In 2010, the Affordable Care Act (ACA) extended health insurance coverage for dependent children to age 26. Before then, your parents’ health insurance company could drop you from your family plan at age 19. This was financially stressful for many families because adding dependents to a family plan is typically less expensive than purchasing an individual health plan for adult dependents.
Now, you have more time to establish yourself before you need to worry about paying for health insurance on your own. But it’s still a good idea to plan ahead. If you’re turning 26 soon or if your parents will qualify for Medicare before you turn 26 (they won’t be able to add a dependent to their Medicare plan), you will need to find your own health insurance plan. We’ll walk you through the process.
Why won’t my coverage continue?
Your coverage doesn’t stop immediately upon your 26th birthday but at some point during the year you turn 26, depending on the type of insurance coverage your parents have. Your coverage will eventually stop though. This is because the health insurance system considers you an adult at this point, capable of maintaining your own health plan.
Affordable Care Act (ACA) rule
The purpose of the ACA was to make health insurance more affordable for everyone. That’s why the legislation expanded coverage for dependent adults. Since adding a dependent to a family health insurance plan is usually less expensive than purchasing an individual plan for an adult child, expanding coverage lowered the cost of health insurance for many 19-25 year olds.
But at age 26, the ACA states you must start to carry your own health insurance plan. If you are still physically dependent on your parents at age 26 due to a disability, you might qualify for Medicare. If your state expanded Medicare, you could also qualify if your annual income is up to 138% of the federal poverty level. If your annual income totals between 100% and 400% of the federal poverty level, you can qualify for tax credits that help you purchase insurance.
If none of these apply to you, you will have to either enroll in an employer-sponsored plan or purchase an individual plan in the health insurance marketplace at full price.
Check your states’ age limits
Since insurance is regulated on the state level, different states have different rules about how and when dependent adults age out of their parents’ plans. Some states allow you to apply for an insurance rider to extend your health insurance coverage under your parents’ plan beyond age 26. One state, New York, allows you to get a rider to stay on your parents’ plan until 30. While the details might vary from state-to-state, in general, in order to obtain a rider to stay on your parents’ plan, you must be at most 29 years of age or younger, unmarried and without access to an employer-sponsored health plan. You can find insurance rider information for your specific state here.
If your insurance is through an employer
If you are covered by your parents’ employer-sponsored health plan, your coverage will extend until the last day of the month you turn 26. So if you turn 26 on November 4th, you will have access to their plan until November 30th.
If your plan is through the ACA Marketplace
If you are covered by a plan your parents purchased in the Healthcare.gov marketplace, you will have access to that plan until December 31st of the year you turn 26. This gives you ample opportunity to research your available health insurance options and sign up for your desired health plan during open enrollment. If you don’t have access to an employer-sponsored health plan, you can enroll in one through Healthcare.gov during its open enrollment period: November 1-January 15.
Special enrollment period
If you will lose access to your parents’ health plan before the plan year ends (most plans end December 31st), you are eligible to sign up for a new insurance plan during what is called a “Special Enrollment Period”. Special enrollment periods are designed to allow people who have experienced a qualifying life event that has caused them to either lose access to their current plan (like aging out of their parents’ plan) or need to make changes to their plan (like adding a child dependent after a birth or adoption).
If you qualify to sign up for a new health insurance plan during a special enrollment period, you have 60 days from your qualifying life event (i.e. loss of coverage) to sign up for a new health plan. You can either do this through your employer if they offer a group health insurance plan, or through the Healthcare.gov marketplace.
Best insurance plan options for young adults
The best health insurance plan for you is the one that meets your health needs for the lowest cost. Young people who are healthy and don’t engage in high-risk behaviors like regular skydiving or rock climbing, typically don’t use the health system very often. In fact, you might not see a doctor at all outside of your annual physical. If that sounds like you, you might benefit from the combination of a High Deductible Health Plan (HDHP) and Health Savings Account (HSA). HDHPs typically have the lowest monthly premiums of the health plans plus you have the ability to deposit pretax money into an HSA to save for future health expenses.
Your HSA money is deposited tax free, it grows tax free and as long as you use your money on qualified medical expenses, all distributions are tax-free as well. In addition, you never lose access to this money as it rolls over from year-to-year, allowing you to grow quite a nest egg overtime for health expenses you’re bound to incur in the future.
In the case that you have a chronic condition that needs managing with regular prescriptions and/or a specialist’s care, you might benefit from a more comprehensive plan that has a lower deductible and lower out-of-pocket maximum as you will be utilizing the medical system more frequently.
Usually the most affordable way to enroll in health insurance is through an employer-sponsored group plan. This is because employers are able to negotiate lower prices than the individual because they are bringing more plan participants to the health insurance company. Just like buying in bulk is usually cheaper than purchasing a smaller container of the same item.
If you have access to an employer-sponsored health plan, and it will adequately meet your health needs, enrolling in this plan might be the most affordable option for you.
If you don’t have access to an employer-sponsored group health plan or if your employer’s plan doesn’t meet your needs, you can purchase a health plan in the ACA Marketplace (i.e. Healthcare.gov). As we said above, if your income is below 400% of the federal poverty level, you could qualify for a tax credit to help pay for your health insurance premiums.
If you’re attending a university, junior college or some technical schools, you might be able to enroll in a health plan through your institution. Student health plans are usually not as comprehensive as a private plan or employer group plan might be, and it will likely require you to seek your medical care on-campus, but if you are healthy and don’t need to use the medical system often, it might be a good fit for you.
Short-term plans typically last between 30 and 90 days and are meant to provide very specific types of coverage. They are not a replacement for an annual health insurance plan but are meant to give participants some coverage while they’re waiting for a new plan to start. Instances where this might be a good idea include:
- You’re waiting for your employer-sponsored insurance plan to kick in.
- You want to wait for open enrollment to sign up for a new annual plan.
- You’ve enrolled in school and you’re waiting for your campus-based plan to begin.
Find a broker or agent
You don’t need an insurance broker or agent to buy health insurance. The ACA Marketplace is open to everyone. But if you find the options dizzying and want some guidance, you can engage the help of an insurance professional. Just make sure you’re aware of who you’re talking to. Insurance brokers will offer you a range of options from different insurance providers (albeit the providers with whom they have a relationship). And insurance agents will offer you options from the single insurance company for whom they work.
A quick Google search will yield a list of local insurance brokers and agents, or you can reach out to friends and family to see if they have someone they’d recommend working with.
Get started with Lively
Lively is your resource for financial and health information and HSA accounts. While we don’t offer health insurance, we do help you save and invest your HSA contributions so they grow as quickly as the market will allow. Our goal is to make health-related expenses more affordable and financial stability more accessible to everyone. Want to learn more about opening an HSA? Reach out today!
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.