Health Insurance for College Grads

Before you pick up the cap and gown or send out invitations for the college graduation party, make sure you (or your child) will have health insurance after the walk across the stage.

Many insurance companies drop dependents from their parents' policies once they grab that sheepskin. Others limit a child's coverage to a specific birthday, usually ranging from 22 to 25 (check your policy's rules).

A student health insurance offers an affordable fix. It fills the gap in coverage between graduation and that beautiful day when health insurance benefits from the new job kick in.

More from Kiplinger's Personal Finance: • Buying Your Own Health Insurance • Health Savings Account Answers • Understand Your Health Insurance Options

You'll have to act fast, though, if you're graduating this spring because student health insurance is only available to full-time students younger than 30 (but continues after graduation). Assurant Health, the largest provider of student health plans, stipulates that coverage must begin at least 31 days before graduation. With most spring commencements set for the second half of May or first part of June, you need to apply now.

Coverage and cost. Unlike applications for more comprehensive plans, the questionnaire for student health insurance is brief. For most plans, you can apply online. EHealthInsurance.com is a good place to start. Applications for coverage usually are approved or denied within 72 hours. Disqualifying conditions include heart problems, cancer, diabetes, drug and alcohol abuse, gall bladder and kidney disease, HIV/AIDS and ulcers.

If you run out of time to apply for student health insurance, consider a short-term health insurance policy. Both types of insurance exclude pre-existing medical conditions for a year, but neither will cover pregnancy or pay for prescriptions drugs. Plus, insurers must authorize all hospital admissions and outpatient surgeries.

Despite the wide gaps in coverage, these policies can serve as a good temporary fix. Think of them as catastrophic coverage, and select a low-cost policy with a high deductible. Stick with a six-month policy that should provide your grad with an adequate window for job hunting. You usually can cancel the policy at any time to receive a pro-rated refund.

Student health insurance is generally a little less expensive than a similar short-term policy and has the advantage of being renewable for as long as you need it (as long as you pay the premiums.) Unfortunately, you're required to pay for six months or a full year of coverage in advance. Short-term policies, on the other hand, generally are good only for six months to a year. And, you have to reapply for coverage each time your policy expires, meaning you must be healthy enough to qualify.

Here's how they compare: A 22-year-old female non-smoker in Denver would pay $66 a month for a student health policy with a $1,000 deductible and 20% co-insurance (meaning the insurer picks up 80% of a claim after the deductible is met). A similar short-term policy with the same deductible and co-insurance for the Denver co-ed would cost $120 a month.

Student health insurance usually offers deductibles ranging from $250 to $2,500. With short-term plans, you can buy policies with higher deductibles, such as $5,000 or $7,500. The higher the deductible, the less you will have to pay, but the more you will have to shell out if you are ill or an accident happens. Health insurance prices vary widely based on location because states mandate different benefits insurers must offer to members.

Extending current coverage. With an existing health condition, your only option might be to take advantage of COBRA, the federal law that allows an adult child to remain on a parent's policy for up to 36 months.

Coverage you receive through an employer-based or individual health plan is usually more comprehensive than what you get with student health or short-term insurance, but it will cost you.

With a COBRA policy, you have to pay both the employer and employee share of your group premium plus a 2% administration fee. But it can serve as a safety net while you look into other options. You get 60 days after a child is dropped from a policy to decide if you want COBRA coverage. If a grad gets sick or is injured during that period -- even if that's before you sign up for COBRA -- you can retroactively buy coverage to cover the bills.

States to the rescue. Although most group and individual health insurance policies cover children only while they're full-time students, some states are extending coverage beyond graduation day. Colorado, Delaware, Massachusetts, New Jersey, New Mexico, Rhode Island and Utah have those laws on the books. Some laws require adult children to live with their parents or be unmarried to stay covered on the parent's policy. Others allow insurers to charge higher premiums for coverage extensions. Bills that extend health coverage to adult children after graduation are being considered this year by legislatures in California, Connecticut, Florida, Minnesota, Missouri and New York, according to the National Conference of State Legislators.