Introduction
Turning 26 is a major milestone in a young adult’s life. It marks the transition from being covered under a parent’s health insurance plan to needing your own individual insurance policy. Losing eligibility for parental coverage can be daunting, but getting health insurance is critically important. Going without coverage, even for a short period, can lead to financial disaster if you experience a medical emergency or unexpected illness.
With some preparation and knowledge ahead of time, the process doesn’t have to be overly complex. This guide will walk through everything you need to know as a 26 year old getting your first health insurance policy. We’ll cover the key factors in choosing a plan, explore different types of plans, provide tips on finding and enrolling in coverage, explain how to avoid tax penalties, and give guidance on next steps once you’ve obtained insurance. With the right information, you can secure quality, affordable health insurance and gain peace of mind.
Types of Health Insurance
There are several main types of health insurance plans to choose from:
- HMO (Health Maintenance Organization) – This type of plan usually provides lower costs and less flexibility. You choose a primary care physician within the HMO’s network who coordinates your care. Referrals are required to see specialists. Out-of-network care is usually not covered except in emergencies.
- PPO (Preferred Provider Organization) – This type of plan offers more provider choice flexibility at a higher cost. You don’t need referrals to see in-network specialists. Out-of-network care is partially covered but you will pay more.
- POS (Point of Service) – This type of plan is a hybrid between HMO and PPO. You choose an in-network primary care doctor who coordinates care but you can self-refer to see network specialists. Out-of-network care is not covered.
- EPO (Exclusive Provider Organization) – This plan is similar to an HMO. You must get care within the plan’s network except for emergencies. No out-of-network coverage.
- HDHP (High Deductible Health Plan) – This type of plan has higher deductibles and out-of-pocket costs but lower premiums. Often paired with a Health Savings Account (HSA) for tax-advantaged savings.
Knowing the differences between these main health insurance plan types will help guide your choices when selecting coverage. Consider factors like costs, provider access, and flexibility.
Individual vs Group Plans
There are two main ways to obtain health insurance – through an individual plan or a group plan.
Individual plans are policies you purchase on your own directly from a health insurance company or through the Health Insurance Marketplace. With an individual plan, you choose the coverage levels and pay the premiums yourself. These plans can be more expensive than group coverage, but may offer more flexibility in the doctors and hospitals you can use. Individual plans must cover essential health benefits like preventive care, emergency services, and prescription drugs.
Group plans are offered by employers to their employees as part of their benefits package. The employer negotiates the benefits and premium rates with the insurance company. Employees often pay a portion of the premium through payroll deduction. Group plans typically have lower premiums than individual plans, though the coverage may be more limited to a specific provider network. Group plans offered by large employers must meet minimum essential coverage requirements.
When turning 26 and losing coverage under a parent’s plan, individual plans allow you to shop for your specific coverage needs. But group plans through an employer are often more affordable. Compare all options to find the right balance of price, flexibility, and benefits.
Essential Health Benefits
The Affordable Care Act requires that all health insurance plans sold on the individual and small group markets must include 10 essential health benefits. This ensures that all plans provide comprehensive coverage for basic healthcare needs.
Here are the 10 essential health benefits that must be covered:
- Ambulatory services: This includes outpatient care and services like doctor visits, mental health counseling, x-rays, and physical therapy.
- Emergency services: Plans must cover emergency room visits and ambulance transportation without requiring prior authorization.
- Hospitalization: Coverage for inpatient stays like surgery and overnight care.
- Maternity and newborn care: Prenatal care, delivery, postpartum care, and newborn care are covered.
- Mental health and substance use disorder services: This includes counseling, therapy, medication management, and inpatient care for mental health and addiction treatment.
- Prescription drugs: Most plans cover generic and brand-name prescription medications. Some require copays or coinsurance.
- Rehabilitative and habilitative services and devices: physical, occupational, and speech therapy, durable medical equipment like wheelchairs; and devices that help you recover or improve skills are covered.
- Laboratory services: Diagnostic tests like blood work, allergy tests, urinalysis, and X-rays are typically covered.
- Preventive and wellness services: Annual checkups, immunizations, cancer screenings, women’s health exams, prenatal care, and other preventive care are fully covered without cost-sharing in the network.
- Pediatric services: Dental and vision care for children, vaccines, and well-child visits are covered.
