Fortune: ‘It’s probably not worth it:’ Keeping your kids on your health insurance could end up costing them more
It seems like a no-brainer decision: Keep your adult children on your health insurance plan until they turn 26 to help them save some on medical costs.
But like most health decisions, it’s not that simple. And with open enrollment around the corner for many Americans, now is a good time to dig into whether having your adult kids skip paying for their own health insurance is the best financial move.
Nearly three-quarters of Gen Z’s parents (72%) pay for their kids’ health insurance, according to a poll published earlier this year of nearly 1,000 U.S. parents with at least one child over the age of 18. That high level of support makes sense given that kids can typically stay on their parents’ health insurance until they turn 26 , thanks to the Affordable Care Act. As part of this legislation, employers, plans, and issuers generally are required to offer dependent coverage for adult children.
Even about 17% of the parents of millennials (ages 26-41) still have their kids on the family health insurance plan. That will likely decrease substantially next year when most millennials completely age out of the “under 26” provision. That said, several states, including Florida, New Jersey, and New York, allow families to get a rider to extend coverage for unmarried adult children past age 26 .
The cost of the extra health insurance isn’t exorbitant, depending on the plan structure—parents spend an average of about $157 per month to keep their kids on their health plan, according to the survey.
But while it might be tempting for adult kids to skip shouldering the health insurance costs for now, staying on a parents’ plan is no guarantee that medical expenses will be lower overall. Especially if your adult children live in another state or region, and your insurance is a health maintenance organization (HMO) type of plan, an exclusive provider organization (EPO), or other limited-network plan.
“If you’re considering staying on your parent’s plan instead of getting your own coverage, it’s important to consider cost—and coverage,” says Kim Buckey, vice president of client services at employee benefits program provider Optavise (formerly known as DirectPath).
What’s covered and what could be missing
For some families, continuing to have their adult children on their parents’ health insurance works out just fine. Typically, Americans in their 20s are healthy, and having a some coverage is better than none. Plus, health insurance plans do typically have to pay for emergency room visits under the ACA, even for out-of-network emergency services. But even with that coverage, the costs of an ER visit easily can be in the thousands.
But emergency coverage doesn’t extend to regular doctor’s visits, therapists, urgent care, lab work, and even prescriptions. All of these services may be billed at out-of-network rates—which may mean little to no coverage. As a result, adult children may incur significant out-of-pocket costs to get basic medical services and preventative care.
There are also limitations on what medical procedures are covered for adult children. Not every plan covers elective abortions for example, or maternity care for dependents, Buckey says. And if a Gen Z child is on certain medications, a parent’s prescription plan’s formulary may not cover the desired drugs.
Additionally, if an adult child marries or has their own child, parents won’t be able to add that new family member to the coverage through their health plan, Buckey says. Staying on a parents’ health plan also may mean less privacy. The primary policy holder typically gets notifications about any medical visits billed through the insurance—and so they could see billing codes for various procedures and services.
Although some adult children may simply rely on their parents’ insurance for 100% of their coverage, others have taken to using it as a secondary insurance. But is it worth having a secondary insurance through your parents? Typically not, Buckey says, in large part because the cost of monthly premiums would likely outweigh any potential benefit.
Kids would also have to meet two separate deductibles and juggle rules for both their primary plan through their employer and the secondary plan through their parents. If the primary plan, for example, is an HMO or EPO and the adult child goes out of network for their care, the services may not be covered (unless it’s an emergency). And because the services aren’t covered by the primary plan, the secondary plan may also reject coverage.
“Health plans have coordination of benefits provisions, in part to help ensure you are not reimbursed for more than the actual cost of a service. So you may not get much, if any, additional benefit for having two plans,” Buckey says.
Let’s say your child racks up a $1,000 medical expense. If their employer’s plan covers 80% of the cost of a service ($800 in this case), and the parent’s plan also covers 80% (or even a lesser percentage), they would get no additional benefit—because they’ve already received a payment equal to what the plan would pay.
If their primary plan covers 70% of the cost ($700) and the parent’s plan covered 80% ($800), the adult child only receive $100 from their parent’s plan. Basically the difference between what it would have paid and what the primary plan did pay, Buckey says. “When you compare that additional $100 to the hundreds if not thousands of dollars you’ve paid in premiums over the year—it’s probably not worth it,” she adds.
How to compare plans
When it comes down to it, an adult child’s employer-sponsored health plan may actually cost less—in premiums and cost-share—than their parent’s plan.
To compare plans, look at premium first. If a parent is covering another dependent child (a sibling, for example), it might not cost them anything additional to continue to cover everyone. But for only children, parents may be paying more for the coverage. “This is something [adult kids] should probably be reimbursing them for,” Buckey says.
Next, look at cost share—what are the deductibles, copayments, and coinsurance of each plan option available. How do the plans cover prescription drugs? What’s the out-of-pocket maximum on the plan. Many times, these variables are the primary drivers of everyday out-of-pocket costs.
A high deductible health plan with a low premium, for example, may actually be more expensive over the course of the year than a preferred provider organization (PPO) plan with a lower deductible and slightly higher premium, Buckey says. And be sure to review the network coverage and what services and supplies the plans cover.
“You don’t want to pay for more than you need—but you also don’t want to be caught without enough coverage should you need care,” Buckey says.
Being able to analyze and select the right health care plan is a life skill that workers will utilize throughout their career. The longer kids stay on their parents’ health plans, the longer they delay learning this skill. “The sooner you’re comfortable with this process, the better you’ll be at shopping for care and coverage—saving you money in the long run,” Buckey says.
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