Your Early Retirement: What Are You Going to Do About Medical Insurance?
Category: Health and Wellness Issues
September 30, 2014 Note: This article from July 2011 has just been updated. A lot has happened in the health care market since then, particularly the Affordable Care Act (aka Obamacare). And so this is now Part 3 in our Health Care Insurance series – see links to Parts 1 and 2 in Further Reading below
Congratulations on your retirement. Now, what the heck are you going to do about health insurance?
Millions of baby boomers are finding themselves retired before the “normal” retirement age of 65. Whether your retirement is the fulfillment of a dream or an unwanted outcome, it usually comes with a huge question – what to do about health insurance? This article will help you understand your options, particularly if you find yourself retired before Medicare takes care of most of your health care insurance issues.
If you retire at age 65 or later you will most likely have no major health care insurance issues to worry about. That’s because Medicare enrollment will cover most of your health insurance needs. You could still face major out-of-pocket costs for non-reimbursed expenses, so supplemental insurance might be a good idea. But if you have not yet reached the magic age of 65, what are your health care options?
The Health Insurance Options
– Healthcare insurance provided by your previous employer. Traditionally this was the ideal situation, particularly if your employer paid all of most of the premiums after you retire. You can continue along as you were doing in your working years, with the coverage and plans you are used to. If this describes your situation, your biggest concerns should be what happens if your employer goes bankrupt, dramatically changes the plan, or cancels coverage at some point in the future.
– – You are on COBRA. Government regulations require that your health care insurance continue for at least 18 months after you stop working. You will, however, have to sign up for it and (normally) pay for it. In some states and situations the continuation period might be longer, so check with your employer or insurance professional to find out more. With COBRA the big risk is that your coverage will run out before you reach the age of 65, leaving you without coverage and scrambling to get it. In most states and circumstances your insurance carrier can cancel your coverage after 18 months. The Affordable Care Act (ACA) now protects you if you have an existing medical situation, so you will have options.
— You have no health insurance. You might not have had health insurance now for a number of reasons. Perhaps your previous employer did not provide insurance, so you are not eligible for COBRA. Or, your COBRA might have run out, you never signed up for it, or you lapsed on your payments. Now it is the law that you have some type of health care insurance. If you are too poor to afford it, the government will either subsidize it (ACA), or provide it for you (Medicare). If you make less than $46,000 a year for an individual, $94,200 for a family of four, you should be eligible for a tax credit to make your insurance affordable.
What are your options if you don’t have insurance coverage, or expect not to have it in the near future?
Fortunately, you do have some options for health insurance, even in the worst cases. First, let’s consider your options if you currently have coverage, presumably with COBRA, but expect that insurance to run out before you hit 65.
– Check out your state health care exchange There are multiple reasons to do this. For one, you are now required to have health care coverage. For another, everyone needs it. Rates will vary depending on where you live and how many companies are competing to provide coverage. The good news is that you can probably get equivalent coverage for less than you are paying under COBRA.
– Consider a High Deductible Health Plan (HDHP). Most insurance professionals agree that low-deductible plans are a money maker for the insurance companies and an unnecessary high cost for most consumers. Most experts recommend going with the highest deductible you can afford, usually $5,000 or $10,000. The money you pay out in increased deductibles will in most cases be more than made up by the lower premiums you pay. Note, you need to have a high deductible plan to take advantage of our next idea, a Health Savings Account.
– Start a Health Savings Account (HSA), if you haven’t already. If you have a high deductible health insurance plan you might be eligible to open an HSA that is paired with a high deductible plan. With an HSA you can pay money into your account and get a deduction from your income tax on that amount. You can then use the money in that account for legitimate medical expenses (including dental, vision, and prescription drugs), along with deductibles and co-pays. You will even earn tax-free interest on the balance in your account. In 2014 individuals can contribute $3300 to their HSA and couples $6550. Individuals over 55 can contribute an additional $1000. One restriction – you cannot pay your health insurance premiums or non-prescription drugs from your HSA. Once you become enrolled in Medicare you are no longer eligible for an HSA. Here is a good resource for HSA FAQs
Where can you get health care insurance?
Having been used to employer-sponsored health care plans all of their lives, most baby boomers are puzzled about where to find a good health insurance company. The new state health care exchanges can be confusing (and so is the federal exchange in those states that don’t have them. Fortunately there are 800 numbers to call to help.
Go to your state health care exchange. Start with www.Healthcare.gov. It will help lead you to your state exchange (or federal if your state opted out). A new enrollment period starts Nov. 15.
