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Health insurance options after loss of "dependent" status

By Insure.com
Last updated Feb. 19, 2010

Many young adults worry about health insurance coverage when they lose their status as dependents on their parents' health plans. But there's no need to panic. Some colleges and universities offer health insurance to both undergraduate students and graduates. Even when this option is not available, there are several others for young adults searching for health insurance alternatives.

When does a dependent child lose eligibility?

A dependent child may lose his or her eligibility under a parent's health plan in any of several ways. Depending on the health plan, a child may no longer be classified as a dependent when:

• The child loses status as a full-time student. The child may have graduated from either high school or college, dropped out of school or cut back on his/her college class load.
• The child, despite full-time student status, reaches the plan's maximum dependent age limit. This is typically between the ages of 19 and 25. It varies by insurer.
• The child moves outside the United States.
• The child is eligible for group health insurance through his/her employer or the military.

It's a good idea to check your health insurance plan's requirements to determine which of these scenarios apply before the child loses dependent status. Once you know the time frame for making a decision, you can begin to search for alternate health insurance coverage.

Option 1: COBRA

Loss of dependent-child status is considered a "qualifying event" for COBRA.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a health insurance safety net for people who are leaving a job and want to continue their current group health insurance. However, it can also benefit young adults previously covered under a parent's group health plan who become ineligible because they reach the policy's age limit or are no longer full-time students.

Loss of dependent-child status is considered a "qualifying event" that triggers the availability of 36 months of continued health insurance coverage under COBRA. However, not every employer has to offer COBRA. The employer must offer COBRA if it has 20 or more full-time employees and offers health insurance.

Beware: This option can be expensive because the employer no longer picks up a major portion of the child's monthly health insurance premium. Whoever pays the premiums will be responsible for paying full price, plus an administrative fee of up to 2 percent. 

Option 2: Short-term health insurance

With low premiums and high deductibles, short-term health insurance policies are designed to be a low-cost safety net in case of serious injury or illness rather than a comprehensive day-to-day health insurance plan. Benefits are limited, there are strict eligibility requirements to qualify and short-term health insurance typically lasts only one to six months, but can be renewed for a total of 36 months. However, it's potentially a good option if the child will soon be graduating and won't be able to obtain health insurance through an employer right away. For more, see the basics of short-term health insurance.

Option 3: Individual health insurance

Individual health insurance is not sponsored through an employer; it is insurance you purchase on your own. It is much more expensive than group health insurance, but if there's no other choice, it's better than going without insurance altogether.

Individual plans are medically underwritten (unlike group health insurance plans), so if the child has health problems the insurer may reject his or her application or attach exclusions to the policy. However, if the child is healthy, youth is on his or her side. Young and healthy individuals stand the best chance of securing individual health insurance at a reasonable price. Here are tips for buying individual health insurance.

Option 4: High-risk health insurance pool

If the child won't be able to obtain health insurance through an employer right away, and can't qualify for an individual policy due to a pre-existing condition such as asthma or diabetes, he or she may be eligible for guaranteed health insurance through a high-risk health insurance pool. There are drawbacks: Not every state has a high-risk pool, there may be a lengthy waiting period and the policies are more expensive than most individual and group health insurance plans.

A high-risk health insurance pool is a good option for less healthy individuals who are ineligible for continued coverage under COBRA or who can't qualify for individual health insurance on their own.