San Diego Union-Tribune (Sunday)
FOR 20-SOMETHINGS: FINDING HEALTH INSURANCE CAN BE CONFUSING
Ahead of Cal Treichler’s 26th birthday in June, he faced a common challenge for 20-somethings fortunate enough to have parents with health insurance: He had to get off their plan and find his own coverage.
Treichler, who lives near Minneapolis, cannot obtain health insurance through his employer, a small financial planning firm. His company does, however, provide a stipend to pay for insurance. So Treichler considered two options: joining his wife’s plan through her teaching job or finding coverage on Minnesota’s health insurance marketplace, where residents can search for affordable plans.
Whether they are 25 and about to age out of a parent’s plan or entering the workforce for the first time, young Americans are tasked with making crucial decisions about their health care at a time when they may have little understanding of how insurance works.
Luckily, Treichler’s training and knowledge as a financial planner helped him weigh his options. His wife’s plan offered advantages such as lower deductibles (the amount of money you need to pay each year before coverage kicks in) and out-of-pocket maximums (the most you have to pay for covered services each year). But he calculated that her plan would be more expensive month to month than the plan he found on the marketplace.
“I typically, personally, haven’t had a lot of health care needs,” Treichler said. “I decided to go with the lower-paying option with the expectation that I wouldn’t need as much care and would likely be better off going with the lowerpremium plan.” (A premium is what you pay to buy an insurance policy, separate from a deductible.)
Nearly 15 percent of Americans ages 19-25 were uninsured in 2021, according to data from the Census Bureau, the highest portion of any age group. That number fell from 31.4 percent in 2010, when the Affordable Care Act (nicknamed Obamacare) required insurers to cover families’ dependent children until age 26. Since then, many young people who have the benefit of insured parents have not had to research their own coverage options. Finding a suitable plan for the first time as an adult can present some pitfalls. And a lot of questions.
“You can see your 26th birthday coming,” said Karen Pollitz, a senior fellow at the Kaiser Family Foundation. “You know when that’s going to be. Don’t wait until a week or two before to start looking into your options.”
Depending on the situation, a young adult might weigh these choices: staying on a parent’s plan till 26, joining an employer-sponsored health insurance plan or buying coverage on their state’s marketplace. Someone with an income up to 138 percent of the federal poverty level may even qualify for Medicaid, which offers free or inexpensive health care for low-income Americans, including pregnant women and seniors. The next open enrollment period (the period when you can sign up for coverage) for marketplace plans that comply with the ACA runs from Nov. 1 to Jan. 15, 2023, for most states. Many employers offer open enrollment periods, too, that are typically in the fall, but the timing varies from company to company.
The marketplace plans offer different tiered private insurance options with government subsidies for people whose income falls below a certain threshold. While the service is mainly available through Healthcare.gov, some states, including California and Pennsylvania, operate their own websites. Although the open enrollment period is fixed, those who have experienced a so-called qualifying event, like losing insurance through an employer or being forced off a parent’s insurance after a 26th birthday, have 60 days from that event to enroll in a marketplace plan. If you miss the cutoff, you will have to wait until the next enrollment period, unless there has been a major event like a natural disaster.
For those deciding whether or not to join an employer plan, it is wise to compare its cost and coverage with that of a parent’s plan. If a parent’s plan is cheaper and offers better coverage, asking your parents if they will share the cost with you might be the best solution.
Among employer plans, there may be the option to choose between a preferred provider organization plan and a health maintenance organization plan. A PPO plan generally is more expensive on a monthly basis but may offer more out-ofnetwork coverage, which could be necessary if you have specific medical needs. An HMO, though, is typically less expensive and includes a smaller group of providers.
“It’s just really a math problem,” said Robert Persichitte, a financial planner at Delagify Financial. “It’s figuring out how much would your parents pay for the insurance versus how much would you pay for the insurance, and you pick.”
