Should Young Adults Stay on Parents’ Health Plans?

While the axiom “necessity is the mother of invention” usually applies to the world of tangible goods, lately it applies to the world of health-care services, too. Rapidly escalating costs are forcing governments and the private sector to get creative to reduce the number of uninsured individuals. Solutions have ranged from health savings accounts to private high-deductible health plans to calls for universal coverage. Now comes another legislative trend: States are enacting an expanded definition of “dependent” that enables young adults to stay on their parents’ health plans well into their 20s.

What’s behind this trend?
It’s a typical scenario: “Children” are covered by their parents’ health insurance while they’re full-time college students, but after graduation, the “children” often decide they can’t afford their own health coverage. Instead, any discretionary income that could be used for health insurance is swallowed up by student loans, credit card debt, car insurance, and rent.

According to a 2005 published report from the U.S. Census Bureau (the latest year for which figures are available), about 30% of young adults ages 18 to 24 are uninsured, and more than 25% of individuals ages 25 to 34 lack health-care coverage. Along with the cost factor, it’s believed that many young adults choose to forgo health insurance because of the invincibility factor–they’re in relatively good health and just don’t expect to get seriously sick or injured.

Enter the states
To help this fastest-growing group of uninsured, a handful of states have passed legislation extending the time that a child may be considered a dependent for insurance purposes. Some states already extend this age if a child has a mental or physical disability. But now, states are expanding the age definition of dependent for purposes of health-care coverage with no requirement that a child be disabled. The typical age limit is 25 (though in New Jersey, a child can now remain on his or her parents’ health plan until age 30, if certain requirements are met).

States that offer this coverage typically allow private insurers to charge higher premiums and impose other restrictions (e.g., the child must be unmarried, reside in the state, live with his or her parents). Since extended health coverage is relatively new, it remains to be seen what other tweaks states will allow private insurers to make. For the most part, though, insurers have viewed this age demographic as an attractive risk due to the overall good health of this group.

Is the extra cost worth it?
Assuming the “child” meets the requirements, keeping him or her on the family health plan after college may be a good idea. For a few hundred extra dollars per month, the parent gains peace of mind knowing the child will be covered (and the parent will be off the hook) for that skiing accident or emergency appendectomy. Otherwise, an unexpected medical crisis could put a big crimp in the child’s financial future, and most likely the parents’ too.