Reaching the age of 26 is a new benchmark for Millennials, as they mark a new rite of passage of buying health insurance for the first time.
Gen Y-ers lose health insurance coverage under their parents’ plan once they turn 26 and must seek an individual plan, which is mandated by the Affordable Care Act (aka Obamacare).
Becoming 26 years old is counted as a qualifying life event under the ACA, and Millennials have a 60-day time period to research and purchase a health insurance plan. Millennials are required by law to buy their own coverage or face paying the tax penalty of $695 per adult or 2.5% of your taxable income in 2016, whichever is greater.
“Your parents have the option (not the obligation) to keep you enrolled in the family health insurance plan until you turn 26,” said Nate Purpura, vice president of consumer affairs at eHealth.com, an online health insurance exchange based in Mountain View, Calif. “Once you reach that age, however, you’re on your own when it comes to health coverage.”
You can also enroll during the nationwide open enrollment period, which began on November 1 and will continue through January 31, 2016. Millennials who are shopping now for their first health insurance plan should check to see if they qualify for government subsidies and follow these other guidelines.
All Plans Offer Free Preventative Care
One of the mandates of the ACA is that every single plan must include free annual checkups from your doctor, the flu shot and other important vaccines, said Noah Lang, CEO of Stride Health, the San Francisco health insurance exchange company. The preventative care is the same regardless if you buy a bronze, silver or gold plan.
"If you never see the doctor for anything but preventive care, you're effectively getting the same coverage whether you have a bronze or a gold plan," said Purpura. "However, if you get sick or need to pick up prescription drugs, you'll find that your coverage is not the same. That's where higher metal level plans show their value."
Gen Y-ers are likely candidates to qualify for subsidies, which makes their insurance premium cheaper. Earning $47,000 a year or less means you are eligible for them.
One major caveat – if you wind up earning more money than what was estimated, save up some money to pay it back next spring when you are filing for taxes.
“Your subsidies will be based on the money you actually earn during the year you’re receiving subsidies, so be careful not to underestimate your income or you could end up paying some of your subsidies back at tax time,” Purpura said.
Don’t Buy Your Parents’ Plan
Automatically choosing the same plan your parents purchased means you are probably shelling out money for more coverage than you need or will ever use. Your parents might be seeing a physician more frequently or take prescription drugs on a regular basis.
“If you were on your parent's plan, they may have selected richer coverage due to their stage in life,” said Lauren Fifield, head of new product operations at Gusto, a San Francisco-based payroll and health and benefits software provider.
Their plan also could be more robust because either their employer or your parents opted to pay for vision or dental insurance. Millennials can often find a low cost provider for basic vision or dental care.
“If your eyes and teeth are in good health, you may be able to find a dental practice or eye doctor who provides basic services at a relatively low cost out of pocket,” she said. “The great thing about dental and vision providers is that they list their costs like a restaurant menu and you'll be able to understand how much you're likely to spend.”
Premiums Are Just One Factor
Millennials facing student loans and credit card payments are often working with a tight budget, but they should consider how much they can afford to spend for out-of-pocket costs if they have an accident and wind up in the emergency room. The monthly premiums remain a large concern for consumers, but do not overlook your deductible, co-pays and co-insurance. Those three items can add up quickly and into the thousands.
Before you purchase a new plan, make sure the doctor you prefer to see is accepting that plan. Otherwise, visits to that doctor can be extremely expensive, especially if your plan does not cover doctors who are out of network.
High Deductible Plans
High deductible plans cost less, and the premiums are much lower than other options. These plans work well for consumers who do not have any health issues and rarely see a doctor outside of their annual physical.
“Just make sure you could afford the full annual deductible in case of a serious illness or accident,” Purpura said. “Bronze level plans tend to come with the highest deductibles and lowest monthly premiums.”
In 2015, 65% of Americans bought a plan with more benefits than they needed, said Lang. Many consumers, especially Gen Y-ers can save money in the long run by choosing plans with a lower premium.
“Unless you have a medical condition, multiple prescriptions and need to see a doctor frequently, expensive silver and gold plans with more expansive coverage won't be the way to go,” he said. “Stick with a lower cost plan and even though doctor visits and prescriptions will be more expensive, you'll still be saving money.”
Where to Buy a Plan
The marketplace to buy health insurance is growing rapidly, so check Healthcare.gov, the government health exchange, or your state exchange as well as private companies.
Under the ACA, insurance brokers can not discount premiums cheaper than what Healthcare.gov offers.
“It’s not finding the best deal on a premium, it’s finding the best plan that fits you,” said Jack Hooper, CEO of Take Command Health, an online health insurance exchange based in Dallas. “Other websites sell plans at the same price you’ll find on Healthcare.gov, but some provide more options and support.
The “catastrophic” plans are only available to Millennials under the age of 30. The intent of these plans is to provide coverage for a serious illness or injury. The deductibles are typically $6,000 to $7,000 a year. Preventive care is included, because it is an ACA compliant plan, but if a Gen Y-er becomes ill, he must pay everything up to the deductible themselves, Hooper said.
“We really like these plans for Millennials because that’s the kind of coverage a typically healthy one needs,” he said. “Millennials are most likely to have minor expenses or huge ones.”
Health Savings Accounts Are a Benefit
Contributing to a health savings account is also becoming more widespread since some employers will contribute to one, helping to offset medical costs. Like with 401(k) plans, HSA contributions are deducted pre-tax from your paycheck and withdrawals for approved medical expenses are tax free. They also operate much like IRAs and any unused portion rolls over each year.
Only people who have a high deductible plan can open a HSA account. The plan must have an annual deductible of $1,300 for individual coverage or $2,600 for a family, according to the IRS.