Under Indiana law, insured group health plans that cover dependent children must make that coverage available until the dependent reaches age 26. Indiana insurance law has special rules for disabled dependents. The Affordable Care Act (ACA) requires health plans and issuers to make dependent coverage available for adult children up until the age of 26.
STATE DEPENDENT COVERAGE REQUIREMENTS APPLICABLE HEALTH PLANS
In Indiana, any policy of accident and sickness insurance must comply with Indiana’s general dependent coverage law and the dependent coverage law that extends coverage of disabled dependents.
A “policy of accident and sickness insurance” does not include the following:
- Accident-only, credit, dental, vision, Medicare supplement, long term care or disability income insurance;
- Coverage issued as a supplement to liability insurance;
- Automobile medical payment insurance;
- A specified disease policy;
- A short term insurance plan that may not be renewed and has a duration of not more than six months;
- A policy that provides indemnity benefits not based on any expense-incurred requirement, including a plan that provides coverage for hospital confinement, critical illness or intensive care, or gaps for deductibles or copayments;
- Worker’s compensation or similar insurance;
- A student health plan;
- A supplemental plan that always pays in addition to other coverage; or
- An employer sponsored health benefit plan that is provided to individuals who are eligible for Medicare and not marketed as, or held out to be, a Medicare supplement policy.
The limiting age for dependent children covered by insured group health plans may not be less than 26 years of age. Dependent coverage cannot be restricted based on financial dependency, residency, marital status, student status, employment, eligibility for other coverage or IRS qualifications.
This requirement applies to natural and adopted children, stepchildren, and children subject to legal guardianship.
Coverage for a dependent may not terminate at the limiting age while the child is:
- Incapable of self-sustaining employment by reason of mental retardation or mental or physical disability; and
- Chiefly dependent upon the group member for support and maintenance.
Group members must provide proof of the child’s incapacity and dependency to the insurer within 120 days of the child’s attainment of the limiting age and at reasonable intervals during the two years following the child’s attainment of the limiting age.
FEDERAL DEPENDENT COVERAGE REQUIREMENTS APPLICABLE HEALTH PLANS
Health plans—including insured and self-insured group health plans—that provide dependent coverage of children are required to permit an adult child to stay on family coverage until age 26.
Under the ACA, health plan coverage must be made available to qualifying young adults up to age 26. Qualifying young adults include sons, daughters, stepsons, stepdaughters, adopted children and possibly eligible foster children of the parent, regardless of the qualifying young adult’s marital status. It does not matter whether the qualifying young adults are tax dependents for federal income tax purposes. Parents may decide whether to add adult children to their plan, but there is no requirement to cover the child of a dependent child.
DEPENDENT STUDENT COVERAGE
A federal law (Michelle’s law) also extends coverage for students with a serious illness or injury who take a medically necessary leave of absence. Under this federal law, coverage is extended for one year from when the leave of absence begins unless, under the terms of the plan, coverage would terminate as of an earlier date. The ACA diminished the impact of Michelle’s Law, which will now primarily affect plans that provide coverage to dependent students who are age 26 or over.
When the ACA was passed, the federal tax code was also revised to provide that, for federal tax purposes, the value of employer-provided coverage for young adult dependents is excluded from the employee’s gross income through the end of the tax year in which the dependent child turns age 26.
The Indiana tax code automatically conforms to the tax treatment imposed by federal law. Therefore, the cost of health coverage for eligible dependents in Indiana will not be subject to state tax up to the end of the year in which the dependent child attains age 26.
IMPLICATIONS FOR EMPLOYERS
Employers in Indiana must make sure that their health plans cover adult children up to age 26. In addition, health insurance policies need to continue dependent coverage past age 26 for disabled dependents.
Since Indiana conforms to the tax treatment imposed by federal law, the cost of dependent coverage of adult children up to the end of the year in which the child reaches age 26 is tax-free at the state and federal level. However, coverage for a disabled dependent that lasts beyond the end of the tax year in which the dependent attains age 26 will be taxable at the state and federal level, unless the child qualifies as the employee’s tax dependent.