Did you know the Affordable Care Act (ACA) allows health plans to cover children up to age 26? Whether married or single, they’re eligible. Even if they have their own job with a health plan, they can still opt to stay on a parent’s plan. Plus, they don’t need to be tax dependents or live at home. For many, it’s a great way to keep the family covered.
Typically, coverage under an employer-sponsored health plan ends when the dependent child turns 26. In some instances, it ends on the last day of their birthday month.
Staying on a parent’s health plan might seem like a smart financial choice, but it’s not always the best option for everyone. Let’s examine what to consider when deciding which plan truly provides the best benefits, especially when looking for a good health insurance plan for young adults.
Understanding Employer-Sponsored Health Plans
What is an employer-sponsored health plan?
It’s a type of health insurance that companies offer to their employees as part of their benefits package. Work health insurance can take many forms, including:
- HMO (Health Maintenance Organization) plans
- PPO (Preferred Provider Organization) coverage
- EPO (Exclusive Provider Organization) plans
- POS (Point of Service) plans
- HDHP (High Deductible Health Plan)
If it’s ACA-compliant, the plan must include 10 essential health benefits, such as ambulatory patient services, emergency services, hospitalization, and prescription drug coverage.
- Ambulatory patient services (outpatient care without being admitted to a hospital)
- Emergency services
- Hospitalization (like surgery and overnight stays)
- Pregnancy, maternity, and newborn care (both before and after childbirth)
- Mental health and substance use disorder services, including behavioral health treatment (such as counseling and psychotherapy)
- Prescription drugs
- Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care (but adult dental and vision coverage are not essential health benefits)
Plans must also include:
Essential health benefits are the basic requirements for all ACA Marketplace plans. The specific services included in each benefit category can vary depending on your state’s rules. Plans might also offer extra benefits like dental and vision coverage or medical management programs for things like weight management, back pain, and diabetes care.
When a dependent covered under a parent’s plan is comparing options, it’s important to look at all the services each plan offers.
Factors to Consider When Choosing Between Plans
When deciding between staying on a parent’s health plan or joining an employer-sponsored health plan, young adults should consider several factors:
1. Premium
All health plans have a premium. In comparing plans, look at the cost for insuring a dependent under a parent’s plan versus the premium the dependent would pay for coverage under the employer plan. Another option is coverage available through the ACA Marketplace if group coverage is not available. ACA Marketplace coverage is also an option for a dependent child seeking coverage after “aging out” of parental coverage at age 26.
2. Deductibles and Copayments
The next item on the dependent child’s radar should be the plan’s deductibles and copayments. Some plans have multiple deductibles plus copayment required on some services. For example, there may be a deductible that has to be paid before insurance starts to pay for covered services. After the insured has reached the deductible amount, then the insurance will begin to pay for a portion of expenses. Some health plans have separate deductibles for medical services and pharmacy benefits. Others have separate deductibles or copayments for in-network and out-of-network services.
For example, a PPO plan could have a $1,000 deductible for in-network services and a $5,000 for out-of-network services. It may also have a 20% copayment on some services. It could have a Level 1 Copay on in-network generic prescription drugs and a Level 2 Copay on in-network Formulary Brand prescriptions. It may not provide prescription benefits out of network. That means the insured would have to pay the $1,000 or $5,000 deductible plus the 20% coinsurance as well as any drug benefit copayments.
When evaluating plans, it’s important to consider the deductibles and copayments to find which one offers lower out-of-pocket costs. It is also important to remember the annual out-of-pocket maximum for ACA-compliant plans. For 2024, the out-of-pocket cap is no more than $9,450 for most health plans for care in network.
3. Provider Networks
Many health plans come with their own special provider networks, offering you a range of options. For some plans, the insured may have no coverage for services from an out-of-network provider except in cases of emergency. It’s important for health plan members to know which providers are in-network and which are out-of-network.
If an insured dependent child currently has a relationship with a physician, be sure to compare health plan networks. They need to know if a plan change will allow for continued care with the same provider or require the selection of a new one. Even if a current doctor or specialist is in-network for both plans, a good strategy is to look at the deductibles and copayments. They may be very different.
4. Chronic Condition Considerations
When weighing the benefits and costs, an equally important factor is whether the dependent child has a chronic health condition. Choosing a health plan with a higher monthly premium but a lower deductible might be the smart move. Why? Because those higher premiums could mean significantly lower out-of-pocket expenses, thanks to reduced deductibles or copayments. It’s all about finding the right balance for peace of mind.
For example, the premium for work health insurance might be lower than staying on a parent’s plan, but the deductibles could be higher. It’s essential to compare all aspects of the plans to find the good health insurance plan for young adults that best fits their needs and budget.
Final Thoughts
When deciding between staying on a parent’s health plan or joining an employer-sponsored one there’s a lot to consider. And don’t forget the often-overlooked California personal health care mandate. Since January 1, 2020, all California residents must either have qualifying health insurance, an exemption, or face a penalty when filing state taxes. Make sure you’re in the know and ready to make the best choice for your health coverage.
The penalty is based on a person’s household size and California state income. Individuals making less than $49,763 in 2023, for example, pay an $800 individual penalty. A married couple making less than $92,100 pays a $1,800 penalty. A family of four (two adults and two children) earning less than $142,000 pays a $2,700 penalty.
The potential California state penalty needs to be weighed against the costs of maintaining parental coverage, signing up for employer-sponsored coverage, and the risk and costs of not having health insurance at all.
