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New Health Insurance Choices for Young Adults

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The Affordable Care Act, known as Obamacare, is altering the health insurance landscape for college students and other young adults. Unfortunately, many parents fail to fully consider all the options and end up spending more than necessary for student health insurance.

For some parents, there are great advantages to keeping adult children on a parent’s employer-sponsored plan—which insurers must allow until age 26 under the Obamacare rules. (Some employers won’t have to comply with this rule until 2014.) Many other parents would be better off choosing newly enhanced college health insurance plans. And yet others would benefit from the new Obamacare health insurance marketplaces or other options.

How to evaluate today’s insurance options for college students and other young adults…

COLLEGE HEALTH PLANS

Until recently, the health insurance plans offered to students by their colleges often had high deductibles, low coverage limits, no coverage for preexisting conditions and other major flaws. That’s no longer true. The new Obamacare rules require these college health plans to eliminate these flaws by 2014, and most have done so already.

Exception: “Self-funded” college health plans—that is, plans in which the college itself pays covered health costs rather than establish a group plan through an insurance company—are not required to comply with many of the new rules until the fall of 2015. In practice, most already are doing so.

College health plans tend to charge lower insurance premiums than other group health plans, such as employer plans or union plans, under the new rules. That’s because most students are young, and young adults are far less likely than older ones to suffer from expensive health problems. Added ­bonuses…

  • College plans often provide coverage even when traveling abroad, something few other health plans do.
  • A generous financial-aid package might cover the premiums.

Helpful: A student who loses access to a college health plan midyear, perhaps because he/she has left school, will qualify for a special enrollment period to obtain Obamacare coverage and likely would qualify for a special enrollment period to join a parent’s employer’s health plan as well. (Similarly, a student who loses access to a parent’s employer’s health plan, perhaps because the parent loses the job, typically will be able to obtain access to a college health plan midyear.)

OBAMACARE EXCHANGES

The new Obamacare health insurance marketplaces, also known as exchanges, will be a source of affordable, high-quality health insurance for some young adults starting in 2014—but it won’t be the best option for many college students.

The key factor is whether a college student’s household qualifies for tax credits to help pay for coverage purchased through these exchanges. (See the box at left for more information about tax credits.) If it doesn’t qualify, a college student will very likely get a better deal on insurance through his college’s health plan. Still, it is worth checking the rates on the exchange in your state before signing up for ­coverage.

But there are a few twists to keep in mind…

Tax-credit eligibility is based on the parents’ income if the college student is claimed as a dependent on their income tax return, as most are. Thus a student can have little or no income and still not qualify for the tax credits.

People are eligible for the Obamacare exchange only in their state of residence, for the most part. For a college student, that might not be the state in which he/she is attending school. That could be an issue, because some of the most affordable plans available through the exchanges restrict policyholders to a specific network of health-care ­providers.

A student going to school out of state might have no choice but to see out-of-network providers, resulting in high out-of-pocket costs.

Exception: A few states appear to be willing to accept someone in an exchange if he/she lives in the state, even if he is not an official resident of the state.

It probably does not pay to stop claiming as a dependent a young adult whom you still are supporting just to have him qualify for the tax credits on his own. Giving up the dependent tax deduction almost certainly will cost you more than you save in insurance premiums.

MEDICAID

Medicaid provides free or ultra-low-cost health coverage for households that have very low income (or very high medical bills). In many states, the program is expanding in 2014.

Generally, a household’s income must be below 133% of the federal poverty level to qualify, though rules vary by state. That 133% cutoff is $31,322 for a family of four as of 2013, for example. Contact your state’s insurance department for details. (Type “department of insurance” and your state into a search engine.)

Weighing this option: Medicaid coverage is free or costs very little, so it likely is the student’s best health coverage option if he qualifies. But if a student is claimed as a dependent on his parents’ tax return, his eligibility for Medicaid coverage will be based on his parents’ household income, not his own. A student who attends college out of state should confirm that the Medicaid available through his state of residence will be accepted by health-care providers on or near his campus in a different state.

EMPLOYER HEALTH PLANS

Adult children now can remain on their parents’ employer-provided insurance until age 26—in fact, some employer plans let them stay on the plan even longer. But just because a child can remain on a parent’s employer-provided insurance doesn’t mean that he should. Many employers are reducing or eliminating the share they pay for premiums covering dependents, forcing employees to pay sizable sums out-of-pocket to add a child.

Some employers still do subsidize the health insurance premiums, however, so it’s definitely worth comparing the cost of this insurance coverage to other available options. That is, assuming your employer’s coverage provides adequate in-network health-care options in the area where your adult child will be living—it might not if your child is going to school out of state. However, there are two reasons why it still might be worth keeping your adult child on your employer’s health insurance plan, even if this seems to cost a bit more than other options…

The premiums you pay to obtain insurance through your employer probably are paid with pretax dollars, meaning that you essentially receive a discount on the amount.

Families with more than one child often can save money by keeping all the children together on a parent’s employer plan. Employer plans often “bundle” coverage for children-—employees pay the same amount whether they add one child to their coverage or multiple children. That can make employer plans a relative bargain for families with more than one dependent child.

Helpful: If it does make sense to keep your kids on your employer plan—but that plan does not have in-network health-care providers where the child is living or attending school—suggest to the adult child that he schedule checkups for when he comes home for visits or on school breaks.

Evaluating Campus Health-Care Facilities

College health insurance plans have improved quite dramatically in recent years, but the quality of the health care offered by campus health services and counseling facilities remains extremely uneven.

Trust your eyes when you visit these facilities—those that appear clean and well-organized are more likely to provide quality care. It’s a good sign if a facility is accredited by the Accreditation Association for Ambulatory Health Care, Inc. (aaahc.org).

Students can seek care off campus if campus health-care facilities are not of high quality. (Some college insurance plans require that participants first obtain a referral from a campus medical provider.)

Better yet, don’t enroll your student in a college that has low-quality health-care facilities. This often is a warning sign that the college does not pay sufficient attention to its students’ welfare.

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Source: Stephen L. Beckley, founder of Stephen L. Beckley and ­Associates, a consulting company based in Fort Collins, Colorado, that advises colleges and universities about their health-services centers and student health plans. He served as a consultant to the American College Health Association’s Task Force on Insurance. hbc-slba.com

Date: December 15, 2013 Publication: Bottom Line Personal
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