Prior to the recent changes discussed in this article, Wisconsin did not conform with two important aspects of the Patient Protection and Affordable Care Act (PPACA), the federal health care reform law that was signed into law on March 23, 2010. First, the PPACA required group health plans to extend dependent coverage to employees' children until age 26, but Wisconsin law provided that fully insured group health plans were required to provide dependent coverage until age 27. Second, even though the PPACA amended the Internal Revenue Code's definition of tax dependent in order to allow such health care coverage for adult children to be provided on a non-taxable basis for federal tax purposes, the Wisconsin tax law required employers to withhold and report on the value of coverage provided to many adult children through the end of the year in which the child turns 26. Wisconsin law will now substantially conform to these two federal rules thanks to the following changes:
Wisconsin Requirement to Cover Children Until Age 27 Ends January 1, 2012
Employers who maintain medical, dental, or vision plans that are subject to Wisconsin law (e.g., fully insured plans or multiple employer welfare arrangements) will no longer be required to cover children until their 27th birthday as of January 1, 2012. The new rule, which was included as part of the 2011 Wisconsin budget bill, generally provides that health plans, which offer dependent child coverage, are only required to provide coverage until the child's 26th birthday.
The new Wisconsin rule also provides that, until January 1, 2014, “grandfathered” health plans are only required to provide this adult child coverage if the child is not eligible for coverage under another employer-sponsored health plan. These two changes will operate to bring Wisconsin law into closer conformity with the coverage requirement under the PPACA.
Note, however, that the Wisconsin law currently retains a limited “full-time student” exception that is not required by the PPACA. Under this exception, health plans subject to Wisconsin law are required to provide coverage to children who are full-time students, regardless of age, if the child returns to school after being called to active duty: 1) while attending an institution of higher education as a full-time student, and 2) when the child was under age 27. Prior to the change, employers were only required to provide this extended coverage if the child was unmarried and did not have access to comparable employer-provided coverage. However, it is of note that the Wisconsin state legislature is currently considering a rule to eliminate this special full-time student exception, which would bring the Wisconsin law into conformity with the federal rules.
As a result of this Wisconsin law change, employers should take the following steps:
- Contact your insurance carrier to discuss the impact of the change for your health plans and whether a plan amendment will be necessary
- Review and update, if necessary, applicable open enrollment materials and other employee disclosure materials (e.g., summary plan descriptions)
Wisconsin Tax Code Conforms to Favorable Federal Treatment of Adult Child Coverage
On November 4, 2011, Governor Scott Walker signed a bill to conform the Wisconsin tax code to the federal rules with respect to taxation of health care coverage for adult children. The new law is retroactively effective to January 1, 2011.
The effect of the new Wisconsin law is that employers are no longer required to withhold or report on the value of coverage provided to their employees' adult children through the end of the year in which the child turns age 26. Accordingly:
- Employers who have not yet taken steps to comply with the withholding requirement under the prior rule do not have to change their current withholding practice.
- Employers who have already taken steps to comply with the prior rule may now stop withholding. Affected employees will be able to recover excess withholding when they file their 2011 tax returns.
- Employers will not have to report the value of non-dependent adult child coverage on the 2011 Form W-2.
Note that the Wisconsin tax rules have not changed for children of domestic partners or for coverage provided beyond the end of the calendar year of the child's 26th birthday. In such cases, unless the employee has certified to the employer that the child is a tax dependent of the employee, employers are advised to withhold and report the value of such coverage for federal and Wisconsin tax purposes.