October 28, 2008
BACKGROUNDER: EXTENDING HEALTH INSURANCE COVERAGE
TO YOUNG ADULTS UNDER PA 08-147
By: Janet L. Kaminski Leduc, Senior Legislative Attorney
This OLR Backgrounder provides information on the provisions of Public Act 08-147 that extend health insurance coverage to young adults up to age 26 under certain health insurance policies subject to specified criteria. The law originally passed in 2007 (PA 07-185, as amended by PA 07-2, June Sp. Sess.) but was revised in 2008.
PUBLIC ACT 08-147 (§§ 8 & 9)
The act revises the criteria for determining when a child loses coverage under an individual or group private, fully-insured health (i.e., medical) insurance policy issued in Connecticut. The act generally extends coverage to an unmarried child until age 26, instead of age 19 (or age 23 if a full-time student). Although there is no law requiring a health insurance policy to cover children, a policy that offers coverage to a person's children must comply with the law's requirements.
According to the Connecticut Insurance Department, if dental, vision, or prescription drug coverage is combined with the medical benefits in a policy, the act also applies to those benefits. If the dental, vision, or prescription drug coverage is issued in a policy separate from the medical, the act does not apply to those benefits, but the insurer may choose to use the same eligibility rules as for the medical.
If a child previously lost coverage under a parent's or guardian's medical insurance because he or she no longer met the policy's definition of dependent under prior law but is eligible for coverage under the act, the child is permitted to reenroll in the plan. A person should contact his or her human resources department or insurer for information on an upcoming open enrollment period for this purpose.
Because the state does not have jurisdiction over self-insured plans (see below), the act does not affect self-insured employer-sponsored health care benefit plans.
INDIVIDUAL HEALTH INSURANCE POLICIES
The act requires coverage under individual health insurance policies to continue at least until the policy anniversary date on or after the date the child:
2. ends Connecticut residency, unless he or she is (a) under age 19 or (b) a full-time student at an accredited college;
3. gets coverage under his or her employer's group health plan; or
4. turns age 26.
The act applies to individual health insurance policies "delivered, issued for delivery, amended, or renewed" in Connecticut on or after January 1, 2009.
GROUP COMPREHENSIVE HEALTH CARE PLANS
The act requires group comprehensive health care plans to:
1. extend coverage eligibility to unmarried children under age 26 and
2. offer continuation coverage to the end of the month in which the child meets the criteria for losing coverage under an individual policy (listed above).
The act applies to fully-insured group comprehensive health care plans issued in Connecticut as of January 1, 2009.
By law, every carrier (i.e., insurer, health care center (HMO), hospital or medical service corporation, or fraternal benefit society) that issues group health insurance policies in Connecticut must make a group comprehensive health care plan available to “every resident employer who is not a small employer” (CGS § 38a-552(b)). The plan must include minimum standard benefits specified in statute, including coverage for catastrophic illness and a lifetime maximum coverage of $1 million (CGS §§ 38a-553 and 38a-554).
A “resident employer” is a foreign or domestic person, partnership, association, trust, estate, limited liability company, or corporation, or legal representative, including the State and each municipality, that employs at least one person during a calendar year, with the majority of workers employed within Connecticut (CGS § 38a-551(m)).
A “small employer,” defined in CGS § 38a-564(4), is a person, firm, corporation, limited liability company, partnership, or association that:
1. is actively engaged in business or self-employed for at least three consecutive months and
2. on at least 50% of its working days during the preceding 12 months, employed no more than 50 eligible employees, the majority of whom were employed within Connecticut.
“Small employer” does not include a:
1. municipality, association of personal care assistants, or community action agency purchasing health insurance through the Municipal Employee Health Insurance Program (MEHIP);
2. nonprofit organization purchasing health insurance through MEHIP, unless the secretary of the Office of Policy and Management and the state comptroller ask the insurance commissioner in writing to deem the nonprofit organization a small employer for the purposes of the health insurance statutes; or
3. private school in Connecticut obtaining health insurance through a health insurance plan or an insurance arrangement that an association of private schools sponsors.
STATE EMPLOYEE HEALTH PLAN
The law applies to the State employee medical plan. The comptroller is extending it to the prescription drug plan as well (but not the dental plan). For details, see Comptroller's Memorandum 2008-35 (Revised) at http://www.osc.state.ct.us/2008memos/numbered/200835.htm.
SELF-INSURED PLANS AND FEDERAL PREEMPTION
A self-insured plan is one that is not backed by an insurance policy. The employer instead funds and administers its benefit plan (i.e., pays claims covered by the benefit plan from its own money; it takes on the claim risk). The employer may outsource or delegate the plan administration to a third-party administer (TPA) (often an insurance company), but this TPA does not provide the employer with any financial backing or assume any financial risk associated with the claims.
