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Insurance Coverage For Young Adults: A Guide To Health Reform Changes

Included in the Patient Protection and Affordable Care Act (PL 111-148) is a provision allowing young adults to receive health care coverage under their parents’ insurance policies until age 26. The policy aims to increase coverage among young adults with the least burden for these young adults or their parents.

According to the Health and Human Services department (HHS), about 30 percent of young adults have no health insurance, the highest rate among all age groups and representing more than one in five of the country’s uninsured. Young adults often enter the job market through entry-level jobs, part-time jobs, or jobs in small businesses, and thus are unlikely to have access to employer-sponsored health insurance.

While many believe that young people don’t need health insurance, one in six young adults has a chronic illness like cancer, diabetes or asthma, and nearly half of uninsured young adults report problems paying medical bills. As a result of the health reform legislation, HHS estimates that 1.2 million young adults will elect to stay on a parent’s health plan in 2011.

Coverage

The law takes effect for insurers already providing dependent coverage starting on or after Sept. 23, 2010. HHS Secretary Kathleen Sebelius has called on leading insurance companies to begin covering young adults voluntarily before the required implementation date to help avoid gaps in coverage for new college graduates and other young adults. Over 65 insurers are voluntarily continuing coverage for young adults who graduate or age off their parents’ insurance before Sept. 23.

Individual employers can decide when to offer the provision, however many are likely to do so during the open enrollment period, which tends to be in the early fall. Insurers not offering voluntary early coverage must offer young adults an enrollment period of at least 30 days to join their parents’ family plan or policy, even if the plan does not have an open enrollment period. Qualifying young adults must be provided with this enrollment period and a written notification of the enrollment opportunity no later than the first day of the first plan or policy year beginning on or after Sept. 23, 2010.

Insurers and employers that sponsor health plans will inform young adults of continued eligibility for coverage until the age of 26. While the law requires health plans to cover enrollee’s children up to age 26, some employers may decide to continue coverage beyond the child’s 26th birthday. The law does not apply to Medicare.

The law requires that coverage be offered to dependents of policyholders regardless of whether a child lives with his or her parents, attends college, is a dependent for income tax purposes, receives financial support from the parents or is married. However, the policy does not extend to the spouses or children of policyholders’ dependents.

Young adults under the age of 26 who were previously dropped from dependent coverage will be able to re-enroll as long as they do not have access to another employer-sponsored plan (such as if the child is working for a business that offers health benefits to employees). If an adult child has access to another employer-sponsored plan, insurers can generally refuse coverage, but only until 2014. Re-enrollment only applies to plans that already offer dependent coverage. If a company has such a plan, it must inform employees that their children, who may have aged out of the plan, will be eligible again starting Jan. 1, 2011.

Under the law, insurance companies are required to treat all dependents the same, regardless of age. Companies must offer young adults the same benefit packages that are available to other subscribers, and are not allowed to offer fewer benefits or charge more for these young adults. Only insurers that have provided dependent coverage are required to extend coverage to dependents up to age 26. Insurers that have not previously provided dependent coverage are not required to expand coverage to young adults.

Costs

According to HHS, parents will face a 0.7 percent increase in insurance premiums for adding dependents to their plans. Those premium costs will rise by an additional 1 percent in 2012 and 2013. For those who enroll adult children in dependent coverage, the average policy will cost $3,380 per dependent in 2011; $3,500 in 2012; and $3,690 in 2013.

Tax Implications

The health reform law also includes a tax provision allowing employees to exclude the value of any employer-sponsored health coverage for dependents from their income. These tax benefits went into effect March 30, 2010, and employees can exclude the value of any coverage provided to an adult child from March 30, 2010 through the end of the taxable year in which the child turns 26.

In addition, this expanded health care tax benefit applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Employees can also receive the same tax benefit if they contribute toward the cost of coverage through a cafeteria plan.

For more information, read the White House Fact Sheet and Q&A on the law, and visit the HHS website, healthreform.gov.