If you’re a young adult, you may be lucky enough to have health insurance coverage through a parent. But once you turn 26, you’ll need to transition to your own insurance. It can be challenging to sort through all the information and make the best decision about the coverage you need.
We talked to David Schuitema, senior director of benefits at Banner Health in Phoenix, AZ, to learn more about what you need to consider when you’re comparing plans and deciding when to make the switch.
Should I stay on my parent’s health insurance plan?
Most of the time, it’s better to stay on your parent’s plan until you are 26. There are a couple of exceptions. If you’re married, you might need another plan to cover your spouse or domestic partner. And if you move to another location and your parent’s plan doesn’t have any in-network providers there, you may need your own plan.
When exactly do I need my own insurance?
Depending on your parent’s plan, you should have coverage through either your 26th birthday or the end of the month when you turn 26. “About 60 days before you age out, you should start researching your options,” Schuitema said.
If you need to, you’ll be able to continue coverage through something called the Consolidated Omnibus Budget Reconciliation Act (COBRA) for up to 36 months. “COBRA is usually pretty expensive, but it gives you coverage while you’re searching for options,” Schuitema said. COBRA can cover any gaps between your old and new health insurance plans, and with it, you can be sure you can fill any ongoing prescriptions you need.
How do I know which plan is right for me?
To start, evaluate what the different types of plans will cost. There are a few expenses that are part of your overall health care costs:
- Premium. This is the amount you pay per month for your health insurance. You pay your premium whether you need any medical care or not. If you get your health insurance through your job, your company will typically deduct the premium from your paycheck. Your company may pay some or all of this cost as part of your benefits.
- Deductible. This is the amount you pay toward your expenses before your insurance company pays. You might not have to pay a deductible for some types of medical care, such as well visits and recommended screenings.
- Co-pay. This is the amount you pay when you see a doctor or have a medical test.
- Out-of-pocket maximum. This is the total amount you pay in a year. Once you hit this amount, your insurance should pay 100% of the rest of your expenses.
Also, when you’re evaluating plans, make sure your doctors, preferred hospitals and medications are included in your plan. There are two different ways they could be included:
- In-network providers. These health care providers partner with certain health insurance companies to provide care at agreed rates. Using in-network providers costs you less.
- Out-of-network providers. These health care providers aren’t part of your health insurance network, so using them could cost you more money.
What types of plans are available?
Most often, you can choose between these options:
- High-deductible health plans (HDHP). These plans have low premiums but high deductibles. So, you pay less per month, but you pay more when you need care. Really good plans cover medications for conditions such as heart disease, diabetes, chronic obstructive pulmonary disease (COPD) and asthma.
- Preferred-provider organizations (PPO). These plans have contracts with a network of doctors and hospitals, and your costs are lower if you get your health care from providers in the network. But you can still get some coverage from providers who are not in the network.
- Health maintenance organizations (HMO). These plans include a group of doctors and hospitals where you must go for your care. You can generally only get care covered outside of this group in an emergency. Premiums for HMOs are usually lower than for PPOs.
The Affordable Care Act requires health insurance plans to cover 100% of preventive care costs. This includes things like an annual physical, well woman visits, vaccinations and certain preventive care procedures and screenings. Check your policy for specific information as benefits vary based on age, gender, health status and family history.
“To choose the best plan, consider how much care you need,” Schuitema said. If you need regular treatment for medical conditions, you’ll want a plan with more coverage, such as a PPO. If you are healthy and only see a doctor for routine preventive care, you might want to choose a high-deductible health plan.
For many young adults with low health care expenses, the best option is an HDHP paired with a health savings account (HSA), which most employers offer. An HSA lets you save money that you can use to pay for health care expenses if you need to. You get a lot of tax savings when you put money in HSAs. “As long as you use the money for eligible medical, dental or vision expenses, it is never taxed,” Schuitema said. And many employers match the money you put into your HSA.
So, if you choose an HDHP and an HSA, you’ll have lower premiums—you’ll pay less every month for your health insurance. And when you do need health care, you can use the money you’ve put away in your HSA to pay for it.
“You can take the savings from the low premiums and put the money into the HSA. If you do this when you’re young, you can build up enough money to cover you in a year when you have high medical expenses,” Schuitema said.
If you’re not sure whether your plan is a good value, compare it to the Affordable Care Act (ACA) plans provided on healthcare.gov. “Those plans can be expensive compared to most employer plans,” Schuitema said. But, if you don’t have coverage through your employer, you’ll need to buy an ACA plan.
What if I need a lot of medical care?
If you’re in an accident or diagnosed with a serious illness, you might have high medical bills. If you add up your premium, deductible and out-of-pocket maximum, that’s the most you might have to spend in a year. If you can’t afford that amount, you may want to look into supplemental medical plans like accident insurance, hospitalization insurance or critical illness insurance plans. “They are often very affordably priced,” Schuitema said.
How can my parents help?
Your parents can help you understand the terminology and the factors you need to consider when you’re choosing a health plan. They’ve dealt with this before. They can explain the plan you currently have and what features it includes. And they can find out exactly when your coverage ends, so you know when you’ll need to have another plan in place.
The bottom line
If you’re a young adult with health insurance coverage through a parent, you’ll need to get your own health insurance when you’re 26. There are a lot of factors to consider, but if you do your research and evaluate your options, you’ll find the coverage that’s the best fit for you.