The 2009-2011 Wisconsin state budget (2009 Wisconsin Act 28 signed into law by Governor Doyle in 2009) made several changes to Wisconsin’s law governing insurance contracts. These changes require group health plans to provide certain mandated health coverage to certain individuals. These changes affect fully-insured plans and governmental and school district self-insured plans.
This alert addresses the most significant new mandate: mandated coverage of adult children. Employers who have fully-insured plans or governmental/school district self-insured plans are now required to cover adult children meeting the law’s requirements on and after January 1, 2010. Employers affected by the new law are now required to offer coverage to adult children in two categories:
Category I: Adult Children Ages 18-26
Adult children in this category must be:
- 18-26 years old,
- Unmarried, and
- Not employed or, if employed, either (a) ineligible for coverage under a group health plan offered by the child’s employer or (b) eligible for the employer’s group health plan but the premium for such coverage exceeds the additional cost to the child’s parent for coverage under the parent’s plan.
Category II: Adult Children Who Were Full-Time Students under Age 27 When They Were Called To Military Duty
An adult child meets the requirements of Category II if he or she:
- Is not married,
- Was a full-time student age 26 or younger when called to active military duty in the National Guard or Reserve component of the U.S. Armed Forces,
- Applies for full-time student status within 12 months following the date the adult child completes his or her active duty obligation even if he or she is older than 26, and
- Is not employed or, if employed, either (a) ineligible for coverage under a group health plan offered by the child’s employer or (b) eligible for the employer’s group health plan but the premium for such coverage exceeds the additional cost to the child’s parent for coverage under the parent’s plan.
A covered plan must determine the premium charged for coverage of any dependent newly eligible for coverage as a result of this new law on the same basis as the premium is determined for a dependent who is 18 years of age or younger. For example, if a covered employee already has a family plan which does not charge additional premiums for additional dependents, then the covered employee or the adult child cannot be charged an additional premium for enrollment of the adult child in the covered employee’s family plan. However, if a covered employee has employee-only coverage and adds a newly eligible adult child, then the covered employee could enroll in a family plan and pay the premium associated with family coverage.
Tax Implications of Coverage of Adult Children
Generally, employer-provided health coverage for an employee’s dependent who is a “qualifying child” or “qualifying relative” (often referred to as an IRS tax dependent) is tax-free to the employee. For example, an employee’s child who is 18 or younger or who is a full-time student under age 24 often will be deemed a “qualifying child.” Coverage provided to such a child through the parent’s employer would be tax-free to the parent/employee.
This new law, however, requires plans to offer health coverage to adult children who may not be IRS tax dependents. Such coverage is not tax-free to the parent/employee. Employers must include the fair market value of the coverage provided for non-IRS tax dependents in the employee’s gross income.
If coverage for non-IRS tax dependents is offered through a cafeteria plan, an employee may make pre-tax contributions for such coverage so long as the entire fair market value of the coverage provided for non-IRS tax dependents is included in the employee’s gross income.