How to Save Money on Health Insurance When You're Young
I recently asked my twentysomething friends what they'd like to know about getting health insurance. The most common response? "Everything." Evidently, and understandably, those of us navigating the maze of health insurance for the first time are less than clear on the ins and outs. Plus, paying for health insurance coverage can be a drag when you don’t have much cash to spare.
But skipping it could be even more costly. Although the number of uninsured young adults is falling, thanks to new federal rules requiring most insurers to allow children on parents’ health plans up to age 26, more than one-fourth of young people remain without coverage. In 2010, about 27% of 18-to-24 year olds and 28% of 25-to-34 year olds had no health insurance, according to the U.S. Census Bureau. “I have seen so many stories about young people who ended up saddled with enormous medical bills,” says Kathleen Stoll, deputy executive director of Families USA, a health-coverage advocacy organization. “It’s not a risk you want to take if you can find an affordable source of coverage.” Here's how to get good coverage without going broke:
Even if you have the option of employer or parental coverage, you may be able to find less-expensive coverage on your own. In most states, healthy, young people can find individual policies in the private market with premiums of about $150 to $200 a month, says Ankeny Minoux, president of the Foundation for Health Coverage Education. A high-deductible policy may run closer to $100 a month. On average, single coverage through an employer costs an employee $921 a year in premiums, or about $77 per month, according to the Kaiser Family Foundation. But the cost varies widely by employer. You can shop for and compare policies at sites such as eHealthInsurance.com. Or find a broker who will help you get coverage through www.nahu.org.
Check your plan options carefully, says Aaron Smith, executive director of Young Invincibles, an organization that advocates for health care for young people. You may find that, say, certain prescriptions or doctors you visit regularly aren’t covered. And keep in mind that premiums you pay through an employer will be deducted from your paycheck before taxes, a perk you won’t have with individual coverage.
Also, if you have a health condition, you may have a hard time finding coverage in the individual market. (You will be able to get a policy if you live in one of the six states that guarantee coverage in the individual market regardless of your health -- Maine, Massachusetts, New Jersey, New York, Vermont and Washington. But note that premiums tend to be significantly higher than average for everyone in those states -- not just for those with health conditions.) An employer plan can’t deny you health insurance or charge you more because of a preexisting condition, although it may be able to impose a waiting period on coverage related to your illness. (For more on preexisting conditions and health coverage, see Families USA’s “Your Guide to HIPAA Protections.”) Those with preexisting conditions who have been without insurance for at least the past six months can look into the U.S. government’s Pre-Existing Condition Insurance Plan; premiums are about the same as the market rate for a healthy person. Many states also have high-risk pools for people with preexisting conditions, and they have different eligibility requirements than the PCIP. The rates are often considerably higher than standard market rates -- and if you’re already in one of the state pools, you’re not eligible for the PCIP. See www.coverageforall.org for state-by-state information.
Under the Affordable Care Act, most insurers now have to cover those who are younger than 26 on their parents’ policy, as long as the policy has dependent coverage -- a great option for the many young people who are searching for a first job or working a part-time job with no benefits. (Good news for those of you whose parents use the military’s insurance plan, Tricare: You’re now covered, too, though the rules differ from those governing other policies. See ASK KIM: Military Health Plan Now Covers Adult Children for more information.)
Once you do get a full-time job that offers health-insurance benefits, your parents’ policy is no longer required to insure you unless they purchased it in the individual market or if the plan was established after March 23, 2010. Check whether your new employer will impose a waiting period before you can sign up for health coverage; if it does, ask your parents’ insurer whether its policy will cover you during the waiting period. If it won’t, you may want to get a short-term policy until your employer coverage kicks in. (For more on the rules, see the government’s page on coverage for young adults. And for state-by-state information on getting health coverage tailored to young adults, see www.gettingcovered.org/toolkit.)
Congratulations -- you have a job with benefits! Or maybe you’ve had your job for a while (still an accomplishment worthy of a congratulations!), and you’re simply coming up on annual open-enrollment period (the time during which you can choose or change your employee benefits). Either way, now is a good time for you to review your employer’s health benefit options. You may have a few plans to choose from -- say, three types with varying premiums, deductibles and coverage -- or you may have just one option.
Tempting as it may be, don’t just gloss over the thick booklet outlining the plans, which should include a summary of benefits detailing coverage. “Reading it is not always fun,” Smith says. “But it’s important in making a smart financial decision.” And it’s crucial now, as employers pass on more of the rising costs of health insurance to workers.
Some key elements of your plan that you’ll need to understand:
The premium. Most employers don’t cover the full premium, so you’ll likely have money automatically drawn from your paychecks, before taxes, to cover the rest. If you choose a plan with a high deductible (the amount you pay out of pocket for medical services before your insurance coverage kicks in), your premiums will likely be a bit lower than if you pick a low-deductible plan. Keep in mind that differences in premiums and deductibles may not be the only price variations among plans; the co-payments for certain kinds of services, for example, may change, too.
The deductible. Many young people working on entry-level salaries are short on savings. So if you’re thinking about lowering your premium by choosing a high-deductible plan, make sure that you can afford it, Stoll says. Calculate your potential out-of-pocket maximum for the year -- the highest amount you’d have to pay in health care costs, including your deductible and co-payments or coinsurance (but not premiums), until the insurer assumes full costs.
Many health-insurance plans cover preventive care with no deductible or co-payment required, so you may not have to pay for such annual services as checkups and blood screenings. And if you have a health savings account or flexible spending account, you can use that tax-free money to pay for many out-of-pocket costs (see Take Advantage of Tax-Deferred Accounts for more on these types of accounts). Your employer may contribute money to your HSA if you pick a high-deductible plan.
The network. An insurance plan will often provide the highest amount of coverage if you go to a doctor within its network. If you have a preexisting condition or certain specialists that you see regularly, choosing a preferred provider organization (PPO) is likely your best bet. Typically, a PPO will provide coverage for doctors outside of its network, but you’ll have to pay more out of pocket for the services. If you’re in good health and have the option of using a health maintenance organization (HMO), you could save money because the fees tend to be lower. But you’ll likely be more restricted on the doctors you can visit in order to get any amount of insurance coverage.
As your life changes, your insurance needs will, too. Getting married? You may be able to get better coverage or lower premiums through your spouse’s plan, or vice versa. And if you have children, you should evaluate your plans to see how kids might best fit. You may even find that a combination of individual and family policies is the least costly and most effective way to cover your new family (see How to Beat Rising Health Insurance Premiums).
Plus, many health care reform provisions have yet to take effect. As the law stands now, in 2014, you will have to get coverage or pay a fee if you don’t -- unless you fall below very low income limits or meet other specific requirements. Also, no insurer will be permitted to reject you or charge more because of a preexisting condition or set caps on the amount of coverage you can receive.