Informed Investor: Time to consider health insurance for college-bound children

The 2013-2014 college academic year will soon be starting at campuses throughout the country. Parents of these college-bound students — and this includes many federal employees — must make a decision with respect to health insurance coverage for these students. The good news for parents is that student health insurance plans offered by colleges and universities are getting better. But many of these student health insurance plans are more expensive as a result of the Affordable Care Act of 2010 (ACA).

Before the ACA’s passage, student health insurance plans were criticized because of their less-than-adequate benefit limits. The annual maximum benefits often topped out well below $100,000. Some plans did not cover prescription drugs or treatment for mental health or substance abuse problems.

Under the ACA, student health plan minimum annual benefits limit will increase to $500,000 for the 2013-2014 academic year, while the cap on benefits will disappear altogether for the 2014-2015 academic year. Also, starting with the 2014-2015 academic year, student health plans cannot exempt pre-existing conditions and will be expected to cover 10 essential benefits like other individual health plans. The essential benefits to be covered will include prescription drugs, preventive services and mental health care.

Associated with the expansion in benefits in student health plans comes an increasing premium cost for the plans. At public universities the average annual plan cost was $2,031 for the 2012-2013 academic year, up 9 percent from the 2011-2012 academic year. The average private university plan cost was $2,229 during the 2012-2013 academic year, up 7.8 percent from the 2011-2012 academic year.

No one will argue about the need for health insurance for young adults, as even a simple sports injury or bike accident can result in thousands of dollars in medical bills. Most private four-year universities require students to have health insurance — either through a parent’s plan, through their own individual health plan, or through a student health plan. An increasing number of public universities are requiring students to have health insurance coverage.

Even when health insurance is required by a college or university, most students stay on their parents’ health insurance plans. This includes the children of most federal employees, who can stay on their parents' Federal Employee Health Benefits (FEHB) program plans until they are age 26.

If a federal employee has a son or daughter attending a college or university this fall, then before waiving coverage under a school’s plan the employee should make sure that the FEHB plan is “portable,” that is, that the student is able to get care and follow-up treatment wherever the child attends school — within the United States or internationally. For example, some FEHB plans — mostly HMOs — offer coverage within a certain region or state and may offer only urgent or emergency care to a student attending an out-of-state school. Other FEHB plans provide their best rates when plan participants use doctors who are part of a specific network which may not be available to a student living miles away.

Another factor to consider is deductibles. Since deductibles on FEHB plans can vary widely, employees should weigh the financial impact of a sudden health-related emergency. According to the Kaiser Family Foundation/Health Research and Educational Trust annual benefits survey, about 34 percent of workers in the United States with group health plans had a deductible of at least $1,000 during 2012. The number of workers with such deductibles during 2012 was up 22 percent from 2011. Having a high deductible per family member could result in increased out-of-pocket costs for such events as a broken ankle or arm.

Employees should note that even if their child enrolls in a college or university health plan, the child will remain on the parent’s FEHB plan assuming the child is younger than age 26.

Employees who are enrolled in the FEHB program would have to keep their “self and family” coverage in order to keep an eligible child on the plan. This means a single parent with one child would have to be enrolled in self and family coverage rather than in self only coverage. This is because under the FEHB program there are only two types of coverage – self and self and family. Dental and vision insurance plans under the Federal Dental and Vision Insurance Program (FEDVIP) have three types of coverage: (1) self only; (2) self plus one eligible family member (includes a child younger than age 22); and (3) self and family. Premiums are less expensive with self plus one family member coverage compared to self and family coverage. The Obama administration has proposed that the self plus one coverage option be added to the FEHB program. But as of now, there has been no official word from the Office of Personnel Management regarding this addition.

In the meantime, employees with children in college this fall should make sure their plans provide adequate and affordable coverage for their children, especially for those children attending out-of-state colleges or universities whose health insurance plans may be on the pricier side.