Most Health Plans in Indiana Now Required to Cover Children to Age 24

Could Create Taxable Benefits in Some Instances

Recent legislative action and Indiana State Department of Insurance rulings require individual insurers, group insurers, HMOs, and the employers that buy this coverage for their employees to provide health insurance coverage to a covered person's children up to age 24, regardless of the child's status under federal tax law. This rule does not apply to self-funded employer health plans, but does impact insured employer health plans. Upon the request of the covered person, coverage must be granted to any child under age 24 who is financially dependent on that person, even if the covered person is a non-custodial parent.

Tax consequences. Some children who qualify for health coverage under this state requirement do not qualify as "dependents" under the federal Internal Revenue Code. Therefore, the portion of coverage paid for those children by the employer must be reported as taxable income to the employee. In addition, the employee's portion of premium payments for those children must be deducted from the employee's wages on an after-tax basis. Employers should establish procedures to identify children who need to be covered but who do not qualify as tax dependents in order to ensure the appropriate tax treatment of the benefits.

Who qualifies for health coverage up to age 24?
Relationship to covered person:	Financial support from covered person:	Creates taxable benefit?
Son or daughter (natural or adopted)	Any amount - financial support is assumed	Maybe, if the child does not qualify as a "dependent" by the Internal Revenue Code
Stepchild, child subject to legal guardianship, grandchild or other blood relative	At least 50 percent of the child's financial support	Maybe, if the child does not qualify as a "dependent" by the Internal Revenue Code

These requirements were effective on July 1, 2007. When requested by the covered person, coverage must be provided at the policy anniversary date, on renewal of the policy, during open enrollment, or when a qualifying event occurs under the "HIPAA special enrollment" rules.

The new state law is explained by the Indiana Department of Insurance in Bulletins 153 and 156. Access the full text of Bulletin 153 and Bulletin 156.

If you have questions regarding this new requirement, determining how it affects your payroll process, how it impacts your plan document, or how to communicate it to your employees, please contact Melissa Proffitt Reese, Christopher S. Sears, Katrina M. Clingerman, or Julie Herrick Williams.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.