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Pay or Play: Who Qualifies as a Dependent?

Under health care reform, certain employers will be subject to the Pay or Play penalties if they do not extend health care coverage to employee's dependents.

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As implementation of health care reform moves forward, companies must take steps to determine if they’ll be subject to the “pay or play” penalties (also known as the “employer shared responsibility payment“).

The IRS has recently published proposed rules that provide guidance on how the Affordable Care Act (ACA) defines “dependents”.

This is critical to understand, because employers need to identify who exactly their health care coverage responsibilities must be extended to.

The Definition Provided

Here is an overview of what the proposed regulations stated in regards to an employer’s obligation and how dependents would be defined:

  • Starting in 2014, a large employer must offer health coverage to its full-time employees and their dependents
  • A dependent is defined as an employee’s child who is under 26 years of age
  • A dependent does not include other individuals, such as the employee’s spouse

An employer’s liability for the shared responsibility payment is triggered only by a full-time employee receiving a premium tax credit, regardless of whether any dependents are eligible for, or receive, a premium tax credit.

Transition Relief for Dependent Coverage

While the proposed regulations may help to clarify any questions regarding the “dependent” definition, the bigger question for many employers is this — what revisions do they need to make to their health plans to include dependent coverage?

To help companies that may need to make significant changes to adjust their plans accordingly, the IRS has provided transition relief with respect to dependent coverage.

What does the relief entail? As long as employers are taking steps in 2014 to offer dependent coverage during the 2014 year, they will not be liable for a penalty for that plan year.

Moving Forward

We hope that you find this content helpful as you seek to understand how health care reform will impact your business.

Please sign up for the free CBG Benefits newsletter to stay up-to-date on forthcoming regulations.

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Posted in: Benefits and Insurance, Legislation

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