HEALTH INSURANCE OPTIONS BEFORE MEDICARE

If you’re planning on early retirement, especially before age 65, you’ll need to consider health insurance options.

Individuals who retire before 65 years of age are still too young to get the benefits of Medicare, but it’s important to have health insurance to cover unexpected health conditions, prescription drug costs, regular checkups, or any hospitalizations.

Fortunately, there are some health insurance options available for early retirees.

Unfortunately, it’s often quite expensive. In my mind, that’s probably the biggest downside of early retirement.

According to Forbes, people who wish to retire early (before age 65) have health care cost anywhere between a $500 and $1,000/person, per month. But like all things, that number will depend on your specific circumstances, and especially your health at the time you get quotes.

Here we’ll go over some of the health insurance options that might help you bridge the gap between early retirement and Medicare eligibility.

COBRA

COBRA or The Consolidated Omnibus Budget Reconciliation Act is a law that allows former employees and their dependents to continue receiving coverage through their former employer’s health insurance plan.

This Act generally applies to employers with 20 or more employees and it applies to both employers in State and Local Government as well as in the private sector.

COBRA lasts for 18 months after the employee’s retirement and can be extended in some cases as well.

Doing the simple math, if an individual retires 18 months before becoming eligible for Medicare, this could be a good option for early retirees for health insurance.

Besides, COBRA allows individuals to keep their current insurance, which means that they don’t have to worry about any changes to their coverage and can expect to keep the same doctors and pharmacies.

You will likely have to pay more than you were previously, since your employer isn’t likely to pay part of your health insurance premium anymore.

FORMER EMPLOYER’S INSURANCE

Not all employers offer this option but you can check with your firm’s human resources department to figure out if they provide retiree health insurance options.

According to a 2019 survey by Kaiser Family Foundation, 28% of large firms providing health benefits also offer health insurance to early retirees.

For employees of governmental organizations, large companies, and universities, this is definitely something I would encourage you to check into.

However, if you receive insurance through your former employer after your retirement, it will last for a limited period, such as until Medicare coverage begins.

SHOP THE MARKETPLACE

To make healthcare more accessible, the Affordable Care Act created a new health insurance marketplace in 2010.

You can simply purchase health insurance policies at HealthCare.gov up to 60 days before or after your retirement date up till you turn 65.

Generally, people wait for the open enrollment period to purchase a policy, but the coverage loss due to retirement may qualify for a specific enrollment period.

Besides, individuals may also be eligible for a subsidy to help them cover monthly insurance premiums if their income falls below a certain level.

NON-INSURANCE/HEALTHCARE SHARING PLAN

Insurance cost increases with each open enrollment and becomes a source of stress for people. Individuals who are not eligible for a tax credit may feel flanked between large monthly premiums or going without coverage.

However, there is another alternative and it’s called health care sharing. It is also known as medical cost-sharing that can potentially save a lot of money on healthcare. It’s important to note that these plans are not technically insurance, which means that these companies are not legally bound to cover your medical expenses, unlike insurance. So you really need to do your due diligence on these plans before purchasing one.

Health care sharing plans are offered by companies whose members “share” medical costs. As a part of a health care sharing plan, individuals pay in a certain share amount every month as well as an annual unshared amount for their expenses.

The “unshared” amount is essentially the deductible, but some of these plans don’t call it that, but it works in the same way as a deductible does.

For individuals, the unshared amount is around $300-$500. For couples, the amount becomes $1,000 and $900-$5,000 for families, although it varies per plan.

The monthly cost of the plan ranges from $64-$627 depending upon the coverage and plan details of an individual.

A health care sharing plan can be great for people who are not eligible for a tax credit based on their income and are generally in good health. It can also be a good plan for those who lack access to insurance through an employer or government program.

One last thing to note is that a lot of these plans, not all of them, but a lot of them are Christian affiliated and want to have members that share their beliefs. There are some non religious ones as well.

JOIN YOUR SPOUSE’S PLAN

Once you’re married, you can join each other’s employer-sponsored health insurance.

Typically, employees will only make adjustments to their health insurance plan during the open enrollment period, which lasts for limited time each year, typically near the end of the year.

However, a leaving a job (and thus the plan) counts as a “qualifying event” allowing you to potentially join your plan in your spouses health care policy within 30 days of you leaving your employers plan.

Note that if you don’t make changes immediately after you lose your coverage, you will likely need to wait until your employer’s open enrollment period.

A qualifying event might require documentation such as a letter from your spouse’s employer which details the changes in health insurance coverage.

Putting It All Together

As I’ve mentioned earlier, retiring early has a lot of benefits to it. Unfortunately, affordable health insurance is not one of those benefits. But if you plan ahead for it, and work it into your early retirement budget, then it shouldn’t stop you from retiring early, as long as you’ve got a solid plan and the numbers make sense.

If you’re interested in putting all the pieces together of your early retirement, feel free to schedule a Start My Retirement call with me where we will put together a one-page financial plan for you, outlining everything you need to do as you approach retirement.

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