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Under health care reform, young entrepreneurs benefit from parents' health insurance

A provision in the federal health care reform law is giving a financial lift to young entrepreneurs across the country. As these entrepreneurs get their businesses up and running, the provision brings some economic relief by letting them be covered as dependents on their parents’ health insurance.

Under the federal health care reform law, young adults can remain on their parents’ health insurance until age 26. The age rule applies regardless of whether a young adult is in college or is living with his parents. According to the U.S. Department of Health and Human Services, the provision lets 1.2 million young adults be covered under a parent's health insurance plan.

Previously, most health insurance plans did not cover dependents if they were over age 18, unless they were taking a full courseload in college. Often, students were dropped from a parent’s health plan if they reduced their courseload or graduated from school.

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'A serious financial burden'

Alex Suarez-Mondshein, a 23-year-old entrepreneur from South Florida, had to buy individual health coverage after she graduated from college. It was “a serious financial burden,” she recalls. Last year, when the age rule took effect, she went back on her mother’s health insurance plan.

“When I found out I was going to be put back on, it was a big relief. For young entrepreneurs, this (law) takes such a financial burden off the table,” says Suarez-Mondshein, who owns Words to Live By, a custom book business that launched in February 2011.

In most cases, young entrepreneurs are facing business expenses for things like supplies, advertising, shipping, renting office space and paying employees. If they’re uninsured, a medical emergency could wipe out the savings they built up to start a business. Even people who are young and healthy could unexpectedly end up with enormous medical bills that jeopardize their ability to keep a fledgling business alive.

Tax-free coverage

Jeannette Kozloff, a consultant with human resources consulting company Aon Hewitt, says the dependent coverage is “financially very beneficial. If they do have some sort of health issue and they do need to go to the emergency room, then they’re not going to be hit with hundreds of thousands in medical bills. The coverage is tax-free. It’s not going to be a taxable benefit to that young adult.”

Receiving coverage through a parent's plan “does give some peace of mind,” Kozloff says.

The age rule prompted 23-year-old Danielle Inez to quit her job and start working full-time with her public relations firm, diPR Agency, in Cordova, Tenn. Initially, though, she wasn't able to run the business as a full-time venture because she feared going without insurance. During the first 13 months of operating her PR agency, she limited her services to about 15 hours a week while she worked a full-time corporate job with health care benefits.

“As soon as my mother made me aware that the insurance requirements had been changed and I could return to her amazing insurance policy through her employer, I began to revise my business practices and transition to become a full-time entrepreneur,” Inez says.

For those who have a pre-existing condition or a chronic illness, the chance to keep the dependent coverage is especially helpful. One in six young adults has a chronic illness, according to the Department of Health and Human Services.

A helping hand

Before the health care reform law passed, Deirdra Smith, a 26-year-old entrepreneur from Beaverdam, Va., paid $300 a month for an individual policy because of her epilepsy, which requires expensive medications.

“That was way out of my budget, as well as my parents’ budget. That was very difficult,” says Smith, a field leadership trainer with the Young Entrepreneurs Network and an independent distributor with a marketing company called World Ventures. She’s planning to start her own business called Be Safe Creations, which will produce slideshows for customers.

In 2010, Smith went back on her parents’ health insurance. It covers everything she needs, unlike her individual plan, which excluded some things because of her pre-existing condition.

“When you’re able to be back on your parents’ insurance and not have that cost you anything, that saves you $300 a month if you have a pre-existing condition or $150 if you don’t. That really helps a lot as an entrepreneur,” Smith says.

The situation is more complex for young adults who are married or have children. They can be covered on their parents’ health insurance until age 26, but the spouse and the child would not be covered. In that case, the spouse or the child might be eligible for coverage through the spouse’s workplace benefits or through a state or federal insurance provider, such as the Children’s Health Insurance Program (CHIP) or Medicaid.

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