One of the earliest-implemented provisions of the Affordable Care Act (ACA) was the requirement that parents be allowed to keep their adult children on their health insurance until age 26. As a result, many families did just that. Even when the adult child was offered coverage through his or her employer, it often made sense for many reasons for the “child” to stay on the parents’ plan.
With the next phase of ACA rolling out very soon, that decision is about to become more complicated.
Americans who meet certain income requirements and who cannot obtain from their employer coverage that costs 9.5% of their income or less, will be eligible for a subsidy if they buy their health insurance on their states’ exchange starting on October 1, 2013.
This could make it more attractive for a young person to buy his or her own insurance on the exchange.
However, here are some other factors to consider:
How much does the young adult earn?
The amount of subsidy is calculated on a sliding scale based on age, household size, and income. So, depending on the child’s earnings, the subsidy may or may not be enough to make an exchange plan cheaper than the additional premium to keep the child on the parents’ plan. Of note, subsidies for younger people will be lower than for their older counterparts.
Is the young adult claimed as a dependent?
The subsidy for an exchange plan depends on household income, not individual. Therefore, a young adult claimed as a dependent by his/her parents may not be eligible for a subsidy.
For a young adult with a modest income, it may make more sense to not claim that child as a dependent, and allow him/her to get his/her own insurance on the exchange, using a subsidy.
However, if an entire family will get its insurance through the exchange, keeping the adult child as a dependent adds another person to the household, stretching the income across more people. For example, a 55-year-old couple earning a combined $78,000 wouldn’t be eligible for subsidies, but if they included their jobless, 24-year-old child, they could receive more than $9,000 in tax credits.
Does the young adult live in a different state or different region of the state than the parents?
If the young adult does not live near the parents, keeping the child on the parents’ plan may prove very costly when services are actually needed. If the child must use out-of-network providers for his/her care, these extra costs may outweigh the lower premium associated with keeping the child on the parents’ plan.
On the other hand, if the child is normally healthy and can schedule routine medical care during visits home, then staying on the parents’ plan may be a good option.
How old is the young adult?
If the young adult is close to the age at which coverage will be cut off (some carriers stop coverage on the 26th birthday, others may extend it to the next policy anniversary date, some even to age 30) it may be wise for the child to move to his/her own coverage during open enrollment for 2014 plans. Also, if the young adult is planning to marry and/or have children, he/she will need his/her own coverage as in-laws and grandchildren cannot be covered on the parents’ plan.
How old are the parents?
Because Medicare does not allow coverage for children of any age, if the parents are nearing 65 and retirement, the young adult will need his/her own policy.
Is the parents’ plan exempt from the requirement to cover to age 26?
If the parents’ policy is grandfathered (it was purchased before March 23, 2010 and has been in effect continuously without substantial changes), it is exempt from some provisions of ACA and therefore may not provide coverage through age 26.
Each situation is different. Each family is different. We can help you decide which is the best way to go, and then we can help you make it happen! Give us a call or send us an email!