Most employers by now are familiar with the Affordable Care Act requirement that if health insurance is offered to employees and their dependents, the dependent eligibility must extend up to age 26.
What happens if those same young adults who are eligible for their parents’ employer-sponsored plans want to purchase their own coverage through the Marketplace (Exchange)?
Can they?
Will they be eligible for tax credits?
The answers are yes, and maybe.
The dependent coverage up to age 26 requirement first took effect in 2010. Grandfathered plans were given a little leeway, and were permitted to exclude dependents who were eligible for other employer-sponsored coverage. In 2014, however, the requirement to extend coverage to dependents up to age 26 — regardless of where the dependents live, their marital status or employment status — applies to all employer-sponsored plans. Of course, small employers are not required to offer any medical coverage to employees. If a small employer chooses to offer medical benefits and extends those benefits to dependents, the dependent eligibility must include all dependents up to age 26 under the same terms as those required of large employer sponsored-plans.
Although the dependent coverage mandate within the ACA is independent from the Employer Mandate portion of the ACA (also referred to as the Play or Pay Mandate), the two mandates create an interesting question of eligibility for tax credits through the Marketplace. Large employers subject to the Employer Mandate are required to offer Minimum Essential Coverage that is affordable and of minimum value to all full-time employees and their dependents or risk penalties in 2015. As the regulations are currently written, coverage sponsored by a large employer is deemed to be affordable if the cost of employee-only coverage is no more than 9.5% of an employee’s income. As a result, large employers might subsidize the cost of employee-only coverage much more than employee+dependent or family coverage. The requirement to extend coverage to dependents in combination with the affordability provision makes employee+dependent coverage or family coverage too expensive for some employees, but at the same time, acceptable under the Employer Mandate.
Employees (and their dependents) facing this conundrum are asking questions about their eligibility for premium tax credits through the Marketplace. Anyone can apply for coverage through the Marketplace, but eligibility for tax credits is limited. An employee who is eligible for employer-sponsored coverage that is affordable and of minimum value, is not eligible for premium tax credits through the Marketplace. Generally, the same holds true for dependents who are eligible for the same employer-sponsored coverage. There is one little twist though – a young adult who is eligible for a parent’s employer-sponsored plan but who is not claimed as a dependent on the parent’s income tax return, may be eligible for premium tax credits in the Marketplace. Eligibility for tax credits in the Marketplace is determined by the applicant’s household income. If a young adult is not claimed as a tax dependent, that young adult will not be considered part of the parent’s household, regardless of eligibility for the parent’s employer-sponsored plan. If the young adult’s income is within the income guidelines, s/he may be eligible for subsidized coverage through the Marketplace.
This issue has caused some confusion even among legislators in Washington. Judy Solomon, Vice President for Health Policy at the Center on Budget and Policy Priorities, tries to set the record straight in a blog post, later referenced by Kaiser Health News in a Q&A.
The bottom line is this: Young adults can obtain coverage through their parents’ plan (if available), through their own employer (if available), through Medicaid (if the state they are in has chosen to expand Medicaid under the ACA), or through the Marketplace. If not eligible for Medicaid, a young adult may be eligible for subsidized coverage in the Marketplace if they earn between 100% and 400% of the Federal Poverty Limit, are not claimed as a dependent on their parents’ income tax returns, and are not eligible for affordable coverage through their own employer.