Federal law, the Employee Retirement Income Security Act of 1974 (ERISA), as amended from time to time, governs employee welfare plans (including health care coverage plans). It specifically permits States to regulate the “business of insurance” but then exempts self-insured plans from State regulation, saying that self-insured plans are not insurance. Thus, states cannot regulate plans that are self-insured. (The self-insured plans still have to follow the requirements set out in ERISA around reporting, plan documents, benefits, and fiduciary duties.)
For more details on ERISA and its preemption of state benefit mandates, see OLR Research Report 2005-R-0753.
Under current federal Internal Revenue Service (IRS) regulations, a child must be either a “qualifying child” or a “qualifying relative” to be considered a dependent for tax purposes. The act is not based on the IRS definition of dependent and does not require a child to be claimed as a dependent for tax purposes in order to be eligible for coverage. Therefore, the value of the coverage provided for certain young adults under an employer-sponsored group insurance policy is a taxable fringe benefit, or taxable income, to the employee (i.e., parent, guardian).
To be a “qualifying child,” a person must meet five tests: relationship, age, residency, support, and joint return. A “qualifying relative” must meet four tests: not qualifying child, household member or relationship, gross income, and support. Table 1 explains these tests.
For more information, see IRS Publication 501 at http://www.irs.gov/publications/p501/ar02.html#d0e3180.
Table 1: Federal IRS Tests for Determining “Qualifying Child” and “Qualifying Relative” Status
Qualifying Child Tests
Qualifying Relative Tests
1. The child must be the taxpayer's son, daughter, stepchild, foster child, adopted child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.
2. The child must be (a) under age 19 at the end of the year, (b) under age 24 at the end of the year and a full-time student, or (c) any age if permanently and totally disabled.
3. The child must have lived with the taxpayer for more than half of the year (some exceptions apply).
4. The child must not have provided more than half of his or her own support for the year.
5. If the child meets the rules to be a qualifying child of more than one person, the taxpayer must be the person entitled to claim the child as a qualifying child.
1. The person cannot be any taxpayer's qualifying child.
2. The person (a) must be related to the taxpayer in one of the ways listed below under “relatives who do not have to live with you,” or (b) must live with the taxpayer all year as a household member (and the relationship must not violate local law).
3. The person's gross income for the year must be less than $3,400.
4. The taxpayer must provide more than half of the person's total support for the year.
Relatives who do not have to live with you. A person related to the taxpayer in any of the following ways does not have to live with him or her all year:
1. child, stepchild, foster child, adopted child, or a descendant of any of them;
2. brother, sister, half brother, half sister, stepbrother, or stepsister;
3. father, mother, grandparent, or other direct ancestor, but not foster parent;
4. stepfather or stepmother;
5. son or daughter of your brother or sister;
6. brother or sister of your father or mother;
7. son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law (any of these relationships that were established by marriage are not ended by death or divorce).
Information from the Connecticut Department of Revenue Services
For federal income tax purposes, the amount of a taxable fringe benefit is includable in an employee's wages and is subject to federal income tax withholding. Connecticut wages that are subject to federal income tax withholding are also subject to Connecticut income tax withholding.
An employer reports taxable fringe benefits in box 1 (wages, tips, and other compensation) of Form W-2. The total value of fringe benefits also may be noted in box 14. The value of fringe benefits may be added to other compensation on one Form W-2 or be reported in a separate Form W-2 (IRS Publication 525, Taxable and Nontaxable Income).
If the value of the health insurance coverage for a young adult is a taxable fringe benefit to the employee for federal income tax purposes, the employee's wages, as reported on Form W-2, will include the value of the employer-sponsored group comprehensive health care plan.
Consult Tax Advisor
An employee with questions about the tax consequences of keeping a child on his or her coverage under PA 08-147 should consult with his or her personal tax advisor.
COVERAGE CONTINUATION – COBRA
When a child loses coverage under a parent or guardian's health insurance plan under PA 08-147 (e.g., attains age 26), he or she is eligible for continued coverage pursuant to federal law (Consolidated Omnibus Budget Reconciliation Act (COBRA)). COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporarily continue coverage under the employer's group health plan, so long as the insured pays the required premiums. The premium for COBRA coverage cannot exceed 102% of the plan's group rate for coverage, plus 2% for administrative costs.
COBRA does not define dependent. Rather, for COBRA purposes, a dependent is one who is a dependent under the terms of the group insurance plan.
For more information about COBRA, see information from the U.S. Department of Labor at
State law. Connecticut law requires employers to comply with COBRA (CGS § 38a-538). It also requires each group health insurance policy, regardless of the number of insured people, to provide coverage continuation and conversion to individual benefits pursuant to Sections 38a-554(b) and (d), respectively (CGS § 38a-546).
CONNECTICUT INSURANCE DEPARTMENT INFORMATION
For related information from the Connecticut Insurance Department, see the following:
1. Bulletin HC-71 (August 5, 2008) http://www.ct.gov/cid/lib/cid/BullHC71.pdf
2. Consumer Update (August 5, 2008) http://www.ct.gov/cid/lib/cid/ConsumerUpdate20080805.pdf