Graduation day frequently means losing health insurance

PERSONAL FINANCE

March 21, 2004|By EILEEN AMBROSE

BEFORE too long, college seniors will be getting diplomas -- and one of their first financial lessons in the real world: As new graduates, they face being dropped from parents' health insurance.

Policies differ, but young adults typically lose their parents' coverage at age 19, or if they go to college, at 22 or 23.

So just as they are intent on a job hunt or moving off campus, they have the added hurdle of finding insurance.

Many don't bother.

About one in four young adults, age 18 to 24, are without health insurance, making them the least likely of any age group to have medical coverage, according to the 2000 U.S. Census.

Zachary Trunzo of Cockeysville was one of those briefly. The 24-year-old says he was bumped from his parents' insurance after he graduated from Towson University in January. At the time, he had other things on his mind.

"I was more worried about trying to get a job than worried about my health insurance," he said. Luckily, within weeks he landed a job that came with insurance benefits. Otherwise, he admits, he might have continued to go without coverage.

Trunzo's girlfriend, Sarah Jones, is a healthy junior at Towson, but she plans to buy insurance once she graduates. Seeing the dilemma Trunzo faced and watching her older brother go for months without insurance as he searched for work has made the 20-year-old aware of the problem.

"I would probably be scared every time I was doing something," without insurance, Jones said. "What happens if I'm in a car accident?"

In Maryland, there's a move in the legislature to make it easier for young adults to be covered. Legislation introduced early this year in the General Assembly would have required insurers to permit parents to keep a child on their insurance up until age 30. The bill has been revised, and now calls for insurers to give 60-days notice when a child will be dropped and spell out policy options for the young adult.

"It's the first step to get people aware that this is a problem," said Del. Dan K. Morhaim, an emergency medicine physician who sponsored the legislation.

So what are some of the options available to young adults who might soon lose coverage?

Stay put

In some cases, young adults can continue coverage up to 36 months under a parent's insurance plan through COBRA, the federal law that allows workers to maintain coverage for a limited time after leaving an employer. Coverage under COBRA is available if the parent works at a company with 20 or more employees.

But it's not cheap. The graduate would assume the full amount of premiums for an individual employee and might also be charged a 2 percent administrative fee, said Stephen J. Salamon, an independent insurance broker in Lutherville.

"A lot of folks don't realize how much the employer is paying toward the premium. The COBRA comes along and it's `Whoa, that's expensive,' " he said.

A young, healthy person often can find cheaper insurance with a high deductible, he said.

Short-term plans

These plans are ideal for those in transition between graduation and a job with insurance benefits, said Robert L. Fahlman, chief operating officer at eHealthInsurance.com, an online insurance broker. The plans basically cover a young adult in the event of a major medical problem. Coverage for pregnancies typically isn't included.

Policies and terms will differ from state to state. But Fahlman said short-term policies generally can be purchased for a minimum of 30 days and for as long as 12 months. They can usually be renewed once for up to another 12 months, he said.

A typical deductible, the amount the insured must pay out of pocket before insurance kicks in, is $1,000, Fahlman said. The premium for such a policy can range from $50 to $100 a month, he said.

Individual policy

You can buy a policy from a variety of health plans. Some restrict your choices of doctor or hospital; others don't.

Traditional insurance, called an indemnity plan, doesn't limit your choices. A preferred-provider organization allows you to see doctors outside its plan, although you'll pick up more of the bill.

A health maintenance organization is more restrictive. With an HMO, you choose a physician from a network of doctors, and pay the entire tab if you go to a doctor outside the plan.

The higher the deductible, the lower the premium. So, healthy young adults can opt to pay the first $1,000, $2,500 or $5,000 to keep their premiums affordable, Fahlman said.

For example, a PPO premium for a 26-year-old Baltimore male with a $1,000 deductible will be nearly $100 a month, according to eHealthInsurance.com. That same consumer can get an HMO policy with no deductible for $163 a month.

You can be rejected for coverage based on your health. If that happens, check what programs your state might provide for residents denied coverage based on medical history.

Health savings account

The new Medicare law created this account that works in combination with high-deductible insurance. It's available to those under age 65.

Tax-free dollars go into the account, where it's invested, for example, in a money market fund. Money can be withdrawn, still free of tax, to be used over the years for medical expenses, such as deductibles. Take money out for non-medical purposes, though, and you'll be hit with income taxes and a 10 percent penalty.

For singles, the insurance policy must have a deductible of at least $1,000. Individuals can also put away up to $2,600 a year in the account, although annual contributions can't be more than the deductible.

While ideal for self-employed individuals or those with high-incomes who can afford high deductibles, young adults should consider them, too, Fahlman said.

Only a few insurers now offer them, but all likely will provide them by year-end, he said. Consumers will need to do their homework as startup costs and other fees vary, he said.

To suggest a topic, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com.

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