Parents can get a Tax Break for their Children's Health Insurance

Parents can get a tax break for adding children under 26 to their employer provided health insurance as part of the U.S. overhaul.

Under U.S. government regulations issued today, workers who pay to add children to their insurance can deduct the cost from their taxes if the money used to pay the premium isn’t already set aside as pretax cash.

While the rules letting children stay on their parents’ coverage don’t go into effect until Sept. 23, 65 insurers have agreed not to drop young adults graduating from college this spring. WellPoint Inc., the largest insurer by enrollment, Cigna Corp., UnitedHealth Group Inc. and Humana Inc. are among those that are part of the agreement.

“For years, getting a diploma also meant losing your health insurance,” said Kathleen Sebelius, the U.S. secretary of health and human services, in a statement. “Over the last few weeks, we’ve reached out to insurance companies and asked them to make this change immediately. And to their credit, we’ve gotten a terrific response.”

The regulations issued today require companies to set aside a 30-day enrollment period for parents to sign up eligible children. While a company can choose to allow sign-ups before Sept. 23, it must offer a 30-day enrollment period that starts by the beginning of its plan’s New Year. The rules say the tax break is retroactive to March 30.

The U.S. administration estimates there are 6.6 million uninsured adults ages 19 to 25 in the U.S., 2.4 million of who will potentially benefit under the new regulations. The administration estimated that between 190,000 and 1.6 million young adults will actually sign up for the coverage by 2011.

Health insurance premiums will increase because of the cost of adding young adults to their parents’ plans. The administration estimates that group insurance premiums will increase 0.7 percent between 2011 and 2012 because of the change.