Missouri Extends Dependent Eligibility Age for Health Insurance
Julia M. Vander Weele, Saturday, March 01, 2008 | Filed under: Health Plans
Effective January 1, 2008, the Missouri Insurance Code was amended to require all group health, dental, and vision insurance policies to offer continued coverage to dependents up to age 25, regardless of student status. Though the law is likely preempted by ERISA for any self-funded health plan, employers whose plans are fully insured must comply. For the most part, insurance carriers have already taken the steps necessary to amend their insurance policies issued to Missouri employers.
While this change may be welcomed by employers who have grown weary of tracking and administering student status and dependent eligibility, the new law raises issues for employers who have previously linked their health plan’s definition of dependent to the definition found in Section 152 of the Tax Code. To the extent that Missouri law now requires a plan to provide coverage for a child who is neither a “qualifying child” nor a “qualifying relative” of the employee for federal tax purposes, the value of that coverage will be taxable to the employee. This means that an employer must “impute” taxable income to the employee and report that income on the employee’s W-2. It may also prevent an employee from paying such a dependent’s premiums on a pre-tax basis, through the employer’s cafeteria plan.
From a practical perspective, employers may have to decide how to value a dependent’s coverage if, as is typical, a plan has only single and family rates. For example, if there is no difference in premium for covering one child versus two children (and one of the two children is not a tax-qualified dependent), the plan sponsor must independently determine the value of the coverage provided to the child who is not a tax-qualified dependent, and thus the amount of income to be imputed to the employee.
State legislators might not have fully understood the consequences of their actions, but the Missouri Department of Insurance certainly does. According to a recent Departmental Bulletin, “It is recommended that employers consult a tax attorney regarding how to handle the imputed wages for any contribution they provide for dependents who are emancipated and no longer a dependent for tax purposes of the eligible employee/enrollee.” Good advice.