Understanding Healthcare Coverage for Dependent Children

Millennials and Gen X make up the majority of today’s workforce, many of whom are either starting families or watching their children graduate. Employers may wish to consider offering benefits for dependent children that appeal to these demographics. In this article, we discuss some plan options that are likely to be of interest to employees with dependent children, and how employees can take advantage of these benefits to maximize coverage and protection.

Dependent Children and Healthcare

Eligible dependent children for employer-sponsored healthcare plans may be biological, legally adopted, legal wards under guardianship, or covered under a child support order. With the passage of the Affordable Care Act (ACA) in 2014, federal law mandates coverage be available for dependent children up to the age of 26 regardless of student status.

Plans subject to certain state laws may have the option to cover children for a longer period. For example, Florida allows plans to extend health insurance coverage for unmarried dependent children up to age 30. Additionally, if a child is already enrolled as a dependent and prior to turning age 26 has a disability, coverage may be extended beyond age 26.

Note that the ACA’s definition of a dependent child only applies to medical plans and to groups with over 50 full-time employees. However, many insurance carriers and employers use the age 26 rule for all plans, including dental and vision plans, for consistency in plan administration.

Dependent Children and Out of Area Coverage

Employers can offer different healthcare plan designs to accommodate the needs of their employees whose dependents live outside of the service area. For example, an HMO plan typically limits coverage to a network in a specific geographical area, and there is no coverage outside that area except for emergency care. A PPO plan, however, has a national network of providers and facilities. While PPO plans are typically more expensive, employers with multi-state employees or whose demographics include older dependent children may consider offering both types of plans, so employees have the option to choose what makes the most sense for their families.

For college students specifically, while many schools offer a student insurance plan, typically family coverage through an employer that meets minimum coverage requirements by the school is the most economical for employees. However, overseas collegiate programs usually require that an international health plan be purchased through the school/organization.

If a dependent child is planning to travel abroad for a shorter period, there are short-term international travel plans available. These plans supplement the child’s domestic insurance and are generally very cost-effective.

Dependent Children and COBRA

If the employer is subject to COBRA, when dependent children “age out” of an employee’s family plan (turn 26), they will have the option to continue their coverage for up to 36 months. Employers are required to provide notice of this right to the child within 44 days of the loss of coverage. Children who choose to continue the plan are typically required to pay the full cost of the premium, and employers can charge and retain a 2% administration fee. Another sometimes less costly option for dependents who age out of their parent’s plan is coverage through their State or the Federal health insurance marketplace.

Dependent Children and Dependent Care Accounts (DCA)

An employer-sponsored DCA allows employees to set aside pre-tax dollars to help pay for day care expenses that are incurred due to the employees’ need to work. The maximum contribution limit is $5000 per year or $2500 if married and filing separately. Examples of qualified dependent care expenses include preschool, daycare, babysitting, summer day camp, after school programs and adult care. According to IRS Guidelines:

• Dependents on this plan are defined as age 12 or younger, or a spouse/tax dependent who is mentally or physically incapable of caring for themselves.
• Dependent care expenses must allow a single parent or both married parents to be gainfully employed or attend school full time during the time the child is in care.
• The dependent must live in the employee’s home for at least 8 hours each day.
• The day care center or program must meet State and local requirements.
• A babysitter can watch the dependent inside or outside the home, must be least 19 years of age and is not your spouse or someone the employee claims on their tax return as a dependent.

Dependent Children and Post-Tax Benefits

Nontraditional benefit plans are becoming increasingly popular amongst employers to appeal to a diverse range of employees who are looking to just start a family or have dependent children at various stages in life. These plans are oftentimes post-tax but may be an effective recruitment and retention tool, as they are still relatively unique in the benefits world.

Fertility assistance, adoption assistance plans, college planning assistance, college scholarships and student tuition reimbursement programs are just a few examples. Also, Lifestyle Spending Accounts (LSA) are a type of reimbursement account in which employers can provide funds for employees to spend on certain predetermined benefits. Employers have a lot of flexibility in determining how the money may be spent, including for dependents.

Employees want to work for an organization where they know their children will be adequately covered and cared for throughout their life stages. Innovo Benefits Group can guide you through all these options from exploration through implementation. We also offer outsourced benefits administration once your plans are in place.

Contact an Innovo Benefits Account Manager through our website for more information.