College graduation marks a huge transition for young people as they say goodbye to finals and fraternities and hello to entry-level jobs and student loan payments. Here’s something else that today’s college grads need to consider: health insurance.
If you’ve previously had health insurance through school, you may be able to continue that coverage for a month or two, but you’ll have to check with your policy to find out. You’ll also have to make sure you’ll be able to access in-network providers, which may include only the university health center, after graduation. The end of that coverage should count as a “qualifying life event,” which will give you a 60-day window to buy other insurance even though we’re not currently in the open enrollment period for most plans.
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Under the Affordable Care Act, all adults must have qualified health insurance or pay a penalty this year of $695 or 2.5 percent of their income, whichever is higher. If you’ve had health insurance through school for half the year, that penalty would be prorated if you went without for the rest of the year. You’ll owe the penalty if you go more than two consecutive months without coverage.
For many young people, the relatively low cost of the penalty might make it tempting to skip the expense of insurance, but doing so could put you in serious financial trouble should you have an accident or fall ill and need medical treatment. “If you have a skateboarding accident or a ski accident, you can rack up a $10,000 medical bill in a hurry,” says Sam Gibbs, executive director of AgileHealthInsurance.com. “Some young people don’t think about that. There could be other consequences (of going uninsured) in addition to the penalty.”
Americans spend three times more on third-party debt collections for medical bills than they do on bank and credit card debt combined, according to a 2014 NerdWallet study.
While Obamacare imposes a mandate on health insurance, it also provides more options for young people than were previously available. You’ll want to weigh all your options carefully based on coverage and total out of pocket costs, including deductibles and copays.
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Here are your options:
1. Stay on your parents’ plan. Obamacare allows young adults to stay on their parents’ health insurance plan through age 26. If your parents have a good plan that’s worked for you in the past, discuss with them the cost of keeping you enrolled. If they need to have a family plan in order to insure a sibling, the costs may be minimal. If you’re moving away from your parents after school, make sure there are in-network providers in your new city under your parent’s plan. If not, you’re probably better off getting a plan of your own.
If your parents have a high-deductible family health plan, both parents and the graduate can contribute to separate HSA accounts with contribution limits of up to $6,500 and a shared deductible, making that an appealing option from a savings perspective, says Jay Savan, a partner with benefits consultant Mercer.
2. Get insurance through your employer. If you’re lucky enough to have landed a job right out of school, you’ll want to enroll immediately in the health insurance plan offered by your new company. For healthy young people, the most affordable option may be a high-deductible health plan, which is the only option offered by about 20 percent of employers. You’ll need to be prepared to pay the total deductible (a mid-range deductible is about $1,200, according to the Kaiser Family Foundation) should a medical emergency come up.
The best way to do that is to put some money into a health savings account, which if you don’t use it this year will roll over to next year and continue growing tax-free. Many employers also offer seed money or a contribution match to help build these funds.
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If you have a chronic health issue like asthma or diabetes, or if you take expensive medications, you’ll probably do better with a more traditional health plan with higher premiums and lower copays, if your employer offers one. Traditional plans might also be the better option if you’re unwilling or unable to build up the savings to cover your out-of-pocket costs. “If you’re the kind of person who will put off getting care because you don’t have the savings to cover it, you might be better served by a plan that spreads out the costs and covers you right away should you need health care,” says Cheryl Fish-Parcham, private insurance program director for Families USA.
Some employers have a waiting period of 30 to 90 days before workers can enroll in health insurance. In that case, see if you can remain on your parent’s plan for a few months or look into purchasing a term plan to cover you in the interim. Short-term plans, which are not qualified Obamacare plans and won’t exempt you from the tax penalty, generally provide catastrophic coverage only and are priced extremely aggressively.
3. Buy a plan on your own. If you’re unemployed, freelancing or interning, you won’t have access to a health plan through work. In that case, you’ll need to buy insurance on your own through either a broker or the state exchanges. While even bare-bones plans can be pricey, low-income consumers are eligible for a subsidy to help offset costs. If you qualify for a subsidy (check Obamacare.gov to see), you could get back up to 96 percent of the cost of purchasing a silver plan, according to an analysis by the Commonwealth Fund. Note: If your parents claim you as a dependent on their taxes, then your eligibility for the subsidy will be based on your family’s income rather than your own.
On the marketplace, plans are sold in four tiers, with bronze plans having the lowest premiums and highest deductibles and platinum plans having the highest costs and the lowest deductibles. Consumers under age 30 are also eligible to buy “catastrophic” plans, which have the lowest of all premiums and deductibles of $6,850. Under those plans, you pay for almost all routine medical care on your own, but you limit your liability should a serious medical event occur.
