When people start to plan for retirement, one of the biggest concerns they have is how they’re going to pay for rising healthcare costs. A recent study conducted by Fidelity shows that people are retiring an average of four years sooner than they’d planned. This often leaves early retirees scrambling to find quality health care coverage that doesn’t break the bank - which is easier said than done.
According to eHealthInsurance.com, the average premium paid by policyholders aged 55-64 in 2017 was $695/month. No wonder early retirees are feeling the pressure to find a more affordable path. Luckily, although there may not be a “perfect” solution to this problem, there are several options available for you to consider.
COBRA is a program that allows you to continue your same healthcare coverage that you had under your pre-retirement employer’s insurance plan for up to 18 months after leaving your job. While that may sound like an ideal solution, you lose the employer’s subsidy and are responsible for 100% of your premium. Sometimes you’re even expected to cover an additional 2% administrative cost. This can make COBRA one of the more expensive options for healthcare before you qualify for Medicare.
If you qualify for COBRA coverage and don’t qualify for subsidies under the Affordable Care Act, and you’re 63 ½ years old, this might be the best choice for you (even if it’s on the expensive side). You have 60 days from leaving your job to notify your insurance company that you’d like to elect COBRA coverage.
Spouse’s Health Insurance
If your spouse isn’t retiring yet, this is likely the most cost-effective solution to your health insurance needs during early retirement. Typically your premiums will continue to be subsidized by your spouse’s employer, which will keep your premiums low. Plus, losing your health insurance coverage as a result of leaving your employer qualifies as a life event that allows you to join your spouse’s insurance without waiting until the next open enrollment period. Remember, the period to enroll after a qualifying life event is typically limited to 30-60 days, so you’ll need to contact your spouse’s health insurance company within that time frame.
Retiree Health Insurance
Some employers offer retiree health insurance coverage that you can keep until you qualify for Medicare. In some cases, this insurance even acts as secondary coverage once Medicare kicks in. If your employer offers this benefit, you’ll want to check the fine print to make sure you’re eligible. You should also check to make sure the coverage is on par with your unique health needs. For some example, some retiree health insurance group plans don’t allow spousal coverage - so this is something to consider.
Affordable Care Act Marketplace Plans
The ACA Marketplace (otherwise known as “Obamacare”) is a common solution for the retiree health insurance dilemma. Depending on your MAGI (Modified Adjusted Gross Income), you may even qualify for subsidies that reduce the total cost of your coverage. The ACA Marketplace is also convenient for retirees who have preexisting conditions, as you can’t be denied coverage for any reason.
As is the case with many different health coverage plans, the ACA categorizes their coverage into three levels: Gold, Silver, and Bronze. However, what each level of coverage includes may be different than what you expect from your pre-retiree coverage. When determining if ACA health insurance is right for you, look beyond the premiums associated with each tier of coverage. Consider the costs of copays or deductibles, and whether your plan will limit your ability to receive services from medical professionals outside of your network (these is often known as “limited” or “narrow network” plans).
If you’re concerned about continually qualifying for subsidies, you might consider getting creative with your retirement income. By taking withdrawals from taxable investment accounts over your 401(k) or IRA, you reduce your total taxable income as only the gains are being taxed. Having a lower taxable income listed can help you qualify for subsidies for a longer period of time.
Although the ACA Marketplace is an ideal solution for some, it can still be extremely expensive for others who don’t qualify for subsidies. Plan participants also have to consider the political uncertainty of the marketplace, and decide whether they’ll be comfortable finding new coverage if the ACA is repealed or amended significantly.
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If your income is high enough that you’re disqualified for ACA subsidies, shopping around for quality private insurance coverage is an option you might consider. Private insurance offers more options than the ACA Marketplace because not all insurance companies participate in federal and state healthcare exchanges. For example, in the state of Kansas there were only three insurance companies that participated in 2018’s healthcare exchange. You may be able to find coverage through a large insurer by going the private insurance route over searching on healthcare.gov.
Part Time Work
Although you may not have pictured working in retirement, it’s becoming an increasingly popular option. Working during retirement can result in living longer, staying mentally sharp, and feeling emotionally fulfilled. If you find a part-time job doing work you love, you can also capitalize on the insurance benefits offered through your during-retirement employer. A few large scale employers that offer part time employees health insurance benefits are:
- Caribou Coffee
Healthcare Sharing Programs
Health insurance premiums have ballooned over the last several years, which has caused more and more retirees to search for alternatives to traditional insurance. For some, healthcare sharing programs have been the answer.
Healthcare sharing programs are appealing because they’re much less expensive than traditional health insurance. Entire families can become members for between $300-$500/month (the average monthly insurance premium is typically $1,564 for a family). Out of pocket expenses are typically also lower than high-deductible health insurance plans.
While all of this sounds wonderful, it’s important to note that healthcare sharing programs ARE NOT insurance. Healthcare sharing programs are typically ministry based and are run by nonprofits or Christian-based organizations. The monthly premium you pay goes to help another member of the program who needs care.
Because these programs are typically rooted in religion, they often don’t cover “unbiblical” medical costs like birth control, abortions, alcohol or drug induced medical problems, or even failure to wear a seat belt. That being said, the programs work for many people. If a program like this interests you, consider looking into one of the four biggest medishare groups:
Health Savings Accounts
While an HSA isn’t a fantastic option to fully replace health insurance coverage, having money in an HSA can help to cover out-of-pocket medical expenses even if you’re no longer enrolled in an HSA-eligible plan. Once you turn 65, you can also use your HSA for any purpose without penalty (but withdrawals will be taxed if you’re not using the funds for qualified medical expenses).
A Few Final Thoughts
Regardless of what option you’re considering, it’s a good idea to check with your preferred medical professionals before signing on with any particular form of coverage. They may or may not accept some, or they might be outside of that particular insurer’s network. Your preferred physician or specialists you see regularly may also have some insight as to where other patients in your similar situation are insured through.
Whatever you do, don’t decide to wing it! Having some form of health insurance during the “gap years” before Medicare is absolutely necessary. Unexpected medical events are one of the biggest reasons people lose their retirement savings early. Hope isn’t an airtight strategy - protect yourself physically and financially by doing the research and picking a health coverage plan!
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Desmond Henry is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and founder of Afflora Financial Life Planning in Topeka, Kansas. He helps the retiring/retired plan their finances and invest their money. CLICK HERE to learn more.