Being young usually means being healthy—but youth is not a guaranteed defense against medical expenses. Advisors often answer questions about Medicare enrollment, but discussing health insurance for younger clients can seem more daunting—especially when those individuals will lose coverage under a parent’s plan at age 26 and don’t have an employer-sponsored insurance option. Understanding their health insurance market will enhance your ability to develop financial plans for clients who are just starting their careers. Your guidance can also alleviate the concerns of clients whose children are selecting health insurance for the first time and potentially attract that next generation to your practice.
Turning 26: A Health Insurance Milestone
Clients who “age off” their parent’s health insurance on their 26th birthday qualify for a special enrollment period, which begins 60 days prior to and ends 60 days after their birth date. Within this 120-day period, clients for whom employer-sponsored coverage is not available should review the options offered through COBRA, their state, and the Affordable Care Act (ACA).
By opting for a COBRA plan, clients can extend the coverage received through a parent’s employer-provided health insurance plan for up to 36 months. Continuity and the certainty of using the same health care providers is COBRA’s advantage. Its disadvantage is cost. A parent’s employer will not continue to pay its portion of the insurance premium after age 26, and the high cost of COBRA coverage usually makes it unaffordable.
The insurance laws of some states allow adult children to remain on their parent’s insurance after age 26. States that permit extended dependent care coverage are Florida, Nebraska, New Jersey, New York, Pennsylvania, and Wisconsin. Each state’s laws are different, but most require that the dependent be unmarried or a state resident.
State law also factors into the availability of short-term plans. In October 2017, President Trump signed an executive order to remove federal restrictions on short-term health insurance plans. In August 2018, the U.S. Department of Health and Human Services (HHS) implemented the executive order by issuing a final regulation, which gave states the power to regulate and restrict the sale of short-term policies. Under the final regulation, short-term plans may be extended for up to 36 months, and coverage may be limited, but services that are not covered must be disclosed. Currently, short-term plans are not available for purchase in California, Hawaii, Massachusetts, New Jersey, New York, Rhode Island, Vermont, and Washington.
Coverage Under the ACA
Legal considerations. There are two recent ACA developments that are likely to confuse clients. First, the Tax Cuts and Jobs Act repealed the individual mandate penalty. As of January 2019, there is no penalty under federal law for being uninsured. Clients should be aware, however, that a few states, including Massachusetts, New Jersey, and the District of Columbia, will assess their own penalty on residents who fail to obtain health insurance. Vermont will begin to assess a penalty in 2020.
Second, in December 2018, the U.S. District Court for the Northern District of Texas found in Texas v. Azar that the ACA is unconstitutional. The District Court’s ruling encompasses the whole statute—even the provision that allows children to stay on a parent’s health insurance until age 26. HHS confirmed that the ruling in Texas v. Azar does not change its current enforcement of the statute. Because appellate litigation will take time, and its outcome is uncertain, it is impossible to speculate when and how challenges to the ACA will be finally settled. For now, advisors should learn the ACA’s framework, as it is still part of the health insurance market.
Coverage framework. The ACA encompasses two separate sources of health insurance: the state and federal exchanges and state Medicaid expansion. Both have complex details that often discourage clients. Advisors can relieve that frustration with basic information about the differences and similarities between the exchanges and Medicaid expansion.
The primary distinction here is that Medicaid is a government program. Although a state’s Medicaid program may contract with a private insurer to provide managed health care, a state agency still determines eligibility and covered services.
In contrast, any U.S. citizen or legal resident who does not have affordable employer-sponsored coverage can shop on an exchange and choose health insurance from a private insurer. The types of health insurance available through an exchange are catastrophic plans and the metallic plans—bronze, silver, gold, and, in some areas, platinum. Each type of plan has its own premium and out-of-pocket expense, but all plans obtained through an exchange must cover 10 essential health benefits:
- Laboratory services
- Emergency services
- Prescription drugs
- Mental health and substance use disorder services
- Maternity and newborn care
- Rehabilitative services
- Ambulatory patient services
- Preventative and wellness services and chronic disease management
- Pediatric services, including vision and dental care (Adult vision and dental care are not essential services.)
Catastrophic plans are available only to clients who are younger than 30 or who are older than 30 and qualify for a hardship exemption. One hardship exemption—property loss related to a fire, flood, or disaster—may be particularly important in certain regions. Catastrophic plans have low premiums and include the 10 essential health benefits. Their downside is that they cover only three primary care visits and certain preventative services before a high deductible must be met. The 2019 deductible is $7,900.
The main similarity between Medicaid expansion and the exchanges is that both use a household income measure called the federal poverty level (FPL) to establish income-based eligibility rules. The FPL is a benchmark HHS sets each year based on income and family size. In states that expanded Medicaid under the ACA, income eligibility for their programs is set at 138 percent of the FPL. In states without expanded Medicaid coverage, eligibility depends on each state’s rules. The exchanges use percentages of the FPL to determine eligibility for two subsidies: premium tax credits and cost-sharing subsidies.
Premium tax credits can lower monthly premiums for clients with modified adjusted gross income (MAGI) between 100 percent and 400 percent of the FPL. MAGI used to assess eligibility for premium tax credits includes nontaxable social security income, tax-exempt interest, and foreign-earned income. Premium tax credits cannot be applied to catastrophic plans, and they are not available if a client’s MAGI exceeds 400 percent of the FPL.
Cost-sharing subsidies, which can reduce deductibles and co-payments, are available for clients with MAGI between 100 percent and 250 percent of the FPL. These subsidies are available only for silver plans, and the insurer, not the federal government, provides the subsidy.
Guiding Next-Gen Clients to Financial Success
The insurance market can be a convoluted place for those leaving a parent’s plan without employer-sponsored coverage. But with your guidance and knowledge of health insurance for younger clients, they can learn how to navigate their choices and develop solid financial plans—while realizing the value of having a trusted advisor to guide them along the way.
Have you seen an increase in the questions you receive on health insurance for younger clients? What tips do you have for clients whose children are selecting health insurance for the first time? Please share your thoughts with us below!