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Tony Novak, CPA, MBA, MT
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Health insurance options for graduating students
by Tony Novak, CPA, MBA, MT
, revised 5/9/2012
Health insurance is probably not a top concern for most of the college students graduating this year. At this exciting time of life, many new grads have not considered that they will be automatically dropped from their parents’ health plans or their school’s student health plan on June 1 or July 1 if they do not take action to extend coverage.
Most colleges and universities, trade schools, internship programs, sports teams, and community-sponsored travel opportunities require health insurance as an admission requirement. Without health insurance, admission in most programs is not possible. As a result of these requirements, almost all students are covered by a parent’s policy or some type of student health insurance.
At graduation, it may necessary to switch back to a parent’s policy if this coverage was not used during college years. Some students find themselves without insurance for at least a short period of time and many will need to purchase their own insurance policy for the first time in their life. Parents may also be aware of the issue so it is not uncommon for parents to enroll their graduate in an alternate health insurance plan just to make sure that this important issue is not overlooked.
Health insurance is readily available and easily affordable to protect a young person’s most coveted asset: a long and healthy life ahead. For most of us, the ability to obtain top quality medical care for the most serious types of health care problems – things like transplants, extended hospital care, physical rehabilitation, and long term outpatient care – depend more on whether the patient has adequate health insurance than any other factor. Even a simple attack of appendicitis could easily wind up costing more than $25,000. Health insurance for a typical young graduate costs only $50 to $80 per month. In contrast, if we wait until a medical problem surfaces, it becomes difficult and very expensive to buy health insurance that covers these items. This type of coverage for pre-existing medical conditions costs more than $600 per month.
There are many types of health insurance plans available to recent graduates. The most popular options are listed below.
Parent’s policy– Most students are eligibility for continued covered under a parent’s policy until they complete full-time schooling. The maximum age of coverage under a parent’s plan varies but most policies will extend coverage up the student’s 27th birthday. The maximum age of a dependent was increased to 26 under federal health reform law. Children are now eligible dependents even they are not attending school.
Employer group coverage– Most employers provide health insurance to their full time employees and pay for most of the cost of this employee benefit. This is called group health coverage. This benefit is completely under the control of the employer. Many people do not realize that there is no requirement for an employer to provide this benefit. Most group health insurance plans require that new employees wait a few months before becoming eligible for coverage.
School-sponsored coverage– These are usually uninsured managed care arrangements to provide care to students in the local area of the college or university. These plans only provide coverage in the physical location of the school and coverage ends shortly after graduation. Some insurance plans may be extended until other coverage is available.
Student medical insurance policies – Major medical policies specifically designed for students provide excellent coverage at a reasonable price. If a student was enrolled in one of these policies before graduation, the insurance may be continued after graduation as long as the graduate need coverage. These policies are portable since they offer coverage to the student in any location in the U.S. These plans also cover students in graduate school. Assurant Health is the largest national provider of this coverage. In most parts of the U.S., students can buy a high quality health insurance plan for less than $100 per month at www.FreedomBenefits.net.
Short term medical insurance policies – Interim or gap insurance policies are available to cover periods ranging from one to 12 months. This coverage is inexpensive and easy to obtain online in most states. The quality of the coverage is excellent and payment is provided with any doctor or hospital in any state in the U.S. Longer periods of coverage may be obtained by taking several consecutive polices but coverage is not available for pre-existing medical conditions. Most states have four or more of these policy choices listed atFreedom Benefits.
Individual medical policies – Permanent policies that you buy directly from an insurance company offer excellent coverage, strongest financial guarantees, and the most stability. These often provide worldwide coverage. But all this comes at a higher price and coverage is issued for a minimum of 12 months.
International travel policies – Students planning overseas travel should purchase a separate medical insurance plan for the time that they are traveling, since most student health plans do not cover charges incurred outside of the U.S. These policies are specifically designed to pay for medical expenses and deal with the other international complications (language, currency and business issues) typically incurred while obtaining medical treatment overseas. These polices are the least expensive, typically about $1 to $2 per day of travel.
Glossary of Health Insurance Terms
Since many graduates will purchase health insurance for the first time in their lives, the following glossary of terms may be useful in researching the best coverage:
Assignment of Claim– a contract requested by most hospitals that gives the medical provider the right to bill this insurance and collect payment directly from the insurance company. In return for giving up this right to receive payment directly from the insurer, the patient is not required to submit medical bills, does not have to pay at the time of treatment and the total bill payable by the patient may be reduced.
Deductible – this is the portion of the bill that you pay before the insurance pays anything. The deductible most effectively reduces the cost of the insurance. Increasing the deductible by $250, for example, may save $300 or more in insurance cost.
Co-payment – a fee for each incident of usage of medical care. Not to be confused with the term “co-insurance”.
Co-insurance– a portion of the bill above the policy deductible not paid by insurance. Many medical providers waive this portion of the fee in a document a patient signs called an “assignment of claim”. Not to be confused with the term “co-payment”.
HMO– stands for “health maintenance organization”. The HMO may pay to keep you healthy, rather than only cover problems hen things go wrong. HMOs tend to be popular among young healthy people, but criticized by people receiving more serious medical care. Private physicians tend to feel that they lose control over the quality of a patient’s care when an HMO is involved.
Indemnity plan– means that the policy reimburses you for any ordinary and necessary medical expenses. This is the most liberal type of health insurance coverage but may also be the most expensive.
Managed Care– this means that the insurer has some authority to influence the type of health care you are provided. Managed care plans cut healthcare costs but may also limit treatment options.
Pre-existing condition– a medical situation that started before your insurance policy is often not covered by a health insurance policy.
Premium – the cost of the policy, usually ranging from $25 to over $200 monthly.
Tax-deductible– Some health insurance costs reduce taxable income. Premiums paid by businesses and self-employed individuals are tax-deductible. Health Savings Account deposits are always tax deductible. Most health insurance costs are not tax deductible by individuals.
Tax-free– the value of the insurance coverage paid by another person (or an employer) as well as any cash benefit that is paid by the health insurance policy is usually free from income tax.
Underwritten– this means that the application will be screened for acceptance based on individual medical history. Not everyone is eligible for a medically underwritten health insurance policy. Premium rates are lower for those who are accepted, but these insurance plans do not offer coverage to people with significant pre-existing medical conditions.
More information and a state-by-state listing of available health insurance plans for graduates can be found atFreedom Benefits. Live telephone support is available through OnlineAdviser service to answer any other questions.
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