For those in their twenties, there’s a confusing rite of passage: Finding health insurance

Just before Cal Trechler’s 26th birthday in June, he was faced with a common challenge to something a 20-something lucky enough to have parents with health insurance: he had to drop their plan and find his own coverage.

Trichler, who lives near Minneapolis, cannot obtain health insurance through his employer, a small financial planning firm. However, his company offers a stipend to pay for insurance costs. So Trickler considered two options: joining his wife’s plan through her teaching job or finding coverage in Minnesota’s health insurance marketplace, where residents can look for affordable plans.

Whether they’re 25-years-old about to exit a parent’s plan or enter the job market for the first time, young Americans are tasked with making critical decisions about their health care at a time when they may have little understanding of how insurance works.

Fortunately, Treichler’s training and knowledge as a financial planner helped him evaluate his options. His wife’s plan offered benefits such as lower deductibles (the amount of money you have to pay each year before coverage begins) and out-of-pocket maximums (the most you have to pay for covered services each year). But he calculated that her plan would be more expensive month to month than the one he found on the market.

“Personally, I didn’t have a lot of healthcare needs,” Trichler said. “I decided to go with the less lucrative option with the expectation that I wouldn’t need the same amount of care and it would be better if I used the lower premium plan.” (The premium is what you pay to buy an insurance policy separate from the discount.)

Nearly 15% of Americans ages 19 to 25 were uninsured in 2021, according to Census Bureau data, the highest percentage of any age group. That number is down from 31.4% in 2010, when the Affordable Care Act (called Obamacare) required insurance companies to cover children of dependent families up to age 26. Since then, many young people who benefit from insured parents have not had to search themselves for coverage options. Finding a suitable plan for the first time as an adult can present some pitfalls. And a lot of questions.

You can see your 26th birthday coming up,” said Karen Politz, Senior Fellow at the Kaiser Family Foundation. “You know when that will be. Don’t wait until a week or two before you start looking at your options.”

What’s there?

Depending on the situation, a young adult may weigh these options: stay on a parent’s plan until age 26, join an employer-sponsored health insurance plan or buy coverage in their state’s market. Someone whose income is up to 138% of the federal poverty level may qualify for Medicaid, which provides free or inexpensive health care to low-income Americans, including pregnant women and the elderly. The next open enrollment period (the period in which you can sign up for coverage) for ACA-compliant market plans runs from November 1 to January 15, 2023, for most states. Many employers offer open enrollment periods as well, usually in the fall, but the timing varies from company to company.

Market plans offer various options for tiered private insurance with government subsidies for people whose income is below a certain threshold. While the service is primarily available through Healthcare.gov, some states, including California and Pennsylvania, operate their own websites. Although the open enrollment period is fixed, those who have gone through a so-called qualifying event, such as losing insurance through their employer or being forced to leave parental insurance after their 26th birthday, have 60 days from that event to enroll in a market plan. If you miss a class, you will have to wait until the next enrollment period, unless there is a major event such as a natural disaster.

For those who decide to join an employer plan or not, it is wise to compare its cost and coverage with that of a parent’s plan. If a parent’s plan is cheaper and offers better coverage, asking your parents if they will share the cost with you may be the best solution.

Among the employer’s plans, there may be an option to choose between a preferred provider organization plan and a health maintenance organization plan. A PPO plan is generally more expensive on a monthly basis, but may provide greater out-of-network coverage, which may be necessary if you have specific medical needs. However, HMOs are usually less expensive and include a smaller group of providers.

“It’s just really a math problem,” said Robert Persicht, a financial planner at Delagify Financial. “It’s figuring out how much your parents will pay for insurance versus how much you’ll pay for insurance, and you choose.”

Persechet teaches a volunteer tax assistance class at Denver State University where he helps accounting students prepare tax returns for people with less than $57,000 in annual income. A sophomore in class, Deborah, was able to use what she learned to help prepare her father’s 2021 tax return. As they prepared to return, the Aurora, Colorado, family got an expensive surprise.

As a college student, 25-year-old Son chose to stay on her father’s plan rather than pay extra for college health insurance. It worked for a while – until the money she earned as an apprentice in 2021 increased her family’s income. With the additional income, they are no longer eligible for subsidized coverage through the ACA, which requires them to pay an additional unexpected premium of $3,000.

“We were all shocked,” Son said.

Persechet said Son’s case was more complex than most. However, many diverse situations can create confusion and uncertainty.

Georgia Lee Hussey, CEO of Modernist Financial, a planning firm in Portland, Oregon that helps clients make financial decisions aligned with their progressive values, noted that some young people who work as independent contractors or interns may qualify for Medicaid. She said it was important for young people to seek financial independence, if possible.

“If you have the means, get your health care coverage,” Hussey said.

Talk to your family

Conversations about financial decisions like health insurance can spark tension between parents, grandparents, and their children, sometimes due to generational differences. Hussey said people should focus on developing understanding and empathy when sensitive issues arise.

“What we don’t talk about as often as I would like are the financial realities of youth and changing expectations,” Hussey said. “There is a place for intergenerational compassion and intergenerational understanding.”

It is helpful to remember that each person has unique health needs, and this factor in making the right decision regarding insurance.

“There is really no one-size-fits-all, especially when it comes to something as delicate as healthcare,” said Noah Damsky, co-founder of Marina Wealth Advisors in Los Angeles.

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