Two Different Rules
Dependent coverage under the ACA involves two separate rules that are easy to mix up. Both use the same age limit: children under age 26.
- The age 26 rule applies to most group health plans, whether or not the employer is an ALE. It controls how long children can stay on a plan that offers child coverage.
- The employer mandate applies only to Applicable Large Employers (ALEs). It affects whether an ALE may owe a penalty if dependent coverage isn’t offered.
The Age 26 Rule
If a group health plan (sponsored by an employer of any size) offers coverage to employees’ children, it has to let children stay on the plan until they turn 26.
Under this rule, a plan can’t limit coverage for children under 26 based on things like whether the child is married, a student, financially dependent, living with the employee, or eligible for other coverage.
Employers that aren’t ALEs don’t have to offer dependent coverage at all. But if their plan does, the age 26 rule applies.
Dependent Coverage and the Employer Mandate (ALEs Only)
Under the employer mandate, an ALE may owe a penalty under IRC §4980H(a) if it doesn’t offer coverage to at least 95% of its full-time employees and their dependents. For this rule, dependents are the employee’s children under age 26. Spouses are not included.
Other things to know
- The coverage offered to dependents must be Minimum Essential Coverage (MEC).
- Affordability for the employer mandate is based on the employee-only cost, not the cost of dependent coverage.
Many employers choose to offer coverage to spouses. Which family members are eligible is set by the plan’s eligibility terms and plan documents.
Important: This information is provided for general educational purposes. It is not legal or tax advice. How these rules apply depends on each employer’s specific circumstances, so employers should review their situation with their own legal counsel, ERISA attorney, CPA or tax advisor.