Turning 26? Here's how to transition off your parent's health plan

Those heading toward their 26th birthday are faced with a major life decision — one that influences their physical, mental and financial well-being.

In the U.S., once you turn 26 years old, you are likely no longer eligible for coverage as a dependent under your parent's health plan. In other words, 25-year-olds have some preparation to do.

Read more: Underrated and underutilized: A look at long-term care insurance

"Anyone who's turning 26, with a few exceptions, if they're on their parent's health plan, they're going to be transitioned off under the Affordable Care Act," says David Feinberg, senior vice president of insurance programs and risks at Justworks, a workforce management software company. "And so for many, this is going to be the first time they're going to have to make their own decisions with regard to health insurance."

You can't cram 
Given how complicated and expensive American healthcare is, Feinberg warns against waiting until the last minute to switch to an employer plan or purchase a plan from the ACA marketplace. Those under 26 should first confirm when they get kicked off their current health plan: Is it their birthday, or is there a grace period? If this transition is immediate, young employees may need to take advantage of the closest open enrollment to their 26th birthday, even if it is months beforehand. Young workers don't want to suddenly find themselves with zero healthcare coverage, underlines Feinberg.

Feinberg also warns employees against trying to take a crash course on U.S. healthcare entirely during open enrollment. This may lead to more panicked decisions than informed ones.

Read more: 10 states with the longest ER wait times

"The first thing that matters is to take the time to educate yourself and know the jargon," says Feinberg. "So for some that might mean taking a year to start to consume the information more slowly. If this is your first time enrolling in health insurance, it's safe to assume you need more time than just the open enrollment period to get to a point of confidence."

Deductibles, copay and coinsurance, oh my!
To start, new health plan enrollees should at least know what deductibles, copays and coinsurance are, says Feinberg. 

Deductibles are the amount the plan member must pay out of their own pocket for covered healthcare appointments, treatments and medication before the insurance company starts to chip in. A copay is the amount one pays for a specific type of service or appointment, regardless of whether the member has met their deductible yet. Coinsurance is the percentage of the cost of care the member is responsible for after the deductible is met.

These three features of a health plan tell the enrollee just how much coverage they really have and at what cost. In turn, this helps the young employee make the critical choice: enroll in a high-deductible health plan (HDHP) or a traditional preferred provider organizations plan (PPO). 

Read more: 4 healthcare myths debunked by theSkimm and Nava Benefits

Like the name suggests, an HDHP means employees will spend more of their own money before receiving coverage. But these plans are typically accompanied by lower premiums, or contributions from the employee's paycheck. On the other hand, a PPO has higher premiums but lower deductibles. 

Feinberg notes that HDHPs do come with the coveted health savings accounts, or HSAs, which not only allow members to put aside pre-tax money for their healthcare, but even invest it and allow it to grow tax-free without any rollover limits. Flexible spending accounts, or FSAs, which are typically joined with PPO plans, come with rollover limits and are not an investment vehicle.

"In order to utilize an FSA, you really need to think long and hard about your healthcare needs for the upcoming year," says Feinberg. "Because if you don't spend that money, you potentially lose it. Now all that said, there are opportunities to apply those FSA dollars towards expenditures that people wouldn't typically associate with healthcare, like band-aids or suntan lotion."

The decision may come down to how much care the enrollee expects to need throughout the year. Feinberg advises young workers to assess their own health and how often they interact with the healthcare system.

Read more: Why food access might be the next big thing in healthcare benefits

"Copying your parent's health insurance is not necessarily the best idea — that health plan is by definition, a family plan, and hopefully suits the needs of your entire family," he says. "Your specific health care needs in all likelihood differ from those of your parents. So you're going to need to make different decisions."

Employers can ease the burden
Feinberg encourages employers to provide enrollment tools that allow employees to explore and compare their benefit options with ease. For example, Justworks includes a guide on healthcare jargon, so enrollees have a readily available source to reference. Feinberg adds that a third-party guide of healthcare navigation experts can make or break just how much employees genuinely get out of their healthcare benefits. Employees should be able to get on the phone with someone outside their company and discuss personal health needs in relation to health plans, says Feinberg

He reminds employers that their bottom lines benefit from an informed, covered workforce who are empowered to take care of their health.

"From an employer's perspective, it's equally important that [employees] are educated," says Feinberg. "Employers can share the burden."