26 and Losing Your Parents’ Health Care: What’s Next?

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26 and Losing Your Parents’ Health Care: What’s Next?

The Affordable Care Act (also known as Obamacare) opened the door for many people to get health insurance who previously didn't have access.

Thanks to a provision of the law that now allows young adults to stay on their parents' health insurance until age 26 (previously, young Americans were "aged out" of their parents' plan by 19, or 22 if you were a full-time student), 7.8 million young adults became eligible to have health insurance who wouldn't have qualified before the law was passed.

The Affordable Care Act has been popular with this demographic. Since 2010, 5.7 million young adults gained coverage by either opting to stay on their parents' plan or enrolling in expanded marketplace or Medicaid coverage. This increase could also be in part because of a financial penalty that may be imposed if you don't have health insurance.

However, many of those young adults may soon be facing their 26th birthday - and the end of their current coverage.

3 Options Once You Lose Your Parents' Health Insurance Coverage

Losing your parents' coverage? There are a variety of options you might want to take.

1. See if you qualify for catastrophic health insurance.

If you're really struggling financially, a catastrophic plan may be a good option for you. Catastrophic plans are available in most states to young adults under 30 or anyone who qualifies for a hardship exemption.

These exemptions include having medical expenses you were unable to pay that resulted in substantial debt, the death of a family member or eviction.

Catastrophic coverage is typically the cheapest on the marketplace and can be bought year round - but the coverage is minimal. It generally covers emergencies and some preventative care and is worst-case scenario coverage.

You'll pay most routine medical expenses yourself up to the deductible limit, which is relatively high. Having catastrophic coverage means you won't have to pay the penalty; however, make sure the plan is a qualified health plan or it won't be counted as health coverage.

2. Check to see if you qualify for Medicaid.

Before Obamacare, you were unlikely to qualify for Medicaid through income alone.

Thanks to Obamacare, some states expanded Medicaid coverage so that in those states, you can now qualify through income alone. In the 32 states (including the District of Columbia) that expanded coverage, you may qualify if your income is below 138 percent of the federal poverty level (in 2016, $16,394 for a one-person household).

However, if you live in one of the 19 states that didn't expand Medicaid or one of the states with a lower threshold, you may not be able to qualify for coverage through income alone.

3. Shop for a plan on the marketplace.

Millions of lower-income Americans who purchase health insurance through the federal or state marketplaces might qualify for a subsidy (also known as a tax credit). The Kaiser Family Foundation estimated that in 2014, 17 million people who in previous years were uninsured or buying insurance on their own were eligible for these credits.

The impact of these credits can be huge. The Department of Health and Human Services analyzed 2014 health plan premiums and found that people who purchased a plan through the federal marketplace and qualified for a subsidy paid 76 percent less than the full premium ($346 to $82 per month).

And you may qualify even if your income is relatively high. For example, if you live alone in Florida and earn between $29,426 and $47,080, you likely qualify for a subsidy.

The federal health insurance marketplace offers five tiers of health insurance coverage: bronze, silver, gold, platinum and catastrophic. The "metal" plans each have a different level of cost-sharing and generally, the more costs you cover, the cheaper the premium.

If you get a bronze plan, your insurer covers an average of 60 percent of out-of-pocket costs across all bronze plans on average, so this may not translate as your insurer covering 60 percent of YOUR costs. To know the true cost-sharing of your plan, you should read your plan's benefit sheet.

One drawback to note when shopping for an Obamacare health plan is that you can only shop during the open enrollment period, which ended on Jan. 31, 2016 and won't reopen again until Nov. 1, 2016. However, you may be eligible for special enrollment after you "age out" of your parents' plan - if eligible, you must enroll within 60 days of aging out of your plan.

Why Obamacare is Important for Young Adults

Young adults traditionally have had many problems with access to health insurance.

According to a U.S. Department of Labor fact sheet, young adults are less likely to get health insurance through an employer - the uninsured rate among young employed Americans is one-third higher than older, employed adults. This may be in part because young adults often have low-wage or temporary jobs, which generally don't come with health benefits.

You might be thinking, "So what? Young people are reasonably healthy and can probably get by without health insurance."

However, it turns out this is a myth - the Department of Labor says that one in six young people has a chronic illness, such as diabetes or asthma. So being uninsured can also put their financial health at risk - nearly half of uninsured young adults reported having problems paying their medical bills.

The Obamacare Penalty

If you lose your parents' health insurance coverage, you may be tempted to go without health insurance for a while, especially if it seems like it's financially out of reach for you.

However, should you choose this route and remain uninsured for more than three months in a row, you'll likely have to pay a financial penalty as a result of an Obamacare mandate.

There are cases where you may be exempt from paying the penalty, including:

  • If your income was below the tax filing threshold.
  • You live in a state that didn't expand Medicaid but you would have qualified if it had.

If you don't qualify for an exemption, the penalty for being uninsured in 2016 is 2.5 percent of your household income or $695 per person in most circumstances, whichever is higher. The maximum penalty based on percentage of income is the average cost of a 2016 bronze plan - this figure isn't yet available, but the cost of the average bronze plan in 2015 was $2,484.

You typically pay this fee when you file your federal tax return for the year you don't have insurance.

Bottom Line

While you may not feel ready to lose your parents' health coverage, there may be options for you, even if you're struggling financially. Do your research to determine which is the best for your situation and don't forget that you may be subject to a financial penalty if you don't have health insurance.

About the Author:Korrena Bailie is Credit Karma's Managing Editor. She's been writing and editing personal finance content since 2012. When she's not scanning personal finance-related Google Alerts, she's climbing, traveling to countries where it rains all the time (ahem, Ireland) or talking to her cats as if they're people.

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I'm not really sure why there is ANY age limit on being on your parent's insurance.... I mean, they could pay your car insurance for you if they really wanted to, why not health insurance? Makes 0 sense to me...

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