Graduates under age 26 can go (or stay) on their parents’ plan, buy an individual policy or be covered by their employer. A little homework will help decide which plan is right.
By Kathy M. Kristof Personal Finance
May 8, 2011
Jay Carey, 23, had the option of going back on his parents’ health insurance plan when he left his last job to become a freelance graphics designer.
But that didn’t mean he should have.His family, and its health insurer, were based in Chicago. That meant a long commute for the Los Angeles-based Carey to see a plan physician. Besides, his dad, who probably would have to pay more for “family” coverage if Carey were to boomerang back onto the policy, wasn’t wild about the idea.
“It seemed like it would be a lot easier for me to get my own plan,” Carey said.
In this post-health reform era, millions of twentysomethings are likely to be faced with a similar choice. Thanks to changes implemented in the nation’s health law, people under the age of 26 can rejoin their parents’ healthcare plans. But they might have better options.
“You can’t just assume that going on your parents’ plan is the best choice,” said Carrie McLean, manager of customer service at EHealthInsurance in Mountain View, Calif. “There are a lot of things to consider.”
How do you wisely evaluate health insurance choices?
• Know your options
There are three good ways to get coverage if you’re a graduate under the age of 26. You can be covered by your own employer; you can go (or stay) on your parents’ plan; or you can buy an individual policy for yourself.
• Consider your health
If you have chronic health issues — diabetes, asthma, a heart condition or bipolar disorder, to name a few — you can make the evaluation simpler by dropping the individual policy option from consideration.
Individual policies are individually “underwritten,” which means they’re cheap when you’re young, healthy and not likely to use much in the way of medical care. Carey, for example, pays just $107 a month.
But they can be prohibitively expensive, if available at all, for those who are on medications and need regular medical attention.
Health insurance offered through employers, on the other hand, is group coverage. Group plans usually charge the same to every member of the group, regardless of whether they’re sick or healthy. That can make group insurance a great deal if you’ve got medical issues. But it can make it comparatively expensive if you don’t — even, in some cases, when the employer is subsidizing the coverage.
That’s one of the reasons that 20-year-olds should shop before joining a group plan. They might pay less on their own.
• Health insurance plans are not all alike
Some provide sweeping coverage, small co-payments and minuscule deductibles, while others restrict coverage for certain conditions (most commonly pregnancy) and require policyholders to pay a significant amount of costs upfront through substantial co-payments and deductibles.
Getting familiar with the details of each plan is pivotal to figuring your annual cost. That cost will hinge on five things: the premiums you pay, your deductible, your co-payments, the cost of filling prescriptions and whether all the health services you need are covered.
Be sure to pay attention to any restrictions the plan might impose on where you get care, particularly if you’re planning to piggyback on an out-of-town parent’s plan.
• Add up the parts
To evaluate your annual cost of coverage, make a grid with the plans you’re considering listed horizontally. On the vertical axis, you’ll want to leave ample space for several categories — premiums, deductibles, co-payments, prescriptions and projected cost for uncovered services. Your final line will be for the section totals.
To figure out your total cost, you have to project your healthcare use over the course of the coming year. Unfortunately, the only cost you know for sure is the monthly premium, so start there. Multiply each plan’s premium by 12 and put the annual cost in the total for premiums.
You’ll have to guesstimate the other costs, based on how often you typically use healthcare and what you use. For example, if you normally see a doctor just once a year for a check-up, you’d examine the plan details to see if that visit is covered completely (which is increasingly common) or whether it would be subject to a deductible and co-payments.
If a plan covers it, note the item and a zero. If the plan wouldn’t cover it or would impose a co-payment or deductible, plug in the appropriate amount. Do the same with any other anticipated healthcare use, from prescriptions to surgeries.
Of course, you can’t foresee all your possible healthcare needs for the year. But this exercise can give you the opportunity to make apples-to-apples comparisons of plan costs. And that can help you make a wise decision about which health insurance plan works best for you.