By com abezouska dkattorneys Andrew J. Bezouska
, Davis & Kuelthau, Madison
Sept. 7, 2011 – Starting in January, Wisconsin’s health insurance requirements for certain adult children will more closely match federal coverage requirements enacted in last year’s health care reform legislation. As a result, insurers and self-insured governmental plans that provide dependent coverage will be required to cover adult children until age 26, regardless of marital status or the cost of health insurance premiums.
In 2010, amendments to Wisconsin insurance law became effective requiring health insurers and self-insured governmental health plans to provide dependent health insurance coverage to certain adult children. Specifically, 2009 Wisconsin Act 28 added Section 632.885 of the Wisconsin Statutes, which requires coverage for unmarried children over 17 but less than 27 years of age who either are not eligible for their own employer-sponsored coverage, or for whom the cost of employer-sponsored coverage exceeds the parent’s cost in adding the child to the parent’s plan. The law also provides coverage for certain full-time students, regardless of age, who were under 27 and were attending an institution of higher education on a full-time basis when they were called to active duty in the National Guard or in a reserve component of the U.S. Armed Forces.
Later in 2010, the Patient Protection and Affordable Care Act of 2010 created a federal requirement for group health insurance plans and health insurers to cover adult dependents as part of the health care reform legislation. Unlike Wisconsin’s requirement, the federal requirement mandates coverage until the adult child reaches age 26, regardless of the child’s marital status and regardless of the cost of insurance. Prior to Jan. 1, 2014, certain existing plans that do not make material changes and are thus “grandfathered” under the Affordable Care Act are not required to provide dependent coverage for an adult child who is eligible for other employer-sponsored coverage.
Wisconsin requirements closer aligned to federal coverage
Wisconsin’s Budget Bill, 2011 Wisconsin Act 32, modifies Wisconsin’s insurance requirements once again, bringing them more closely in line with federal coverage requirements for adult children. Effective for insurance policies first established, extended, modified, or renewed on or after Jan. 1, 2012, or later for certain collectively bargained plans, insurers and self-insured governmental plans that provide dependent coverage are required to cover adult children until age 26, regardless of marital status and without the comparison of premiums in the prior law. Also, prior to Jan. 1, 2014, “grandfathered” plans (as defined in the Affordable Care Act) are not required to provide dependent coverage for an adult child who is eligible for other employer-sponsored coverage. The new law maintains the coverage provision for full-time students called to active duty in the U.S. Armed Forces, without the requirement that the individual be unmarried and without the premium comparison requirement.
Although Act 32 partially federalizes insurance requirements related to adult children, the law does not incorporate the extension of the federal tax exclusion for these individuals into the state tax code. One of the effects of federal health care reform legislation was the amendment of the Internal Revenue Code to extend the tax benefits for medical care under an employer-provided health plan to adult children. Based on the application of the Internal Revenue Code in effect prior to the enactment of the federal coverage requirements, those adult children who did not qualify as tax dependents under Section 152 of the Internal Revenue Code and who were covered under employer plans would create income tax liability for covered employees. The Health Care and Education Reconciliation Act of 2010, signed into law one week after the Affordable Care Act, amended Section 105(b) of the Internal Revenue Code to extend the exclusion from gross income for health insurance premiums and medical reimbursements provided under an employer-sponsored health plan. Specifically, the exclusion was extended to apply to coverage of an employee’s child who has not attained age 27 as of the end of the taxable year.
State income tax rules generally follow the federal rules, but the specific provisions related to the exclusion for adult children have not been incorporated into the state tax code. As a result, the value of coverage provided to individuals who are not tax dependents under the Internal Revenue Code (in accordance with the pre-amended federal rules) will still be imputed as Wisconsin income. The Wisconsin Department of Revenue has indicated that the value of the coverage is determined by an individual’s employer and insurance provider, but the Department has not provided specific guidance on the calculation for imputing income. In guidance provided in the domestic partner context, the IRS has advised that the amount of income to be imputed will be the reasonable fair market value of the coverage provided to the nonqualifying dependent minus any amount the employee has paid for such coverage.
Employers sponsoring self-insured plans may need to take responsibility for amending plan documents to comply with the new requirements. Employers with fully insured plans, however, may be able to rely to a greater extent on their insurers or administrators to incorporate changes.
About the author
Andrew J. Bezouska is an associate with Davis Kuelthau, Madison. He focuses his practice in the area of employee benefits, providing compliance advice covering a wide range of retirement and welfare plan issues. Andrew represents employers in both the public and private sectors.