Q. I know that in 2010 the ACA began allowing young adults to remain on their parents’ health insurance until they turned 26. Has anything changed about rule? Is it better to remain on my parents’ plan or get my own plan? When I turn 26, what options are available?
A. Nothing has changed except that grandfathered group plans must now allow adult children to remain covered until age 26 regardless of whether they have other employer coverage available. Prior to 2014, grandfathered group plans could refuse to cover young adult dependents if they had access to other employer coverage, but that’s no longer the case.
Allowing young adults to stay on their parents’ insurance adds an extra coverage option for people at the start of their careers. But that does not mean that remaining on a parent’s health plan is always the best choice.
The ACA doesn’t require small group health plans to offer dependent coverage, although most of them do. Large group plans must offer coverage to full-time employees and their dependents in order to comply with the ACA’s employer mandate. Plans that do offer dependent coverage must allow adult children to remain on a parent’s plan until age 26, regardless of whether the young adult lives with the parent, is financially dependent on the parent, has other coverage options, is a student, or is married. (Coverage does not have to extend to the dependent’s spouse or children though.)
If a family has minor children as well as young adult children under age 26 – and if their premium is one family rate regardless of how many children are on the plan – it probably makes sense to keep the young adult members on the policy until age 26.
But if the only dependents on the plan are young adults, or if the premium is based on the number of dependents, there are other considerations to take into account. Some employers contribute only to employees’ coverage, with dependents’ premiums entirely payroll deducted. In that case, the total cost to insure a family might be lower if young adults get their own coverage in the individual market.
This is especially true for young adults with relatively low incomes who qualify for a subsidy in the exchange. If your parents do not claim you as a dependent on their tax return, you can apply for a policy in the exchange with subsidy eligibility based on your income alone. If your parents do claim you as a dependent, your subsidy eligibility is based on the entire household’s income.
If you don’t live in the same area as your parents, it might make more sense to shop for your own policy, since the provider network for your parents’ plan may be limited in your area. And although maternity coverage is now included on all plans, it’s not required for dependents. Getting your own policy guarantees that you’ll have maternity coverage.
Losing coverage on a parent’s plan when you turn 26 is a qualifying event that triggers a special open enrollment period for individual health insurance, or enrollment in a group plan through your employer if you’re eligible. You have 60 days from your 26th birthday to enroll in a new individual plan (or 30 to 60 days to enroll in your employer’s group plan).
You can shop in the exchange or off-exchange – the special open enrollment window applies either way, and coverage is effective the first of the following month when you enroll because you’re losing existing coverage. If your income is less than 400 percent of poverty level, you may qualify for tax credits that pay a portion of your premiums if you shop in the exchange. There are also exchange policies available with lower cost-sharing requirements if your income does not exceed 250 percent of poverty level.
Catastrophic individual plans are available to applicants under age 30, with premiums a little lower than bronze plans. But premium subsidies are not available on catastrophic plans, so a “metal” plan is likely a better choice if your income is under 400 percent of poverty level.
Medicaid is also an option if you’re eligible. In states that are expanding Medicaid, you can qualify with an income of over $16,000.
If your parents’ policy qualifies for COBRA continuation, you’re eligible to elect COBRA for up to 36 months after aging out of the coverage at age 26. But you’ll be responsible for the full cost of the coverage, plus an administration fee of up to 2 percent. In many cases, there are less expensive options available in the individual market.
The ACA’s impact
In September 2015, HHS released data regarding changes in insurance coverage across various demographics in the years before and after implementation of the ACA. Determining exactly how many young adults have remained on their parents’ health plans is challenging, but we do know from the HHS data that coverage across young adults (ages 19 – 25) increased by 5.5 million people from 2010 through September 2015.
Nearly half of that gain (2.3 million people) occurred between 2010 and October 2013, before the bulk of the ACA’s reforms were implemented (exchanges, guaranteed issue coverage, premium subsidies, etc.). So it’s likely that a good chunk of those 2.3 million young adults gained coverage via a parent’s plan. In the ensuing two years, the increase has likely been a combination of young adults remaining on their parents’ health plans as well as young adults purchasing their own plans in the exchanges.