Graduates Without Health Coverage Should Consider Their Parents’ Plan

In past years, a student’s graduation could mean leaving behind not only the classroom but also health insurance coverage, since family plans often stopped covering dependent children once they left school.

The health-care overhaul has changed that: Adult children can now remain on their parents’ plan until age 26, with few exceptions. (More on that later.) But even if coverage under a family plan isn’t an option, the new law has helped ensure that some of the other choices available to young adults offer better protection than they have in the past.

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Graduates Without Health Coverage Should Consider Their Parents' Plan

For many graduates, staying on their parents’ plan is likely to be the best option. “Most employer plans have good benefit packages,” says Sara Collins, a vice president at the Commonwealth Fund, a private organization that studies health-care issues. Keeping an adult child on the family policy probably won’t significantly affect the premium, his or her existing conditions continue to be covered and the new graduate can keep using the same doctors.

Rochelle O’Sullivan is relieved that she can stay on her mother’s plan after she graduates from Boston University this spring. The 22-year-old is on crutches after breaking her hip when she slipped at the airport on her way home to San Francisco for spring break in March. Having health insurance while she mends is critical. But once she kicks her job search into high gear, O’Sullivan doesn’t want health insurance concerns to get in the way.

Questions and Answers

See Michelle Andrews answer consumer questions about their health insurance:

“I’m worried about getting a job, getting experience,” says the mass communications major. “And if that means taking a job without insurance, I’d do that.”

The law applies to adult children whether or not they live at home or are financially independent. Even married children can stay on their parents’ health policy until age 26.

The biggest wrinkle for young adults: If they take a job whose benefits include health insurance, they can’t choose to stay on their parents’ plan.

If that job offers good coverage, that’s not a problem. But new grads often take entry-level or part-time jobs, which can come with limited-benefit plans that offer low coverage limits providing little protection if they actually get sick. According to the Department of Health and Human Services, however, even inadequate, so-called “mini-med” policies count as insurance, and if young adults are offered such coverage, they can’t be covered under their parents’ plans. Once the health-care law is fully implemented in 2014, mini-med plans will be phased out.

The Bryant family has been negotiating this tricky period. Kelli and Kirk Bryant’s oldest son, Dylan, 21, graduated last September and was working part time at a retailer while looking for a full-time job. The retailer offers a limited-benefit policy with $50,000 in coverage annually, not nearly as good as the comprehensive plan the family has through Kirk’s job at a hospital in Lincoln, Neb.

The retailer said Dylan wasn’t eligible for its insurance, but Kelli was worried that that was a mistake and that he might be on thin ice if questions arose.

That’s no longer a concern. Recently Dylan took a new part-time job as a security specialist at a mental health facility. The new job doesn’t offer health insurance, leaving no doubt that Dylan is free to be covered under the family plan. Ironically, being offered a job without health insurance is, in this instance, a good thing, says Kelli, who says she has contacted one of her U.S. senators about tightening up the definition of on-the-job insurance for young adults.

Of course, many adult children don’t have access to a family health plan. Their parents may not have coverage on the job. Or if the parents are on Medicare or are part of a retiree-only health plan through a previous employer, the new provisions extending coverage up to age 26 don’t apply. But there are other options for young adults.

If they’re healthy, an individual insurance policy may be a reasonable choice. Although coverage is often not as comprehensive as it is with a group plan, individual policies can no longer impose lifetime coverage limits or, in most cases, annual limits, and they must provide a range of preventive services for free. Premiums for young, healthy people may be very affordable,
say experts.

Uninsured young people with preexisting medical conditions can consider special state-based insurance plans created under the health-care law. But they can be pricey, and you have to have been uninsured for six months to qualify.

Although the family policy is likely to be the best option, high school graduates going on to college should consider their college’s health plans, say experts. Some are good plans, and recent proposed regulations would require many of them to be classified as individual health insurance plans, with similar protections and standards. That should result in many of the worst student plans shutting down, says Stephen Beckley, a health-care management consultant for colleges and universities in Fort Collins, Colo. “We expect many plans to drop off between 2012 and 2014,” he says.

Still wondering what to do? Young Invincibles, a health-care advocacy group for young adults, has developed a toolkit to help grads assess the options.

“When you graduate, you get an exit interview to discuss your student loans,” says Aaron Smith, the organization’s co-founder and executive director. “There’s nothing like that for health insurance.”