Young Adults' New Dilemma: Stay on Parents' Health Insurance Policy?

Thanks to the new health-care reform, young adults now have more options when it comes to finding health insurance.

Under the Affordable Care Act, signed into law March 2010, young adults under age 26 now have the choice to stay on their parents' plan, buy an individual policy or be covered by their employer. Before the law was passed, many health insurance plans required children to be listed as dependents for tax purposes to qualify for coverage on their parents plan. The majority of plans could remove enrolled children at 19, leaving an estimated 19 million young adults uninsured.

Extending coverage to this segment is a win for all age groups, according to the experts. When this generally-healthy segment joins the insurance pool, it makes rates cheaper for everyone since they pay premiums, but hardly require companies to cover expensive health-care bills.

Navigating the world of insurance can be difficult, especially when it comes to finding the right policy. For young adults searching to determine their best coverage option, the answer can be complex, but an evaluation of current coverage and a little homework can help you decide which plan is right.

For healthy, non-smoking, young adults, health insurance experts claim it might be cheaper to get out from under a parents plan in some states. State laws vary with how policies are written, but for residents in states like California, where policies are individually underwritten, a 26-year-old nonsmoker could get a better rate on an individual policy than on his/hers parents' plan because their whose health conditions and ages drive up rates.

For unemployed young adults, joining a parent's policy is a no brainer if you can be added as a dependent on a parent's employer-sponsored policy at no extra cost, says Michael Goodheim, founder of the Seattle-based health care consulting firm Farsighted Strategies.

The coverage decision gets tricky for employed young adults with access to a group plan. Some grandfathered plans aren't required to provide coverage for dependents that have access to health insurance through their employer until 2014, says Dan Opinante, president of New York health care consulting firm The Seneca Group. He suggests checking with an insurance company to see if a plan is grandfathered.

Investigating and comparing plans can pay off. Take for example, 22-year-old Chatell Moulin Nighswonger of Phoenix who plans to jump back on her parents' policy during her company's open enrollment period. Her younger brother is already on the plan and her joining won't cost her parents any extra, but it saves Nighswonger $1,800 a year.

If jumping onto a parent's plan is not cost effective or possible, a quick shopping exercise will illuminate the best tradeoff of cost and value, Goodheim says.

Here are a few tips on how to pick the right health insurance policy:

Compare employer contributions. Some employers are more generous or [can contribute more] to the cost of health plans, Goodheim says. Depending on where your employer is on this spectrum compared with your parents' employers, will help you make the financial determination on which option is better for you.

Examine each plan's provider networks. In situations where mom's health plan is based in a different city, this could mean increased treatment costs for dependents using out-of-network doctors and facilities. It will quickly outstrip any savings to be had by staying on a parent's plan, McDermott says.

Evaluate your health. This is particularly important when seeking an individual plan.

Before selecting health insurance you should understand your own medical history and the likelihood that you will use any health-care related services, says Aaron Ginn of, which helps users keep track of and manage healthcare costs. If you are [young and healthy] ... go for the plan that has the lowest premium and highest deductible.

Examine state laws. Keep in mind that the individual marketplace is different from state to state, says Chris Peck of Creative Benefit Planning in Stamford, Conn. For states like New York, it's very expensive because you can get coverage regardless of preexisting conditions. In ... Connecticut, your rate will depend on your health history, so it can be very cheap if you're young and healthy.  New Jersey allows parents to keep children on their plan to the age of 31, which overrides the federal mandate.

Gauge your risk. Many employer plans are rich in benefits, but expensive, according to Goodheim. Because young adults are usually in good health and can choose a higher deductible, individual plans can be cheaper, but offer less coverage. However, a young adult with preexisting conditions or an impending pregnancy will have a hard time finding an inexpensive individual policy. When searching for an individual policy, it can help to work with an independent insurance agency to get quotes from all the major carriers for your specific situation.

Consider an individual or employer-sponsored High Deductible Health Plan (HDHP). These plans are best suited for healthy and young adults, McGinn, 23, says. There is a reason why young men are gold to insurance companies. People my age hardly, if ever, need to go or go to the doctor, yet we are willing to pay hundreds of dollars a month for health insurance. This is free money to health insurers.

Look at the total cost of all plan options. [Total] the premiums you pay through your paycheck as well as the cost of seeing a provider, filling a prescription or the occasional trip to an emergency room or urgent care center, says Matthew McDermott, a Rochester, NY-based employee benefits consultant with Landmark Group of Brighton. Low upfront premium costs may mean a surprise if you break your arm skiing this winter. Similarly, if you don't use a lot of health care, paying big bucks for a low office visit co-pay may not make sense either.

Consider third-party and temporary coverage. Young adults could be eligible for insurance through a bank, social club, union or networking organization. Temporary or short-term medical policies, which are often more affordable than adding a dependent to a family health plan, can be purchased on a monthly basis, says Bill Suneson, co-founder and president of Next Generation Insurance Group. For example, MedLion offers subscription-based primary care in Monterey, Calif., for $49 per month and $10 per doctors visit.