Here’s How Health Insurance Works

When you turn 26, thinking about health insurance becomes a top priority. Up until now, you were able to get health insurance under your parents’ plan. What will you do when you fall off their plan? Of course, health insurance isn’t the most exciting thing in the world. And let’s face it, trying to cut through all the insurance talk can be confusing. Then, figuring out how health insurance works can be even worse. 

What makes it even more complex is that each state has its own different laws. You may find that you can stay on your parents’ plan until the 15th of the next month following your 26th birthday. Or, you may lose health coverage on the day you turn 26. 

Did you know that getting the right healthcare plan doesn’t just cover your medical bills? The best health insurance can also save you money in the long run. The problem? There are lots of different health insurance plans, each with its own pros and cons.

In this article, we’ll explain the various types of health insurance you might be eligible for. This information will help you learn how health insurance works and how to pick the best plan.

What is the Affordable Care Act?

The Affordable Care Act (ACA) is sometimes called “Obamacare.” The U.S. Government’s website says that the goal of the ACA is to make affordable health insurance available to more people. So even if you are on a low income, health care insurance should be possible for you. 

The Affordable Care Act also made sure health insurance providers allowed children and young adults up to age 26 to stay on their parents’ plan. 

The government’s website, HealthCare.gov, is the health insurance marketplace. There you can find a suitable health plan under the ACA scheme. Your eligibility depends on your income, size of family, and any tax credits you can claim for. 

Being on a low income can make you eligible for Medicaid. If you qualify for SSI (Supplemental Security Income) benefits, you will receive Medicaid. This provides free or low-cost health care for you and your dependents.

Claiming Social Security Disability benefits (SSDI) automatically entitles you to Medicare. 

Choosing a Health Care Plan When You Turn 26

It’s essential to know the rules for applying for your own health insurance when you become 26. Basically, the rules depend on the type of insurance policy your parents have. 

Here’s what you need to know:

  • If your parents have a marketplace health insurance policy, you have until the end of the year to find your own health insurance. So, you would have to enroll at HealthCare.gov between the start of November and the middle of December. 
  • If your parents have health insurance through their work employer, you have a 120-day Special Enrollment Period (SEP). This runs for 60 days before and after your 26th birthday. During this time, you’re able to apply for state health insurance marketplace.

Knowing these enrollment times helps you avoid any gap in your health insurance coverage. 

Still not sure when is the best time to sign up for a healthcare plan when you’re 26? The best advice is to sign up before the 15th day of the month during your SEP. This ensures your own health plan starts on the first day of the next month.

Health Insurance Options When You Turn 26

Of course, if you don’t have health insurance through your employer, you will have to find the best policy. 

Where should you start your search for health insurance? 

Your first option could be to see if you can continue to qualify for coverage under your parents’ plan. Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), you could get healthcare for up to 36 months after your 26th birthday. To apply, you should make a written request to your parent’s boss. 

If you don’t qualify for an extension under COBRA, you should check out what your local state offers. Under some state laws, you might be able to get extended health coverage after you become 26. 

The second option is to sign up for a healthcare plan at the health insurance marketplace. 

Different Health Insurance Plans: How They Work

When you are thinking about the best type of plan you need, there are things you should know about how the programs work. Some plans have higher premiums, some have lower premiums. 

Also, the type of healthcare plan you pick could affect your access to doctors, certain benefits, and out-of-pocket costs. So, the right plan for you should suit your budget and medical needs.

Most plans require you to pay a small fee for receiving medical care. You will also have a deductible to pay. This is the amount of money you pay before the insurance coverage kicks in the company pays the rest of the bill.

To help you understand the jargon, we’ll look at the 5 basic types of insurance plans.

Health Maintenance Organization (HMO)

With this plan, all the health services you receive are through the primary care doctor you choose. If you need to receive specialist care, only your doctor can refer you to specialists. These have to be in the same network of doctors and healthcare providers. In some cases, you may also receive care outside of the HMO network. 

You pay an annual or monthly premium, and you may have to pay a deductible. 

The advantages of HMO are that premiums tend to be lower, and there is less paperwork to fill up. You also have a small co-pay fee (the fee you pay when you get care), and prescriptions are cheaper. 

But with an HMO plan, you have less choice when it comes to hospitals and other medical facilities you can use. 

Exclusive Provider Organization (EPO)

This type of plan is similar to an HMO plan because you must use doctors in the network. However, you don’t need to get referrals to see a specialist. Some of the advantages of this type of insurance are low premiums and low co-pay fees.

What is the drawback of an EPO plan? You can’t see out-of-network specialists. So, if the coverage is limited, your choice of medical services will also be limited. Also, you are not covered for any medical care outside of the network. 

Preferred Provider Organization (PPO)

If you sign up for a PPO plan, you can use the services of any healthcare providers in the network. Compared with an HMO plan, the PPO plan offers more flexibility. For example, you don’t have to get a referral from your primary care doctor. 

You can also see out-of-network healthcare providers for a lower fee than through the HMO plan. 

The main advantage of PPO health insurance is the flexibility it gives you. Although premiums may be higher, you are not restricted to one primary care provider. This type of plan is good if you travel or a student living away from home. 

Point of Service Plan (POS)

The POS health insurance plan has some flexibility because you can see out-of-network doctors. It might cost a bit more on this plan, but you don’t pay full costs like the HMO plan. 

Similar to the HMO plan, your primary care doctor makes referrals to specialists. If you want to keep your costs down on this plan, always asked to be referred to a network specialist. 

Fee-for-Service Plan (FFS)

This type of health insurance works by reimbursing you or your medical provider for part of the medical bill. With this plan, you can visit any doctor or hospital you want to. 

You generally have to fill out a lot of paperwork for the insurance company and healthcare provider. Usually, only after you meet the yearly deductible does the insurance company payout. 

FFS plans are becoming harder to find, and some states don’t even offer them at all. 

How Health Insurance Works: The Bottom Line

After you get thrown off your parents’ health insurance when you turn 26, you’ll need to find a suitable plan. You might qualify for programs under the Affordable Care Act or get Medicaid if you are on a low income. Knowing how health insurance works will help to make sure you are covered for all your medical needs.