From the Hotline: The Affordable Care Act and Insurance Coverage for Children

Question:  We have an employee who declined coverage because he has coverage under his parents plan.  He will be turning age 26 next month and the plan is telling him that he will no longer be eligible for benefits under that plan.  I understood this provision of the Affordable Care Act allows the dependent child to be covered for the entire calendar year when he turns 26 and that coverage would end on December 31, 2012.  Is that correct?

Answer: Under the terms of the Affordable Care Act, health coverage must be allowed to continue until the child reaches the age of 26. Sponsors of group health plans will be required to make dependent coverage available to children up until that day. Plan sponsors are free to elect more generous benefit designs, if available to them, such as covering dependents until the end of the year in which the child attains the age of 26 (but it is not required).  In this case, it looks like the parent’s plan does not have that provision.

What you are referring to is the IRS tax code (http://www.irs.gov/pub/irs-drop/n-10-38.pdf) that specifically amends §105(b) of the Code, effective March 30, 2010, and extends the general exclusion from gross income for reimbursements for medical care under an employer-provided accident or health plan to any employee’s child who has not attained age 27 as of the end of the taxable year.

So you’re right in that the parents and the child can claim the exclusion in that taxable year, but the employer’s plan can discontinue coverage when the child turns 26.