Pros and Cons of Staying on Your Parents' Insurance
Posted by April 06, 2016in Life Transitionson
The Affordable Care Act allows young adults to remain covered by their parents' insurance plan until they turn 26, regardless of whether they get married, attend school, have a full-time job, or still live at-home. According to the United States Department of Labor, this applies to both employer-sponsored plans and all plans in the individual market.
For some, staying covered by their parents' plan will make the most sense financially. For others, it may be preferable to get your own insurance, through the government-sponsored Marketplace, your employer, or directly from an insurer.
Adding Yourself to Your Parents' Plan
For dependent children who want to receive health coverage through their parents, you can be added to their plan during its annual Open Enrollment Period, which typically runs from Nov. 1 through Jan. 31, or during a Special Enrollment Period; the latter is triggered by “certain life events that involve a change in family status," including marriage, the birth of a child, or the loss of other health coverage.
For employer-based plans, the Special Enrollment Period lasts 30 days from the triggering incident; for the government-sponsored Marketplace, the Special Enrollment Period lasts 60 days.
Huffington Post writer Jason Alderman notes that there may be little to no cost to add you to your parents' insurance plan if they are already providing coverage for other dependents.
Keeping Your Parents' Insurance
If you're already enrolled in your parents' plan, you don't have to take any steps to retain the coverage; nor will your parents face tax implications from keeping you on the plan.
The ACA stipulates that “the value of any employer-provided health coverage for an employee's child is excluded from the employee's income through the end of the taxable year in which the child turns 26," according to the Department of Labor (DOL).
The DOL notes that this health care tax benefit applies to certain employee and retiree health plans, as well as to "self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return."
Another advantage to receiving coverage under your parents' employer-based plan is that the employer contribution under a so-called “cafeteria plan" will be made on a pre-tax basis, per the Department of Labor.
If you're considering staying on your parents' insurance and live in a separate state, Alderman recommends first finding out "whether you would be reimbursed at lower, out-of-network rates."
Getting Your Own Insurance
You may wish to exit your parents' insurance before you turn 26, if you have access to an employer or school-based health plan or decide to opt for your own Marketplace plan.
You may qualify for a subsidy — depending on your income — to purchase a comprehensive plan from the Marketplace, or you can opt to protect against “worst-case scenarios" by choosing a so-called “Catastrophic" health plan, according to HealthCare.gov.
Alderman notes that catastrophic health plans have lower monthly premiums- but higher deductibles- and cover three primary care checkups each year.
Filling the Gap with Short-Term Coverage
If you decide to opt out of your parents' coverage for any reason — and are not ready or able to choose a regular plan — you can avoid a gap with short-term medical coverage.
Short Term Medical insurance is meant to ease a life transition when you risk going without coverage. This type of plan allows you to choose a deductible, coinsurance, and term of coverage. Note that short-term medical insurance typically covers unexpected illness and injury –– and not wellness or preventative care.
Also, note that short-term polices are not ACA-compliant, meaning they do not allow you to bypass the ACA “individual mandate" or tax penalty, which is imposed on individuals who can afford to purchase health insurance, but choose not to do so.
However, you can likely avoid this fee by claiming a “short gap in coverage" exemption if you have a Short Term Medical policy (or go without ACA-compliant coverage) for no more than two consecutive months.
If you are about to age out of your parents' insurance, find out about "Turning 26: How to Buy Your First Health Insurance Policy."
The author of this article is an employee of Tokio Marine HCC MIS Group, an affiliated company of the underwriter, HCC Life Insurance Company.