What do Jennifer Lawrence, Liam Hemsworth and Margot Robbie have in common? Well besides the first two co-starring in The Hunger Games and the latter in The Wolf of Wall Street they are all also 26 years old. Unfortunately based on the upcoming health insurance open enrollment period they all could be kicked-off of their parents insurance.
Yes, according to the current Obamacare rules (as known as the Affordable Care Act) once you turn 26 years of age you are required to have your own health insurance plan or be hit with a fine of $695 or 2.5% of household income (half of that per child), whichever is higher. This is known as “qualifying health coverage” or sometimes referred to as Minimal Essential Coverage (MEC).
Let’s Get Down To Brass Tacks Shall We?
For example if you’re 26 or older without health insurance and making $50,000/yr. you would be required to pay $1,250 (the higher fee) as a tax penalty.
The good news is that there are exceptions to this rule if you currently don’t have the Minimal Essential Coverage:
- Health Insurance Marketplace plans
- Job-based plans
- Most individual plans bought outside the Marketplace
- Plans sold through the Small Business Health Insurance Program (SHOP) Marketplace
- The Children’s Health Insurance Program (CHIP)
In short, if you can afford health insurance but choose not to buy it you are subject to this penalty for any month you, your spouse, or your tax dependents are not covered. You will have to pay the fee on your tax return for the year that you do not comply.
The easy way to fix this is to go to the Health Insurance Marketplace and sign-up for a plan or take advantage of your employer’s health plan offering.
What About Katniss?
Keep in mind that even if you do have health insurance there are still many hidden costs that most young professionals just starting their careers are not aware of. While most insurance policies cover your basic medical cost (doctor visits, prescription medications, in-patient procedures) there is a catch.
Most insurance only covers you after a high deductible, which can be as high as $6,850 for individual plan or $13,700 for family plan not including the copayments and coinsurance. If you don’t know what these are its ok–neither did Katniss, so you are not alone.
A copayment is insurance jargon for the flat amount you pay after you’ve satisfied your deductible (i.e. you go to a doctor’s office and your responsibility is a $20 copay). Coinsurance is a fancy word for the amount you pay for the cost of a health care service usually in the form of a fixed percentage.
Still with me?
Another way to understand this is that a copayment is a payment required by the patient at every visit to the healthcare provider whereas coinsurance is a percentage of covered benefits that the patient is responsible for paying.
For the young professional who also has an active lifestyle, like Katniss who’s into a lot of “outdoor sports”, team sports, extreme sports, etc. in the event of an accident or injury there could be many out-of-pocket costs that are typically not covered.
Take for instance the cost of a “moderate” fall (i.e. a broken leg requiring surgery) perhaps from hiking, snowboarding or even your daily run:
According to the data above the average Out-of-Pocket expense for a moderate fall is $8,015 plus $5,591 (for lost wages, homecare, travel for care, etc.) for a total financial impact of $13,606–and that is just within the first six months even if you have health insurance! Now unless you have a sweet gig that allows you to work from home (you guys hiring?) while your rent and cable bills are piling-up–an option for covering your lost wages is probably a pretty big deal.
There Is Still Hope
There is still hope as one strategy is to purchase a supplemental or emergency insurance policy (which averages $15-30 month) which specifically covers you in the event of these types of unexpected injuries and accidents. Accident insurance policies will pay you a lump-sum cash amount directly–some as quickly as within 24 hours of your accident.
Running the numbers for the above “moderate fall” example, this would mean instead of being responsible for $13,606 you’d only have to pay the cost of your accident insurance plan: $360 ($30 mo. x 12).
Another strategy is to have a Health Savings Account (HSA) which is tax-free income that is deducted straight from your paycheck for use as a rainy-day fund to pay for miscellaneous medical expenses or expenses that your primary health insurance will not pay for.
Keep in mind though that a HSA is only used to pay for medical out-of-pocket such as a deductible, coinsurance, and copayment but it cannot be used to pay for miscellaneous expenses such as lost wages, homecare, travel, etc.
Play It Safe, Play It Smart
26 is one of those invincible ages where we think we’ll live forever and nothing can hurt us. Its also an age where we start to take our finances a bit more seriously, signing up for awesome free services like Mint or Credit Karma. Both of these services ask you for basic financial information like income, salary and credit card debt then help you budget based on your income and suggest other ways to save money and cut costs.
Unfortunately there is no equivalent free service for the health insurance world. A service that asks basic bits of information then matches you to a policy that will cover you for things that your health insurance doesn’t fully cover like accidents and critical illnesses (i.e. cancer, heart attacks and strokes). Wait a minute…oh snap, that’s actually exactly what we built!
As a young professional how do you figure out what insurance you need and what it doesn’t cover you for? Would you want to speak to an agent or be able to figure this out for yourself online?