New for 2023, Covered California will allow parents and stepparents to be added to individual and family coverage. There are numerous conditions the parent or stepparent must meet before they can be included on a health plan with other family members.
Adult Tax Dependents Eligible for Covered California Health Plans in 2023
The federal subsidies to lower health insurance premiums through Covered California center around IRS rules and regulations. Specifically, all the family members must show up on the primary tax filers federal tax return as either spouse or a dependent. Many families have been able to include adults as dependents on their taxes. Now, if the adult dependent is a parent or stepparent that individual can also be in the household’s health plan through Covered California.
Covered California reports that they do not have to make any changes to the enrollment software for consumers to include an eligible parent or stepparent on the application for health insurance. The actual eligibility of adult dependent is left to the consumer. The addition of adult dependents can have unintended consequences as the household size increase, which in turn increases the income threshold for Medi-Cal.
One condition of declaring an adult a tax dependent is that the primary tax filer provides more than one-half of that individuals support. If you are not already taking a parent or stepparent as a tax dependent, you need to thoroughly research if the adult is eligible to be your tax dependent. At a minimum, you should review the IRS publications and website pages related to a qualified relative. You should also consult with your tax preparer to see if the parent or stepparent meets the eligibility test to be included in the tax household as a dependent. There other conditions that must be met, in addition to financial support, to qualify as an adult tax dependent, such immigration and marital status.
Adding Parent or Stepparent Increases Household Size
When you add a household member that impacts the income categories for different programs. For example, a household of 3 (2 adults and 1 child) has a household income of $70,000. That income amount makes all of the family members eligible for a private health insurance plan with the subsidies through Covered California.
If a parent or stepparent is added, the household size is 4. If the household income remains $70,000, all three adults will be eligible for subsidies and a private plan, but the child will be Medi-Cal eligible. The child will lose the private plan and the subsidies because the household income for a household size of 4 must exceed $73,815 in order for the child to be eligible for the subsidies.
If the added adult dependent has income, such as Social Security, that income may have to be added to the household income. There are certain rules of when a tax dependent’s income is included in the household’s Modified Gross Adjusted Income. Generally, if the dependent must file a federal tax return because they owe federal income tax, then the income is included. Always check with your tax preparer to see if this is the case in your situation as the adult dependent’s income might be excluded from the MAGI calculation.
If the parent or stepparent has MAGI Medi-Cal, by being claimed as tax dependent in another household may cause the Medi-Cal to be terminated. Once the individual is part of your tax household, your income is then used to determine their Medi-Cal eligibility. If the household income is high enough the parent may not qualify for MAGI Medi-Cal
The big benefit for the adult dependent is the ability to receive a subsidy and enroll in a private health plan. The nice aspect of Covered California is that not everyone has to be enrolled in the same plan. For instance, the parent dependent can enroll in a Gold plan with one carrier while other household members select a Silver or Bronze plan with a different carrier.
The new rules do not allow the adult dependent to participate in any Covered California dental plans. Since there are no subsidies to reduce the cost of dental insurance through Covered California, this is not really an issue. There are many good and affordable off-exchange dental plans for adults. Finally, the adult dependent must live in the same California region as the Covered California applicant. They cannot live in another state or region and be included in the health plan.
If the adult dependent is eligible for Medicare, they are neither eligible for Covered California health plan nor the subsidy. However, many adult dependents who moved to the U.S. to live with family members do not qualify for Medicare. The ability to include parents or stepparents in a Covered California household can dramatically change the subsidies for all eligible household members.
There are many good reasons to include qualifying adults such as parents and stepparents within a Covered California household. There can also be unintended consequences such as making the entire household eligible for Medi-Cal and ineligible for the Covered California subsidies. The best approach is to understand all of the IRS rules regarding a qualifying relative and how the inclusion of the parent or stepparent will modify the eligibility of the household for the subsidies and Medi-Cal.
New in Benefit Year 2023: Parent and Stepparent as Dependents
Effective January 1, 2023, a new California law expands the definition of “dependent” for the purposes of enrollment in a Qualified Health Plan (QHP), to include a parent or stepparent of a qualified consumer. Under Internal Revenue Service (IRS) rules, this includes a parent or stepparent for whom the taxpayer provides over one-half of the individual’s support. Carriers will be required to provide coverage if the dependent resides in the carrier’s service area. Qualified Dental Plans (QDP) are not included in this law.
Assembly Bills 570 (2021) and 2127 (2022) expands the definition of dependent for health insurance coverage through Covered California to include parents and stepparents. The change affects both health plans purchased through Covered California and off-exchange directly from a health insurance company. Parents and stepparents who meet the IRS definition of a qualifying relative can be included in the households health plan beginning in 2023.
IRS: Whom May I Claim As A Dependent https://www.irs.gov/help/ita/whom-may-i-claim-as-a-dependent
Publication 501 (2021), Dependents, Standard Deduction, and Filing Information https://www.irs.gov/publications/p501
Assembly Bill No. 570 https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220AB570
Assembly Bill No. 2127 Health care coverage: dependent adults https://openstates.org/ca/bills/20212022/AB2127/