Health Coverage for College Grads

My daughter is about to graduate from college, and I know that the new health care law lets me keep her on my health insurance policy. Is that the best way for her to have health insurance? If so, will I need to pay extra or take any special steps to make sure she stays on my policy after she graduates?

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Adult children can now stay on their parents’ health insurance policies until age 26, even if they’ve graduated from college. Keeping your daughter on your policy can be an easy way to continue coverage if she doesn’t have a job with health benefits. You usually don’t need to take any special steps at graduation -- most insurers automatically continue coverage for dependents for the rest of the plan year -- but you may need to check a box on your enrollment forms or sign up for dependent coverage again when you choose next year’s coverage during open enrollment.

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Keeping your daughter on your policy may not always be the best solution, however. Before you do so, do your homework to see whether she can get a better deal on her own.

Find out about extra costs. Insurers can’t charge higher premiums on family plans specifically for college graduates, but they can charge extra for dependents of any age. If you have other children covered under the policy and the insurer charges one family rate regardless of the number of kids included -- which is typical -- then you may not have to pay extra to keep your daughter on your policy. But if your daughter is the only child covered and you would otherwise drop from family coverage to single or couples coverage, or if the plan charges extra for each dependent, then you might end up paying more to keep her on your policy than for her own coverage. In most states, healthy people in their early twenties can buy a health insurance policy on their own for $100 to $200 per month. You can get price quotes for individual policies at eHealthInsurance.com or find out about policies available by zip code at HealthCare.gov.

Ask about your plan’s out-of-area coverage. Although you can keep your daughter on your policy, she may not have access to in-network providers if she moves to a different state. “Insurers typically don’t negotiate rates or relationships with medical providers outside of their local area,” says Carrie McLean, consumer expert with eHealthInsurance.com. If you have coverage through a regional HMO with a small network of doctors and hospitals, her coverage may be limited to emergency services in her new state. Even with a preferred-provider plan, which allows for out-of-network care, the network might not extend to her new area, and she would likely have to pay much larger co-payments for out-of-network care than for in-network. Insurers with national plans, such as Cigna, typically have plenty of doctors and hospitals in-network around the country. “The best course of action is for the dependent to request a summary of benefits for the new location,” says Kelly Brooke, of Cigna.

Learn how the rules work if your child gets a job with coverage. If your daughter does get a job with health benefits, signing up for coverage through her new employer may be her best bet, especially if her employer subsidizes a big chunk of the cost (employers typically pay 60% to 75% of the premiums for their employees). But if your daughter’s new plan has mediocre coverage and a high price tag, she may want to stay on your policy. That may or may not be an option, however, depending on whether your plan is considered to be grandfathered -- the technical term for health insurance plans that haven’t changed significantly since the health care reform law was passed. (Ask your benefits administrator or insurer about the status of your plan.) If your plan is not grandfathered, your daughter can stay on your policy even if her new employer offers health insurance. But until 2014, grandfathered plans are not obligated to offer coverage to a dependent up to age 26 if the young adult is eligible for an employer-sponsored plan outside of the parents’ plan, says Brooke. Ask your employer about the eligibility rules.

Consider a high-deductible individual policy. Young, healthy people may be able to find low-cost health coverage in most states by buying a policy with a high deductible -- at least $1,200. Such policies provide coverage for major emergencies and illnesses but leave the policyholder to cover smaller expenses (most plans must now provide some preventive-care benefits, including annual check-ups and certain tests, without charging a co-payment or imposing the deductible). If the policy has a deductible of at least $1,200 for individual coverage, your daughter can also make tax-deductible contributions (of up to $3,050 in 2012) to a health savings account, which grows tax-deferred and can be used tax-free for medical expenses in any year. You can give her some money to help build up her HSA balance, which can help cover the deductible, co-payments or other out-of-pocket costs for her medical expenses.