This is a multi-faceted answer depending upon the coverage type.
As you recall, effective March 30, 2010, the Affordable Care Act (ACA) mandated that group health insurance plans provide coverage for employees’ children up to the age of 26.
Under Code §105(b), a medical expense must be incurred by the employee, the employee's spouse, an employee's child who has not attained age 27 as of the end of the employee's taxable (calendar) year, or the employee's tax dependent for health coverage purposes in order for its reimbursement to be excluded from the employee's income.
Most Health Care FSAs use the definition of “child” as reflected under Code §105. This definition of “child” which includes: son, daughter, stepson, stepdaughter, adopted lawfully placed, foster children, does not require the adult child to be an income tax dependent of the parent as long as they are 26 at the end of the tax year.
How does this rule impact various types of benefit plans?
Coverage besides group health insurance
Some coverage like group dental insurance for example will end most commonly for adult children when he/she turns 19 unless they are a full-time student. A full-time student might be able to continue on a parent’s dental plan until age 25. The ACA did not require coverage for adult children.
Group health insurance (and any Health Reimbursement Arrangement if applicable)
When an adult child ages off the health insurance plan, coverage under the health plan terminates the day the individual turns 26 or the end of the month in which the adult child turns 26 depending upon the health insurance contract. This same rule would apply to participation in any Health Reimbursement Arrangement that is integrated with the underlying employer sponsored health insurance plan.
Health Care Flexible Spending Accounts (HCFSA)
Under the HCFSA, using Code §105(b) definition of dependent, the adult child’s claims remain eligible as a reimbursable expense for the employee (parent of the adult child) beyond when they lose health insurance coverage. The employee is able to submit expenses that were incurred through the end of the calendar year in which their “Eligible Child” turns age 26.
When do you offer COBRA?
Loss of dependent status will trigger a COBRA opportunity for the adult child.
For an individual enrolled in multiple lines of health coverage this could result in multiple offers of COBRA at different times. For example, the adult child might be offered COBRA on the dental plan at 19, the health plan at age 26 and the HCFSA at the end of the tax year in which they turned 26. This may require the employer to offer COBRA to the adult child 3 separate times for varying loss of coverage dates.
How does all of this impact permitted election changes?
Although turning 26 will cause the loss of health insurance coverage, the employee (parent) will only be permitted to change their health insurance coverage to drop the adult child from their health plan at that time.
The employee (parent) may not change their HCFSA elections at the time the adult child turns 26, because the loss of coverage on the HCFSA is the end of the tax year (December 31st). Participants in a non-calendar year HCFSA may change their HCFSA election at the end of the tax year as a result of the adult child ceasing to be eligible on December 31st.
The adult child would have a special enrollment right to join his/her employer sponsored group health plan when he/she loses coverage under the parent’s health plan, but would not be able to enroll in their employer’s HCFSA mid-plan year until the end of the calendar year when they lose coverage under the parent’s HCFSA.
Where can I find out how long an adult child can remain on a particular benefit plan?
When in doubt, make sure to check the terms defined in the insurance contracts and plan documents to see when dependent children lose coverage because it can vary by the type of coverage.