QUESTION: Our company is an applicable large employer (ALE) that sponsors a group health plan covering eligible employees and their dependent children. We understand that the Affordable Care Act (ACA) requires us to offer coverage to dependents. At what point can we terminate a dependent child’s coverage as the child approaches age 26 without risking employer shared responsibility penalties?
ANSWER: To avoid employer shared responsibility penalties, an ALE must offer coverage to an employee’s dependent child (including a child who has been legally adopted or placed for adoption) through the last day of the month in which the child turns 26, not merely through the day before the child’s birthday. For this purpose, a dependent does not include a stepchild, a foster child, or a child who does not reside in the United States or a country contiguous to the United States and who is not a United States citizen or national (subject to the adopted-child exception), and a dependent does not include a spouse.
For employer shared responsibility penalty purposes, a child reaches age 26 on the 26th anniversary of the date the child was born and is treated as a dependent for the entire calendar month during which he or she reaches age 26. For example, if an employee’s child was born on April 10, the child is treated as a dependent for employer shared responsibility purposes through April 30 of the year in which the child reaches age 26. Coverage must be offered through the last day of April to avoid potential penalties, even though the general ACA dependent coverage mandate (applicable to all plans, not just ALEs) would only require coverage through April 9 (the day before the 26th birthday).
For more information, see EBIA’s Health Care Reform manual at Sections XI.B (“Requirement to Extend Coverage to Children Under Age 26”), XXVIII.D (“Assessable Payment (Penalty Tax) When Coverage Not Offered to Enough Full-Time Employees and Dependents (the ‘Subsection (a) Penalty’)”), and XXVIII.E (“Assessable Payment (Penalty Tax) When Inadequate Coverage Offered to Full-Time Employees and Dependents (the ‘Subsection (b) Penalty’)”). See also EBIA’s Group Health Plan Mandates manual at Section VII.B (“Required Coverage for Children Under Age 26”) and EBIA’s Self-Insured Health Plans manual at Section XIV.E (“Beneficiary Eligibility”).
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