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In 2010, the Affordable Care Act made it possible for children under the age of 26 to stay on their parents’ health insurance plan regardless of whether they were offered health insurance through their employer. This provision helped those who weren’t receiving employer-sponsored health care in their first post-grad jobs or who didn’t want to enroll in a pricy college health-care plan.
Individuals under the age of 26 can stay on their parents’ health insurance plan even if they have health insurance available through their employer, have children, are not claimed as a tax dependent, are married or live outside of their parents’ home.
Between 2010 and 2013, more than 2 million young adults (between age 19 and 25) gained access to health insurance through the provision, according to one estimate from the Department of Health and Human Services.
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For young adults, the decision to stay on their parents’ health insurance plan or opt for a new plan, either through their employer or the ACA, could mean saving hundreds or thousands of dollars in medical expenses. However, navigating and understanding health insurance can be confusing for most people: One study found that many often chose health insurance plans that were too costly for them because of a lack of understanding.
If it’s your first time choosing a health insurance plan, or you’re trying to decide whether to stay on your parents’ plan, Select defines some common health insurance terms before discussing some of the factors you should consider when choosing a plan.
The basics of health insurance
Before you can determine whether you should stay on your parents’ plan or opt for a new one, you’ll need to have an understanding of a few basic health insurance terms.
First off, every plan has a premium, which is the amount of money you spend each month for health insurance. You’ll have to pay a monthly premium regardless of how many doctor’s appointments you have or other medical expenses you incur. Beyond the premium, you’ll also have a deductible and coinsurance and/or a co-pay.
The deductible is the amount of money you have to spend on medical expenses before your health insurance starts covering part of your bills. The monthly premium you pay does not go toward your deductible, and your deductible typically resets every year.
After you’ve hit your deductible for the year, health insurance will start paying for a portion of your expenses which is known as coinsurance. For example, if your deductible is $5,000 and your coinsurance is 20%, you must spend $5,000 on medical expenses before the insurance company starts paying 80% of your medical bills. If you’re on a family insurance plan, you may have an individual deductible and/or a family deductible.
A family deductible is the amount of money an entire family must spend on medical expenses before coinsurance pays a portion of the family’s expenses (or you have co-pays), whereas an individual deductible is the amount of money one person in the family must spend on health care before they receive coinsurance.
A co-pay, unlike coinsurance, is a fixed expense you pay for certain medical expenses. Depending on your plan, you may have co-pays either before and/or after you reach your deductible.
Insurance plans also have an out-of-pocket maximum, which is above the deductible threshold. After you’ve spent up to your out-of-pocket maximum, the insurance company will cover all of your medical expenses, so you won’t have to cough up any more money for co-pays or coinsurance.
For example, if you’re receiving your health insurance through the ACA, the out-of-pocket maximum is $8,700 for individuals. After you’ve spent that amount of money, 100% of your medical costs will be covered. Sometimes plans include your deductible and an coinsurance and co-pays when tallying your out-of-pocket maximum but not always. Your monthly premiums, any out-of-network services and any services your plan does not cover do not count toward your out-of-pocket maximum.
Lastly, you’ll want to know what type of insurance plans you’re choosing. Health insurance companies work by negotiating discounted rates — with hospitals, doctors and labs — on medical services. The hospitals, doctors and labs that the health insurance company has negotiated with are considered in-network, and in-network providers are generally cheaper for people, regardless of what type of plan you have.
Depending on what type of plan you have — whether it’s an EPO, HMO, POS or PPO — your plan may or may not cover out-of-network expenses (though most plans will cover out-of-network expenses in the event of an emergency). Some plans, like an HMO, require that individuals see a primary care physician before receiving a referral to see a specialist.
What should you consider before switching plans
When you’re comparing health insurance plans, you’ll want to consider a variety of different factors like whether you have any chronic medical conditions, what doctors and hospitals are in-network for the different plans and the cost of staying on your parents’ plan versus getting your own plan.
Plans with higher deductibles generally charge lower monthly premiums, making them a good option for young, healthy people with no chronic medical conditions.
If you opt for a high deductible health insurance plan, you may be eligible to receive a Health Savings Account (HSA) too, regardless of whether you’re employed. With an HSA, individuals can invest up to $3,650 for single-insured individuals and $7,300 for families of pretax money for qualified health-care expenses like prescription drugs or co-pays.
Those with chronic medical conditions may choose to opt for a plan with a higher monthly premium and a lower deductible because they’re more likely to hit the deductible amount because of ongoing medical expenses.
As you review different plans, you’ll want to check that your preferred doctors or hospitals are in-network and that it covers any medications you regularly take.
The number of people on a plan can also influence the cost of the monthly premium for a family insurance plan. You’ll want to compare the additional cost of you being on your family’s plan to the cost of getting your own plan. Some plans charge a different rate for adult children, while others don’t charge significantly different premiums based on the number of people on a plan.
Lastly, you’ll want to keep track of deadlines of when you’re eligible to sign-up for different health insurance plans. Employers typically have an open enrollment period each year where individuals have a few months to sign up for health insurance for the first time or to change their plan.
If you don’t have employer-sponsored health insurance, the ACA also has an open enrollment period which is open until Jan. 15, 2022 through healthcare.gov. (Note: Some states have their own marketplaces, so you’ll have to enroll using the specific state’s website.)
If it’s your first time navigating the ACA, you can receive impartial assistance through an “assister” or “healthcare navigator” who helps individuals review their health insurance options and complete forms. You can find assisters near you through the healthcare.gov website.
Health insurance is confusing and complicated for most people but understanding the basics of health insurance can go a long way in helping you save money on your medical expenses.
For people choosing between staying on their parent’s plan or opting for a new plan, it’s important to understand how your medical conditions may influence your monthly premiums and the value of your deductible, which hospitals or doctors are considered in-network and out-of-network and how the number of dependents on a family insurance plan affects the cost of it.
If you do decide to stay on your parents’ plan, you might want to offer to chip in to help cover some of the monthly costs, especially if they are charged more for having an adult child on their plan and you have a full-time job.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.