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Why Many Young Adults Might Lose Coverage If Health Law Falls

By Julie Rovner, NPR News

June 22nd, 2012, 8:47 AM

This story comes from our partner ‘s Shots blog.

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.

4 Responses to “Why Many Young Adults Might Lose Coverage If Health Law Falls”

  1. Paul says:

    Does anyone trust the Robert’s activist court? Look what they did to McCain-Feingold. Look what they did in the Bush v Gore ruling. In my opinion, by far, it is the most politically corrupt court in history.

  2. wendy says:

    If the Supreme Court rules against Obamacare, people will die. Seniors now receiving Donut Hole help will no longer get that help and they will stop buying the medication they can’t afford. Adult children with medical conditions will be tossed off of their parents policy and will no longer get the care they need. Preventive testing will end and the elderly will stop getting early screenings for serious conditions. Yes, people will die as a result of any decision to strike down Obamacare. The Supreme Court has the power of life and death.

  3. D. Smith says:

    Kudos for the health insurance companies that are considering keeping the coverage for young adults even if a vote passes to overturn it is the result from Congress. This is them stepping up and doing what is right, even though it may not be required! Young adults (19-45) are the largest group of uninsured in America. With coverage to continue for young people until age 26, this decreases this number tremendously. I am hoping that the elements of the Affordable Care Act that work are kept in place somehow.

  4. John says:

    In response to Wendy, I agree that adult children will have 1 extra year of coverage than they would had ACA not been created (25 years-26 years). One thing people fail to acknowledge is that if ACA is ruled Constitutional, and ACA continues forward as designed, those young adults will, more than likely, have to drop coverage anyways. This is due to the fact that ACA is closing the premium gap between older individuals and younger individuals from 7-1 to 3-1. This does not mean that older individuals will see a premium discount of greater proportion, but young adults will see rates hikes that double in some parts of the country. Essentially, premiums would look like they do in State Risk Pools. The way ACA is set up currently, this is inevitable.

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