Last week’s post on the increase in Tricare Young Adult premiums has generated a lot of comments, and has exposed some misunderstandings about what the Tricare Young Adult program is and how it works.
Young Adults Are Not Subsidized
One frequent question is why Tricare Young Adult is so much more expensive that the equivalent active duty or retiree Tricare coverage. Active duty and retiree Tricare coverage is heavily subsidized by the government, as a benefit of military service. Adult children being covered under Tricare are not subsidized because they do not fit the criteria to be the dependent of a military member or retiree.
No Insurance Can Spend More Than It Takes In
“But my child hardly uses the insurance anyway,” is another frequently expressed frustration. The model of any insurance is predicated on the fact that most people won’t use more benefits than their payments, during most of the time periods they are in the insurance group. This works in two ways:
First, in each individual year, most policyholders will make fewer claims than they pay in premiums. This will help pay the bills of the few policyholders who make more claims than they pay in premiums.
Second, During the years when the policyholders aren’t spending as much as they are paying, the extra money is built up into reserves, like a huge savings account. Then, when a policyholder does have large expenses, those same reserves can be used to pay the bills. The reserves are particularly important because every insurance plan will have years in which its claims greatly exceed its premium income.
The group can’t spend more than it takes in, or the insurance plan will falter. If everyone in the plan was “spending” more than they “contributed” every year, the plan would fold pretty quickly.
Tricare Young Adult Must Be Cost Neutral
Because it is not subsidized, the Tricare Young Adult program is required to be “cost neutral,” meaning that the total costs of the plan can not exceed the total income from premiums. Tricare Young Adult is a fairly new program, and the premiums for the first few years were educated estimates of the amount required to cover the costs of coverage. Now that Tricare Young Adult has been in existence for a few years, the premiums are able to be calculated based upon actual cost data. The increase in premiums is necessary to ensure that the program has enough money to pay for the services that are covered.
With commercial plans, the company (as owned by the shareholders) also expects to make a profit. Tricare Young Adult, as a not-for-profit entity, is able to provide coverage at a lower cost than commercial policies.
Tricare Young Adult Is Not The Only Choice
Tricare Young Adult covers adult children of Tricare-eligible service members and retirees, who are too old to be their parent’s dependent child but have not yet reached age 26, and are not covered by an employer-sponsored plan. As adults, the people who are eligible for Tricare Young Adult are also able to obtain health insurance coverage from a variety of different sources. Options include:
- Student insurance through their college or university: Nearly all institutions of higher education offer, or require, health insurance for their students. Thankfully, student health insurance tends to be pretty darn inexpensive. For example, the University of Maryland at College Park requires that their students join the $1509 per school year student health plan, or provide evidence of other insurance to opt-out of the student health plan.
- A job that offers employer-subsidized health coverage: Most Americans obtain their health care coverage at a discounted rate due to a subsidy by their employer. Health care coverage, like all benefits, needs to be considered when thinking about employment. Students who are pursuing advanced education need to bear in mind their health coverage needs, and often this requires working while in school (it’s also a great way to pay for grad school.) I have heard from a lot of parent that their children “can’t find jobs.” While I am sure this is true for some, it is not true for all. Also something to consider: Some companies even offer health insurance for their part-time employees.
- A parent’s non-military health care coverage: Most young adults have at least one parent who is working in a job that is not active duty military. Either their military parent has retired and embarked upon a second career, or their non-military parent is working, or both. Young adults may be eligible for coverage under these non-Tricare plans.
- Insurance through the state-run Affordable Care Act health care exchanges: with the available tax credits, many people using insurance structured under the provisions of the Affordable Care Act are paying very low premiums. In nearly all cases, those eligible for Tricare Young Adult coverage are considered as independent people by the IRS, so they will probably be eligible for some level of tax subsidy.
- Medicaid coverage, if eligible: Income-based eligibility varies by state, but Medicaid can be a good last resort for those with little to no income.
Health care coverage is expensive, because of what it is and what it does. There isn’t really any way around that. It should be no surprise that it costs more to insure someone on an unsubsidized plan. Young adult coverage is not designed to be the most desirable choice, but rather to fill the gap when a physically-able young adult is unable to obtain coverage through his or her own efforts. As such, Tricare Young Adult provides excellent coverage at very competitive rates, and it is a great option for many people.