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Fri June 22, 2012
Shots - Health Blog

Why Many Young Adults Might Lose Coverage If Health Law Falls

Originally published on Thu June 28, 2012 6:39 am

When it comes to health care, even the seemingly easy things become hard.

Take coverage for young adults under the Affordable Care Act.

It's one of the most successful — and popular — provisions of the law that have taken effect so far. Earlier this week the Obama administration announced that between September 2010 and the end of 2011, more than 3 million young adults under age 26 who would otherwise have gone without insurance gained coverage by remaining on their parents' health plans.

Last week, major health insurance companies, including United Healthcare, Aetna and Humana, announced they would continue to offer the benefit even if the Supreme Court strikes down the law when it issues its ruling, which is expected next week. Even some Republicans say they support the idea of letting young people remain on their parents' health plans.

But it turns out that might not be so easy.

"This could have adverse tax consequences, both to the employee whose child is on the plan and to the employer, for purposes of payroll taxes," said James Klein, president of the American Benefits Council, which represents large-employer health plans and companies that provide services to those plans.

How's that? Well, says Klein, the problem is that lots of those young adults are no longer dependents of their parents for tax purposes. So if the employer continues to provide coverage to that adult child, the value of that insurance could be considered taxable income to the parent. Under the health law, such coverage is not treated as taxable income.

As an example, he says, "if the value of adding a child onto your policy is $500 a month, that's $6,000 a year. So that's $6,000 of extra income on which you would be taxed, plus the payroll taxes that you the employee and the employer would be paying on behalf of that $6,000."

And while that could be a lot of money for some people, he says, the money is only part of the problem.

"It's the utter confusion that this would cause for employers. Because after all, there would be some 24-year-old kids who are legal dependents, for whom there would be no income tax owed," Klein said. "And then there would be others for whom they're not legal dependents and so there would be tax that would be owed. It would be extraordinarily confusing."

Then there's the question of whether workers and employers might owe back taxes for coverage that's been provided already. Klein says the Obama administration could theoretically take care of the problem by having the IRS issue some sort of clarification. But he worries that like everything else to do with the health law, even that could get caught up in partisan politics.

"I'm just afraid that rather than a quick resolution that provides clarity, both sides could arguably use this for their political benefit," he said.

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Transcript

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RENEE MONTAGNE, HOST:

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Here's one part of the Affordable Care Act that's been a success: Allowing young adults to continue to be covered by their parents' health insurance. It's a benefit just about everyone says they want to keep if the Supreme Court strikes down the law, that includes both Democrats and Republicans.

But as NPR's Julie Rovner reports, keeping in place benefits for adult children may turn out to be difficult.

JULIE ROVNER, BYLINE: The Obama administration this week reported that because of the Affordable Care Act more than three million young adults who would otherwise have been uninsured have gained health insurance coverage. Richard Kronick is a deputy assistant secretary in the Department of Health and Human Services. But he's also been a health policy researcher for 25 years.

RICHARD KRONICK: In that 25 years I have not seen anything like the response that we've seen to this provision. You know, the fraction of 19 to 25-year-olds with insurance has increased by 10 percentage points in a very short period of time.

ROVNER: Specifically, that population has gone from an insured rate of about 64 percent to a rate of nearly 75 percent in just over a year. Abby Schanfield is one of those three million young adults. She's a 20-year-old college student from Minnesota who was born with a serious neurological condition that's required lots of expensive care. She says knowing she'll be covered by her parents' insurance until she's 26 has been a small source of security in what for her is an otherwise uncertain world.

ABBY SCHANFIELD: Being able to stay on their plan until I am 26 and I have more time to figure out, to access a job and to determine where I am going in the future is incredibly important.

ROVNER: But Schanfield is the exception. Most young adults are healthy and not very expensive. That's why the insurance industry has mostly welcomed the chance to add them back to their parents' plans. Last week, three of the nation's largest health insurance companies - United, Aetna, and Humana - said they'd continue the benefit even if the Supreme Court strikes down the law. Mark Bertolini is the CEO of Aetna.

MARK BERTOLINI: Are we going to go back to families and say you know those 24, 25, 26-year-olds they've got to come off the rolls now? I don't think it's realistic politically and even from a cost standpoint to go back and say we're going to change all those benefits.

ROVNER: But it turns out there could be a problem with keeping the benefit in place if the court strikes down the health law. James Klein is president of the American Benefits Council, which represents mostly large employers who provide health insurance coverage.

JAMES KLEIN: This could have adverse tax consequences, both to the employee whose child is on the plan and to the employer for purposes of payroll taxes.

ROVNER: How's that? Well, says Klein, the problem is that lots of those young adults aren't dependents of their parents anymore for tax purposes. So, if the employer continues to provide coverage to that adult child, the value of that insurance could be considered taxable income to the parent.

KLEIN: If the value of adding a child onto your policy is $500 a month, that's $6,000 a year. So that's $6,000 of extra income on which you would be taxed, plus the payroll taxes that you, the employee, and your employer would be paying on behalf of that $6,000.

ROVNER: But Klein says the money is only part of the problem.

KLEIN: It's the utter confusion that this would cause for employers, because after all there would be some 24-year-old kids who are legal dependents, for whom there would be no income tax owed. And then there would be others for whom they're not legal dependents and so there would be tax that would be owed. It would be extraordinarily confusing.

ROVNER: Then there's the question of whether workers and employers might owe back taxes for coverage that's already been provided. Klein says the administration could theoretically take care of the problem by having the IRS issue some sort of clarification. But he worries that like everything else to do with the health law, even that could get caught up in partisan politics.

Julie Rovner, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

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