Persichitte teaches a volunteer income tax assistance class at the Metropolitan State University of Denver in which accounting students help prepare tax returns for people who have annual incomes of less than $57,000. A student in the class, Deborah Son, was able to use what she learned to help prepare her father’s 2021 tax return. When they prepared the return, the family, of Aurora, Colo., got an expensive surprise.
As a college student, Son, 25, had opted to stay on her father’s plan rather than pay extra for her university health insurance. That worked for a while — until the money she earned as an intern in 2021 increased her family’s income. With the extra income, they no longer qualified for subsidized coverage through the ACA, requiring them to pay an unexpected additional premium of $3,000.
Son’s case was more complicated than most, Persichitte said. Still, a multitude of varied situations can create confusion and uncertainty.
Georgia Lee Hussey, the CEO of Modernist Financial, a planning firm in Portland, Ore., that helps clients make financial decisions aligned with their progressive values, noted that some young people who are working as independent contractors or interns may qualify for Medicaid. She said it was important for young adults to aim for financial independence, if possible.
“If you have the means, get your own health care coverage,” Hussey said.
Dear Liz: Now that interest rates on savings accounts have started to rise, I have a quick tip for you to share: Check the rate you’re getting on your accounts! I discovered my online bank changed its account structure a few years back, and legacy highyield savings account holders aren’t getting the recent increases. I was earning only a paltry 0.3 percent rate, while people who opened accounts more recently were earning over 2 percent. I’m sure many customers like me assumed they had high-yield acocunts, since that’s what they opened originally, but they are, in fact, not receiving competitive rates.
Answer: Thank you for the heads up. People who have certificates of deposit also should check whether those CDS have matured. Some banks renew the CDS at competitive rates, while others dump the proceeds in a low-rate account. A little vigilance can help you squeeze out a much better rate of return.
A spouse’s debt and your credit score
Dear Liz: My spouse and I have added each other as authorized users on our credit cards. My spouse has more debt than I do. Does this impact my credit scores?
Answer: Possible. Credit scoring formulas look at how much available credit is being used on each account. If your spouse has higher balances than you but also higher credit limits, your credit scores may not be harmed much if at all. If, on the other hand, your spouse is using most of their available credit, your scores could suffer.
Most services that provide credit scores (including possibly your bank and your credit cards) typically offer some explanations about why your scores aren’t higher. If the explanations include anything about excessive credit utilization, you may want to consider getting yourself removed as an authorized user from the problematic cards.
Sorting out taxes on IRA could be difficult
Dear Liz: My traditional IRA contains both pre-tax and after-tax contributions. (Some years I was ineligible to deduct contributions because I was participating in an employer’s retirement program.) Now I am retired and am considering making Roth conversions from the traditional account. I admit I was a little careless about keeping track of the total after-tax contributions. For the past 10 years or so, I have been using one of the more popular tax programs and was letting it track the tax basis and file the Forms 8606. I recently reconstructed all of my IRA contributions since 1985 to check the basis and discovered that the amount the software had calculated was short by about $15,000. Is it possible to correct this so that I don’t end up paying tax on the wrong basis?
Answer: Yes, but this could be a difficult process, according to Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.
As you know, when making Roth conversions you’re required to pay income taxes on the portion of your IRA that represents deductible contributions plus any earnings. But you don’t have to pay taxes on the portion of your account that represents your non-deductible contributions — that is what is known as your tax basis. A higher basis means less taxes, so correcting this may be worth the effort.
You’ll have to go back and correct each Form 8606, working from the oldest year, Luscombe says. The corrections need to reflect the traditional IRA contributions for that year, including the dollar amount, any deduction taken and the return of any excess contribution.
Send the corrected 8606s to the same service center where you will send the tax return for the conversion. If you’ve taken any distributions from the account, your calculations for the taxable portion may be in error as well. You can correct that for the past three tax years, but you won’t be able to recover the excess tax paid in any previous years, Luscombe says.