Reviewing the essential health benefits is an important step in choosing the right health insurance plan for your needs and budget. Make sure you understand what each plan covers before purchasing.
Choosing a Plan
Choosing the right health insurance plan can feel overwhelming, but focusing on a few key factors can help simplify the process. Here are some of the most important considerations when selecting a plan:
Premiums
The premium is the monthly amount you pay for your health insurance policy. Premiums can vary widely between plans, so pay close attention to how much you’ll be expected to pay each month. Generally, plans with lower premiums have higher deductibles and copays. Make sure the premium aligns with your budget.
Deductibles
The deductible is the amount you must pay out-of-pocket before your insurance starts contributing towards your costs. Plans with lower deductibles generally have higher premiums, and vice versa. Choose a deductible you can reasonably afford to pay if you require medical care.
Copays and Coinsurance
In addition to the deductible, most plans require a copayment or coinsurance for doctor’s visits, prescriptions, and other services. The copay is a fixed dollar amount, while coinsurance is a percentage of the total charges. Evaluate these costs for services you utilize frequently.
Doctor Networks
It’s crucial to make sure your preferred doctors and hospitals are included in the plan’s provider network. Going out-of-network will cost you substantially more. You can search for providers on the insurance company’s website.
Prescription Drug Coverage
If you take any prescription medications, verify that they are covered under the plan’s formulary at a reasonable copay. Also, check if the plan places restrictions around prior authorizations or quantity limits.
Out-of-Pocket Maximum
This is the limit on your total out-of-pocket medical costs per year. Once you hit this amount, the plan covers 100% of your costs. A lower maximum means better protection for your wallet.
By weighing these key factors, you can find the right balance of coverage, costs, and access to healthcare providers that fits your needs and budget. Don’t hesitate to ask the insurance company questions to make sure you fully understand the plan details.
Finding a Plan
When you’re ready to start shopping for a health insurance plan, you have a few options:
Shop on the Health Insurance Marketplace
The Health Insurance Marketplace, also known as the health insurance exchange, offers plans from private insurers that meet certain coverage requirements. You can compare plans side-by-side on the Marketplace website and enroll online.
The Marketplace offers several tools to help you find the right plan:
- Use the website’s plan comparison tool to see a breakdown of costs and coverage for different plans. Filter by factors like monthly premium, deductible, and maximum out-of-pocket costs.
- Answer questions on the website to get personalized plan recommendations based on your preferences.
- See if you qualify for savings on monthly premiums and out-of-pocket costs. Your income level determines the amount of financial assistance.
- Chat online or call the Marketplace helpline for free personalized assistance. Navigators can walk you through plan options and enrollment.
Work with an Insurance Agent or Broker
An insurance broker or agent can also help you find and enroll in health insurance plans. They have access to plans on and off the Marketplace. Some key benefits of working with an agent/broker:
- Get advice from an expert on which plans fit your needs and budget.
- Have someone walk you through all the plan details and paperwork.
- Get help resolving any issues during enrollment or plan usage.
Ask people you trust for broker recommendations or search online directories. Confirm that the broker is licensed in your state.
Consider Plans Outside the Marketplace
You can buy health insurance plans directly from private insurers or through other sources besides the Marketplace. These non-Marketplace plans also must offer essential health benefits.
Some reasons to shop off the Marketplace:
- Find wider plan selection from certain insurers not on the Marketplace.
- See if plans are cheaper without Marketplace fees.
- Keep your current insurance provider if you like their coverage.
Make sure to factor in whether you qualify for financial help only on Marketplace plans.
Financial Assistance
The Affordable Care Act (ACA) provides two main types of financial assistance to help make health insurance more affordable: premium tax credits and cost-sharing reductions.
Premium Tax Credits
Premium tax credits can lower the amount you pay towards your monthly health insurance premiums. These tax credits are available to people who meet certain income requirements and don’t have access to other affordable health insurance options.
To qualify for premium tax credits, your household income must be between 100-400% of the federal poverty level. The credits are provided on a sliding scale, so the less you earn, the larger your tax credit will be.
When you enroll through the Health Insurance Marketplace, you can find out if you’re eligible for premium tax credits upfront. If you qualify, you can choose to have the estimated credit amount applied directly to your monthly premium bill, which will lower the amount you have to pay out-of-pocket.
Alternatively, you can wait to claim the tax credit when you file your taxes for the year by reconciling it against the total premium costs you paid throughout the year. This determines if you received too much or too little in advance credits, and you’ll either get money back or have to pay any difference.
