One of the most-celebrated provisions of the Affordable Care Act (ACA) is the ability for adult children to remain covered by a parent's health insurance policy until age 26. However, there remains some confusion about what exactly is covered. For example, can you use a Health Savings Account (HSA) to pay for expenses for a non-dependent child covered by your plan? Read on to learn more about the interplay between the ACA and the transition of your adult child to full independence.
What did the ACA change with regard to covering adult children?
Before the passage of the ACA, the ability of parents to continue insurance coverage on their high-school and college-aged children depended upon the specific plan. Although many plans would offer continued coverage as long as the adult child was enrolled in a full-time educational program (including college and graduate school), other plans were more strict, and would drop coverage on the child's 18th birthday -- even if he or she were still in high school.
Under the ACA, any individual under age 26 may be covered on a parent's plan -- even if this individual cannot be declared a dependent on the parent's income tax return. This has allowed many young Americans to continue health insurance coverage during the period of time they are attending school or finding their first job.
What if your adult child is not a dependent?
The extension of ACA coverage to those age 26 and under is not limited to those who are financially dependent upon their parents. In some cases, an adult child who is married and has dependents of his or her own may still qualify to be added to their parent's plan. However, depending upon the type of health insurance purchased, there may be additional restrictions.
For example, a high-deductible health plan (HDHP) permits the primary insured individual to open up a health savings account (HSA) to put aside pre-tax dollars for payment of qualified medical expenses. Ordinarily, anyone covered by the HDHP plan should be able to spend HSA funds on his or her own care.
However, if you have an independent adult child insured through your HDHP plan, you may not be able to use your HSA to pay expenses for this child. Although the ACA itself does not have any dependency restrictions, most HDHPs do -- only permitting HSA funds to be used to cover dependent expenses. Be sure to carefully review your HDHP policy before using HSA funds to cover a child's care if this child is not listed as a dependent on your federal income tax return.
What else should you know?
When your child turns 26, he or she will automatically be dropped from your health insurance plan. However, at this point your child will have 60 days to choose a new plan -- either from an employer or on the Health Insurance Exchange. Once your child has purchased his or her own health insurance plan, coverage will begin the next month. However, if your child purchases coverage before he or she turns 26 -- even if only the day before -- he or she will have continued coverage throughout this time.
Talk to places like Bailey Insurance Services for more information.
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