INSURANCE FOR NEW GRADUATES
April 18, 2009 -- My daughter is graduating from college this month, but she hasn't found a job that offers health insurance. Can she stay on my policy?
It depends on where you live. In the past, children were generally dropped from their parents' health insurance when they turned 18 or 19, or when they graduated from college. But more than 20 states now require insurers to cover dependent children on their parents' policies until the kids are in their mid twenties -- and sometimes up to age 30 -- even after they've graduated. It's one way that the states hope to cut down on the large number of uninsured people in that age group.
The new rules were designed to help in situations like your daughter's, and many other graduates will likely have similar experiences as they struggle to find a job with health benefits in this economy. To qualify for the extended coverage, adult children generally must be unmarried and live in the same state as their parents. But they usually don't have to live with their parents or even be considered dependents for tax purposes to qualify (the rules vary by state). For a list of each state's laws, see the National Conference of State Legislatures Web site.
In many states, you may not need to pay extra to keep an adult child on your policy if you would have kept a family policy anyway to insure younger siblings. But if the insurer bases premiums on the number of children, or if you're insuring only one child and could otherwise switch from family coverage to rates for a single person or a couple, it's important to compare that extra cost with the price of buying an individual policy for your daughter.
If she's healthy and lives in a state with a competitive health-insurance marketplace (not New York or New Jersey), then she could get a better deal on her own. In many states, healthy people in their twenties can purchase insurance on their own for less than $100 per month. Go to eHealthInsurance.com or find an insurance agent in your area through the National Association of Health Underwriters.
A good way to lower the price for healthy young adults is to buy a high-deductible policy and pair it with a health savings account. Your daughter can make tax-deductible contributions to the account and use the money she saves tax-free for out-of-pocket medical expenses (see Health Savings Account Answers for more information). You can give your daughter money to make the HSA contributions, if you'd like. Even if she eventually gets a job with health insurance, she can keep the money she's already contributed to the HSA and use it for out-of-pocket medical expenses at any time.
If your daughter has any medical issues, though, she might have a tough time finding an affordable health-insurance policy on her own. In that case, keeping her on your policy may be your best bet. And if she still doesn't have insurance after reaching the cutoff age (often 25), then she may be able to remain on your policy for up to 36 months through COBRA, a federal law that requires employers to continue coverage of former employees and family members after they are no longer eligible for group insurance (former employees can keep health insurance through COBRA for up to 18 months after they leave their jobs).
The price will jump significantly under COBRA, however, because your daughter will need to pay the entire price of coverage herself -- there's no employer subsidy after she no longer qualifies as a dependent (and there's no government subsidy, either -- that only applies to certain people who have been laid off).
Even if you think your daughter might get a good deal on her own coverage, it's important to apply for a policy before she loses eligibility under your policy or to sign up for COBRA while she shops around. You can always drop the COBRA coverage if she finds other insurance later, but it's important not to lose the opportunity to have that as a backup.
Keep in mind that COBRA applies only to companies with 20 or more employees (although some states have COBRA-like rules for smaller companies), and COBRA is discontinued if the employer stops offering health insurance to its employees or goes out of business. See What Happens If Your Employer Goes Broke? for more information.
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