Is it acceptable to keep extending medical leave to prolong insurance coverage, when one has no intent of returning?
Assuming that you are in the United States, the ethics of the situation are not clear-cut, because the health care system is such a mess.  It may not be clear to either you or your former advisor who is actually paying for the health care. For example, the school may have outsourced responsibility to a third-party insurance solution, or it might be covered by some unusual provision of the new health law, or the FMLA, or who knows what.  Honestly, I have no idea, and probably you can't find out without detailed interactions with HR, and even they might not be in compliance with laws and regulations and might not even know it.

It's also the case that, while there is a clear conservative ethical solution of "better safe than sorry," it's not actually clear that it is the right thing to do, given the amount of financial and/or medical problems that can be caused by a short period uncovered in the US.  A colleague of mine, for example, who was actually continually covered with a good plan, had problems getting critical medical care for a child because her plan was late in handling paperwork on a year-to-year transition.  On the flip side, I kept using some of my university's medical services for years after I had left, because I asked about it and was told that my alumni status meant it was still OK: it turned out that I wasn't supposed to, but nobody including me knew that.

So it's a pretty mess to sort through.  How should you deal with it?
Let's lay out some principles:


You really don't want to burn bridges.  This means that if you decide that it is important to try to stay on the same plan, then you should make sure that your advisor is OK with it.  Some professors I know would tell you to do it, and some would be uncomfortable.  What you don't want to do is have the professor be uncomfortable and only find out later.
Second, how critical is the difference between the plans?  Are you potentially facing many thousands of dollars in extra cost or being forced to go untreated for your medical conditions?  If the difference is relatively small, then let it go.  If the difference could destroy your health or life, then it's appropriate to try to use the options that are available.


None of this is ethically squeaky clean, unfortunately, and I wish that it were so.  Unfortunately, because health care coverage is so tightly linked to employment in the United States, we have a system that sometimes forces people to choose between problematic options.

In sum: if you can afford to drop down a grade in health care, that's the ethically best choice.  If you can't, make sure your professor is OK with you taking advantage of something that is permissible under the system but ethically questionable.