Health Reform Adds a Twist to College Graduation Celebrations

Once, parents were not the only ones celebrating a child’s college graduation — employers were too. While parents were looking forward to kids finally getting out on their own, employers were anticipating getting them off of their group health plan. But health care reform means that employers have to wait a little longer to break out the bubbly.

Before reform, generally most employers would keep dependent children on the group health plan up to ages 19 to 23 as long as they were full-time students. Therefore in many cases, a college graduation resulted in a “cessation of dependent status” that would be a qualifying event for COBRA continuation coverage purposes. So if certain COBRA notice, timeframe and premium payment rules were followed, the dependent child would receive an additional 36 months of health coverage. After that 36-month period expired, the child would be completely off the plan, and employers could then pop open the champagne bottles.

But health care reform now requires employer plans that provide dependent coverage to cover children up to age 26. And even more, plans and issuers cannot condition coverage on whether a child under age 26 is a tax-code dependent or a student. Instead, the term “dependent” can only be defined in terms of the relationship between the child and the plan participant (that is, the employee) — and cannot include: (1) financial dependency on or residency with the participant or primary subscriber (or any other person); (2) student status; (3) employment; (4) eligibility for other coverage; or (5) any combination of these factors. (Note that until Jan. 1, 2014, “grandfathered” health plans — those in effect before reform’s March 23, 2010 enactment — do not have to offer this extension to dependent children who are eligible for other employer-sponsored coverage).

Separately, the reform law also amended the federal tax code so that that dependent child coverage will continue to be tax-free (all the way to age 27) even if that child is not technically a tax dependent for income tax purposes. And there are lots of other issues to consider, as explained in The New Health Care Reform Law: What Employers Need to Know (A Q&A Guide) 2nd Edition and by federal agencies like the U.S. Department of Labor.

So now due to reform, theoretically, dependents won’t have a “cessation of dependent status” until age 26; and a COBRA qualifying event would be triggered at that time. Add in another 36 months, and the dependent could be on a group health plan up to age 29.

Hopefully, employers are buying good bottles of champagne that will age well, as they wait longer for dependents to age out of their plans.