Is Gen Y Stuck in Health Care Limbo?

It’s a double-whammy.

With Congress haggling over health care “reform” and the economy putting millions out of work, more and more states are moving to keep young adults on family health care plans. Is that a better option than having your 25-year-old son or daughter buy his or her own individual policy?

Well, there’s no crystal ball to tell us so, but there has been some traction in state legislatures to keep younger Americans insured on their parents health care plans longer and longer some right up to age 30.

The trend to extend health care for younger Americans on their parents’ plans comes at a time when more and more 20-somethings are jobless, or otherwise don’t want to or can’t afford health insurance. Those aged 19-29 account for 13 million of the some 30 million Americans who don’t have health insurance, according to the National Conference of State Legislators.

Historically, younger Americans lose their parentally-sponsored health care when they graduate from high school or college, depending on what state you reside in. With most parents covered by employer-based health insurance plans, teens and recent college grads face a roadblock the vast majority of employers-sponsored plans won’t cover younger adults after the age of 19 or if they’re not full-time colleges students, the NCSL reports.

Federal government rules are just as strict. While the State Children’s Health Insurance Plan (SChip) will cover eligible young adults, it stops doing so after they reach the age of 19.

That’s where the recent trend in state laws on health insurance for younger adults comes into play. In 1994, Utah became the first state to extend health care to younger state residents, up to age 26. Thirty states have since followed suit, with New Jersey going out on the longest limb it legalized health care benefits for young residents up to age 30, in a new law passed in May 2009 (as long as the resident has no dependents).

New York followed suit in June with a new measure that extends family health coverage to older dependents up to age 29. New Mexico and Washington have passed health care extension laws for dependents up to age 25. Florida has done the same thing but with a wrinkle. Adult children are covered up to age 25, but parents have an option to keep the coverage until their son or daughter reaches age 30.

All told, 20 states have extended health care coverage to adult dependents to at least age 25.

The move to extend coverage for younger adults is a double-edged sword for their parents. While the security of health care coverage is likely a relief to Mom and Dad, there’s no state law that slashes the price of premiums as age limits are extended. In fact, premiums are bound to rise as insurers are forced to cover younger adults for longer periods of time.

One way for parents to avoid higher premiums is to sign their older dependents up for high-deductible plans attached to health care savings accounts.

Children, if they’re working, can contribute tax-deductible funds to health savings accounts for out-of-pocket health care costs. Parents can also contribute to their kids’ HSA plans. If their son or daughter lands a job with health insurance, under federal law, he or she can still keep cash stashed away in an HSA. That should help parents control costs and protect children from catastrophic health care costs for a segment of the U.S. population that just doesn’t get sick very often.

But now, at least more of them can afford to.

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