How Millennials Should Buy Their First Health Insurance Plan

Editors' pick: Originally published May 25.

Millennials who are graduating from college and entering the workforce should ensure they purchase the right type of health insurance coverage.

Millennials who are under the age of 26 can still stay on their parents health coverage despite the fact that they have a different address and are not claimed on their taxes, according to the Affordable Care Act.

"Under Obamacare, your parents can keep you on the family health insurance plan even if you're married," said Nate Purpura, vice president of consumer affairs at eHealth, an online health insurance exchange based in Mountain View, Calif. 

A plan offered by your employer, the government or private marketplaces might provide better benefits such as broader prescription coverage or cost less monthly. Millennials who live in a different city or state from their folks also might face some obstacles since the number of physicians on their plan might be reduced.

"You may not have access to the network doctors and hospitals when you stick to your parents' plan," he said.

Pursuing a plan with the most comprehensive coverage will lower the amount of money you spend of out of pocket costs because the doctor is not in the network or when you see a specialist.

Your current university health insurance plan could allow you to extend the coverage even after graduation, said Noah Lang, CEO of Stride Health, the San Francisco health insurance exchange company.

"Be sure to check, because the rules vary from school to school," he said. "It's best to find an individual plan that will cover you long term, but your university's insurance is better than nothing."

Even if your employer offers coverage, your best bet is to shop online and compare them. The plans they offer might cost more or not offer the type of coverage you are seeking.

"Be sure to take a close look at the dollars and cents you need to contribute out of your paycheck to participate," Lang said. "You may find it's cheaper to buy a plan of your own, especially if you qualify for a government discount."

Why Premiums Are Not Only Factor

While the monthly premium plays an important issue when it comes to your budget, the cost should not be the only factor when you choose a plan.

Examine the amount of the deductible, the out of pocket costs and prescription drug coverage, especially if you take medicine daily. The annual deductible often ranges from $2,000 to $6,000, so make sure you have a plan and can afford it in case of an emergency or serious illness, Purpura said.

Millennials could pick a low premium plan and an affordable deductible and open a Health Savings Account (HSA), said Darcey Schoenebeck, who heads business development for SingleCare, a Columbus, Ohio healthcare company. An HSA mimics an IRA, and any unused funds roll over each year and any remaining money can be used for retirement after the age of 65. The contributions are not subject to federal income taxes.

"An HSA gives you a pool of money for out of pocket expenses you might incur," she said.

Many Millennials qualify for a subsidy, because their annual income falls below $47,000 or not more than 400% of the federal poverty. This does not apply if someone else claims you on their taxes as a dependent. If your salary increases during the year, be prepared to pay back a portion of the subsidy.

"Subsidies can make it very affordable to get coverage on your own," Purpura said.

Subsidies cannot be used on catastrophic plans, which are cheaper, but only available to people under the age 30. These plans are ACA compliant and offer free annual checkups, which mean you can avoid paying the hefty penalty.

Avoid Paying a Penalty

When consumers fail to have insurance coverage exceeding two months, they should expect to pay the ACA penalty, which is $695 per adult or 2.5% of your taxable income, whichever is greater.

Another catch is that open enrollment period only occurs once a year and starts November 1 for 2017 plans. Qualifying life events allow consumers to purchase health insurance coverage outside of open enrollment. While graduating from college does not qualify, getting married or divorced, losing coverage under an employer plan or moving to a new city where your previous plan does not work, triggers the 60-day special enrollment period during which you can enroll in Obamacare coverage and also apply for subsidies, Purpura said.

Although short-term health insurance plans will suffice for temporary gaps in coverage and prevent you from going into debt for an emergency, "they will not save you from an Obamacare tax penalty," he said. "Neither will life insurance, dental or vision insurance or accident insurance, so be careful when you sign up."

Learn the Metal Plans

Health insurance plans are now designated by a metal level - platinum, gold, silver or bronze. The names of the metal levels are intended to be a shortcut on how much a consumer will pay for their coverage.

Choosing a higher metal such as gold or platinum means the out of pocket costs from a doctor's visit will be less. The silver and bronze plans, which are the lowest metal plans, "tend to have higher cost sharing" and consumers will have to spend more money on deductibles and co-pays, Purpura said.

The metal plans were established to differentiate between the amount of cost sharing or actuarial value for each option - bronze plans cover the least amount at 60% of a person's medical costs while silver plans covers 70%. As the names imply, the higher the metal, the more coverage it provides and gold plans cover 80% and platinum covers 90% of the costs.

Gen X-ers and Millennials who rarely go to the doctor might opt for a bronze plan. Consumers who take prescription drugs on a regular basis or have other ailments should consider buying a silver, gold or platinum level plan. Although you pay more in your premium each month, that money could be "more than made up for in the money you'll save when you get medical care over the course of the year," he said. A bronze plan sold by one insurer is not the same as a bronze plan sold by a competitor, so check out the details.

Skipping out on buying health insurance is a big risk, and you could wind up paying the entire amount of the visit, X-rays and any follow up care.

"If you get injured or sick, insurance protects you — treating a sprained ankle could mean shelling out over $1,200 without insurance, but with insurance, you could pay under $100," said Lang.

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