Costs of Extending Dependent Coverage
It's very hard for an individual to find reasonably priced health coverage, as a lone person represents high risk. An entire company of employees, however, allows the insurance company to spread that risk around. Each member of the group pays for the insurance, but not everyone will need to take advantage of the most expensive benefits. Adding young people to a risk group is desirable to insurers because they're generally very healthy.
That's why the Obama administration estimates that the costs of covering these young people up to age 26 will remain relatively low given how many people -- 1.2 million -- are entering the market. Parents adding a dependent back to their coverage will see their premiums rise 0.7 percent, according to the White House. In 2011, that translates to $3,380 per dependent ($3,500 in 2012 and $3,690 in 2013) [source: Pear]. Parents can't be charged more for those young adults that they add back to the plan; the law requires that prices be kept equal to those charged for other dependents who didn't lose coverage. Employees with individual plans won't see any additional costs, and the hope is that their premiums will be kept in check if fewer uninsured 20-somethings show up at the emergency room.
In addition to the peace of mind of knowing that their new graduate has health insurance, parents will receive tax breaks for the dependents on their plan who are under the age of 26. The cost of the premium can be deducted through the end of the taxable year in which the young adult turns 26. And turning 26 doesn't mean that a young adult will automatically be kicked off a parent's plan -- some states allow for adult children as old as 30 to retain coverage -- but that's the end of tax benefit and the federal requirement.
The government has provided information about the new regulations and tax rules to employers, but at least one company isn't happy about the change. Caterpillar, the construction equipment manufacturer, estimates that merely extending coverage to dependents would cost $20 million, in addition to the costs of enacting the rest of the legislation [sources: Jonsson, Tully]. It remains to be seen whether employers will opt out of providing coverage to dependents at all, but the White House remains hopeful that businesses will continue to do so. After all, a good health insurance plan has always been a way to attract the best and brightest workers.
To learn more about other provisions in the new health care legislation, see the links below.
Related HowStuffWorks Articles
- Alonso-Zaldivar, Ricardo. "New Coverage for Young Adults Will Raise Premiums." Associated Press; ABC News. May 10, 2010. (May 10, 2010)http://abcnews.go.com/Business/wireStory?id=10605909
- Jonsson, Patrik. "Health care politics: Obama fast-tracks new law's coverage of adult children." Christian Science Monitor. May 8, 2010. (May 10, 2010)http://www.csmonitor.com/USA/Politics/2010/0508/Health-care-politics-Obama-fast-tracks-new-law-s-coverage-of-adult-children
- Kaiser Family Foundation. "Explaining Health Care Reform: Questions About the Extension of Dependent Coverage to Age 26." April 2010. (May 10, 2010)http://www.kff.org/healthreform/upload/8065.pdf
- Nicholson, Jennifer L., Sara R. Collins, Bisundev Mahato, Elise Gould, Cathy Schoen and Sheila D. Rustgi. "Rite of Passage? Why Young Adults Become Uninsured and How New Policies Can Help, 2009 Update." Commonwealth Fund. August 2009. (May 10, 2010)http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2009/Aug/1310_Nicholson_rite_of_passage_2009.pdf
- Pear, Robert. "Rules Let Youths Stay on Parents' Insurance." New York Times. May 10, 2010. (May 10, 2010)http://www.nytimes.com/2010/05/11/health/policy/11health.html
- Sebelius, Kathleen. "A Long Overdue Change to Help Young Adults Get Coverage." The White House Blog. May 10, 2010. (May 10, 2010)http://www.whitehouse.gov/blog/2010/05/10/a-long-overdue-change-help-young-adults-get-coverage
- Stawicki, Elizabeth. "Law allows young adults to stay on parents' insurance until age 26." Minnesota Public Radio. April 19, 2010. (May 10, 2010)http://minnesota.publicradio.org/display/web/2010/04/19/young-adults-parents-health-insurance/
- Tully, Shawn. "Documents reveal AT&T, Verizon, others, thought about dropping employer-sponsored benefits." Fortune. May 5, 2010. (May 10, 2010)http://money.cnn.com/2010/05/05/news/companies/dropping_benefits.fortune/
- "Young Adults and the Affordable Care Act: Protecting Young Adults and Eliminating Burdens on Families and Businesses Fact Sheet." The White House. May 10, 2010. (May 10, 2010)http://www.whitehouse.gov/sites/default/files/rss_viewer/fact_sheet_young_adults_may10.pdf
- "Young Adults and the Affordable Care Act: Protecting Young Adults and Eliminating Burdens on Families and Businesses Q&A." The White House. May 10, 2010. (May 10, 2010)http://www.whitehouse.gov/sites/default/files/rss_viewer/qa_young_adults_may.pdf