiums and other amounts that an employer pays on behalf of an employee to an accident or health plan are not included in gross income (the same is true of premiums paid by an employee pre-tax through salary reduction). The extension of this benefit to contributions by the employer for coverage of spouses and dependents is outlined in IRS regulations explaining Section 106. Originally, WFTRA did not amend section 106 when they amended section 105. Thus, based only on WFTRA, qualifying relatives whose gross income exceeds the limit would not be deemed tax code dependents for section 106 purposes. However, the IRS issued guidance on and amended its regulations to conform the definition of dependent used for section 106 to section 105. So, the gross income limit will not be an issue for section 106 purposes either.
Fully insured plans and HMO contracts. For those employers with fully insured/HMO plans, employers should consult with their carriers/ HMOs to be certain that the language they use tracks the language used by the carriers/HMOs. Employers or their carriers/HMOs can use a broader definition of dependent, but there are tax consequences to the employees whose dependents do not fall within the new IRC Section 152 definition.
Regardless of the State requirements imposed on insurance carriers, employers cannot pre-tax employee contributions for benefits under a cafeteria plan for anyone not meeting the definition of a dependent under Code 152. If an individual (such as a child or domestic partner) does not meet the definition of dependent under section 152, the value of the benefits he or she receives will be imputed as income to the employee. The employee’s gross income for the year, as reflected in his or her W-2, will be higher and this higher amount will be subject to taxation.