Cost-Sharing Reductions
Cost-sharing reductions lower the amount you have to pay out-of-pocket for deductibles, copayments, and coinsurance. To qualify for cost-sharing reductions, your household income must be between 100-250% of the federal poverty level.
Cost-sharing reductions only apply to Silver-tier plans purchased through the Marketplace. If you qualify, you can choose a Silver plan variation that has lower deductibles, copayments, and coinsurance amounts built into the plan design. This provides increased financial protection and makes it easier to access healthcare services.
The maximum cost-sharing reductions lower your out-of-pocket maximums to $2,900 for individuals or $5,800 for families. Finding out if you’re eligible for cost-sharing reductions along with premium tax credits can help make health insurance more affordable.
Enrollment Periods
There are specific times during the year when you can enroll in a health insurance plan, called enrollment periods.
The main enrollment time is known as open enrollment. For plans starting in 2023, open enrollment is from November 1, 2022 through January 15, 2023 in most states. During this time, you can apply for and enroll in any plan available to you.
Outside of open enrollment, you can only enroll in a plan or make changes if you have a qualifying life event. Qualifying life events include things like losing your health coverage, moving, getting married, having a baby, or adopting a child. These events allow you a special enrollment period of 60 days from the date of the event to enroll in a new plan.
It’s important to pay attention to enrollment deadlines. If you miss the opportunity to sign up during open enrollment or a special enrollment period, you may have to wait until the next open enrollment period to get coverage. The only exception is if you have another qualifying life event before the next open enrollment period begins.
Avoiding Penalties
One of the key things to understand about health insurance is that if you go without coverage, you may have to pay a tax penalty. This is to encourage healthy people to maintain health insurance and not wait until they get sick to enroll.
The tax penalty for not having health insurance is calculated as the greater of either a percentage of your household income, or a flat dollar amount, whichever is greater. For 2022, the percentage of income is 2.5% and the flat fee is $750 per adult and $375 per child under 18.
There are some scenarios where you may qualify for an exemption from the tax penalty. For example, if you went without coverage for less than 3 consecutive months, you may qualify for a short gap exemption. Other exemptions include financial hardship, religious reasons, certain non-citizens, incarceration, and more.
To avoid paying a penalty, here are some strategies:
- Enroll during open enrollment periods or special enrollment periods if you have a qualifying life event like getting married or having a baby. Don’t wait until you get sick as this won’t allow you to newly enroll.
- If uninsured for part of the year, calculate the penalty to see if an exemption may apply or if the penalty is low enough that paying it makes sense.
- Look into Medicaid eligibility for low-income households or subsidized plans on the health insurance marketplace. This can lower the cost significantly.
- Consider temporary low-cost plans like short term health insurance if you’ll have a coverage gap of less than 3 months.
- For young adults turning 26, enroll promptly when getting kicked off a parent’s health plan to avoid any lapse in coverage.
- Note deadlines for open enrollment and allow time for processing applications to prevent unintended gaps.
Staying insured is the best way to avoid paying a penalty. But if you do face a gap in coverage, be sure to understand exemptions and strategies to minimize your tax penalty.
Next Steps
As you approach your 26th birthday, taking action to get health insurance should be a top priority. Here are the key steps to take to avoid any coverage gaps:
- Research the plans available in your state’s health insurance marketplace. Browse plan options, premiums, deductibles, and provider networks.
- Determine if your income qualifies you for financial assistance like premium tax credits or cost-sharing reductions. This can significantly lower your costs.
- Pay attention to the open enrollment dates. For individual plans, you need to enroll during the annual open enrollment period unless you have a qualifying life event like losing other coverage.
- Pick a plan before your 26th birthday so your coverage starts right when you need it. Don’t risk going without insurance.
- Set up automatic payments so you don’t miss premium deadlines after enrolling. Keep all documentation showing you have active coverage.
- Read and understand the plan’s benefits, limitations, and rules to get the most out of your coverage.
- Stay disciplined about annual re-enrollment so your coverage remains active each year. Shop around for better deals if your current plan’s costs increase.
Getting health insurance as an adult for the first time can feel overwhelming, but breaking it down into clear action steps makes the process much more manageable. Do your research, seek assistance if needed, and enroll on time. Then use your coverage wisely!