Under Tennessee law, a health insurance plan is required to offer coverage to dependent children until at least 24 years of age for a child who is unmarried and financially dependent on his or her parent. Coverage must continue beyond the plan’s limiting age for disabled dependents.
The Affordable Care Act (ACA) requires health plans and issuers to make dependent coverage available for adult children up until age 26.
STATE DEPENDENT COVERAGE REQUIREMENTS
Applicable Health Plans
Tennessee’s dependent coverage laws apply to individual and group hospital or medical expense insurance policies or contracts that provide coverage for dependents.
Under Tennessee insurance law, coverage is required to continue for a child who has attained the limiting age under the policy if the child is and continues to be:
- Incapable of self-sustaining employment by reason of intellectual or physical disability; and
- Primarily dependent upon the policyholder for support and maintenance.
FEDERAL DEPENDENT COVERAGE REQUIREMENTS
Applicable Health Plans
Health plans, including insured and self-insured group health plans, that provide dependent coverage of children are required to permit an adult child to stay on family coverage until age 26.
Under the ACA, health plan coverage must be made available to qualifying young adults up to age 26. Qualifying young adults include sons, daughters, stepsons, stepdaughters, adopted children and possibly eligible foster children of the parent, regardless of the qualifying young adult’s marital status. It does not matter whether the qualifying young adults are tax dependents for federal income tax purposes. Parents may decide whether to add adult children to their plan, but there is no requirement to cover the child of a dependent child.
Dependent Student Coverage
A federal law (Michelle’s law) also extends coverage for students with a serious illness or injury who take a medically necessary leave of absence. Under this federal law, coverage is extended for one year from when the leave of absence begins unless, under the terms of the plan, coverage would terminate as of an earlier date. The ACA diminished the impact of Michelle’s Law, which will now primarily affect plans that provide coverage to dependent students who are age 26 or over.
When the ACA was passed, the federal tax code was also revised to provide that, for federal tax purposes, the value of employer-provided coverage for young adult dependents is excluded from the employee’s gross income through the end of the tax year in which the dependent child turns age 26.
Tennessee has no state individual income tax. Therefore, dependent coverage of adult children will be tax-free at the state level.
IMPLICATIONS FOR EMPLOYERS
Employers in Tennessee must follow the federal coverage requirements and make sure that their health plans cover adult children up to age 26. However, health insurance policies will need to continue dependent coverage longer than federal mandates for disabled dependents.
Since Tennessee has no state individual income tax, the cost of dependent coverage of adult children is tax-free at the state level. However, coverage for a dependent child that continues beyond the end of the tax year in which the child attains age 26 will be taxable at the federal level, unless the child qualifies as the employee’s tax dependent.