– Contact your existing resources. Your life and/or property insurance provider might be able to provide you with a recommendation. Although you can easily buy health insurance online, there is no substitute for the ability to have a qualified professional guide you through the process and answer your questions.
– Go to the yellow pages or look online. If you type “medical insurance quotes
How much will you have to pay?
Your premiums will vary according to your personal situation. Factors like age, sex, and smoking will have an impact. Quotes will vary by company and state as well. A non-smoking couple in good health might expect to pay somewhere between $500 and $1000 a month for a high-deductible $10,000) plan.
What can you do if money is an issue?
Fortunately there are some options available, other than just holding your breath and hoping you don’t get sick before you get on Medicare. Here are a few:
– Are you a veteran? The Veterans Administration provides health care for veterans, a very valuable benefit. However you need to get registered into the system to take advantage. Most people recommend registering into the system early, so that when you do have a need you are ready to go. The quality of care and accessibility of care will vary widely by region and hospital, so be prepared – you probably won’t be able to breeze in and get instant care. You might have to wait a long time and not get every service you might want. Many veterans rely on the VA to get deeply discounted prescriptions.
– Lose your bad habits. Remember when we said that rates are dependent on many factors? If you are a smoker, stop now. Likewise if you are overweight or out of shape, shed those pounds now, so that you can get the lowest quote possible. If you drive a motorcycle or have a dangerous hobby, you might want to avoid situations that increase the chance that you could become injured.
– Talk with an insurance professional. If the quotes you are getting are just too much for you to pay, perhaps your agent can come up with a plan that will get you some type of affordable coverage. There is no substitute for what you can learn from a qualified expert who you think you can trust.
What if you have a serious pre-existing condition?
This is the good news with the ACA. You can not only get insurance, but you won’t have to pay extra to get it.
Bottom Line
Health insurance and Medicare are among the most complex and important topics any retiree faces. We have attempted to put together a brief overview of the issues here – but we have only scratched the surface. Before you make any important decision like this do your homework and talk to as many experts as you can find. Good luck!
More Resources:
Healthcare.gov – Start here for answers to almost all your questions.
Is Medical Tourism in Your Future?
Now That You’re 65 – 10 Things You Need to Know (Part 1 in a series – includes how to sign up for Medicare)
Topretirements Survey Results: Our Members Love Medicare!
Medicare.gov
Affording Health Care Costs in Retirement
What do you think – and what will you do?
We look forward to your comments and shared experiences about post-retirement healthcare. Please use the Comments section below to share!
Comments on "Your Early Retirement: What Are You Going to Do About Medical Insurance?"
Chuck W. says:
I was just was flat out turned down for insurance. After retiring at 55 in Nov. of 2009 I was on the COBRA plan through work. It expired at the end of May this year. When I applied at a lot of different places and they all denied my application. I was rejected because I take 3 blood pressure medicines and a cholesterol medicine. I had to do a phone interview with one of the companies that I applied with. They used a company that tracks what prescriptions have been written for you. (So much for HIPAA.) They asked questions about every medication that was prescribed for me for the last year. In the end I got insurance through our state's high risk health insurance pool. I went back to my doctor to see if I could do without one of the blood pressure medicines. If I am able to do this for 6 months, I am supposed to be able to reapply at some of the insurance companies again.
Insurance agents that I have dealt with tell me that the insurance companies don't want to insure anyone with any type of risk until 2014 or until they figure out all of the implications of the 2000+ page Obamacare.
Before I retired I figured I wouldn't have this much trouble finding health insurance. I thought I might pay a higher premium, but not being totally rejected.
R. Kevin Price says:
I agree that remaining with your employer's plan may be the ideal solution but be sure to check costs. Some employers (like mine)"experience rate" early retirees separately from all other employees. Since incurred medical costs for the 55-65 group are higher than for younger folks, your actual contribution in dollars for your share of the plan's cost may increase substantially even if your percentage of cost sharing remains the same as before you retired. A HDHP and HSA combination may still be an attractive alternative.
Kathy says:
After careful planning I retired early with a pension and took SSI at 62. After COBRA ran out I found an affordable policy with a high deductible. I've been in good health all of my life so it wasn't a problem to get insurance. I'm not wealthy by any means but even with ups and downs in the economy I planned well enough to be okay.
Then the financial crisis hit and down went my IRA and house value .. by a lot. Pension COLAs were kept at very low levels with some concern about adequately funding future payments. No COLA for SSI in two years. However, health insurance premiums went up by double digits for the last 3 years along with basic living expenses, property taxes, etc. Consequently I dropped my health insurance and am keeping fingers crossed until I'm eligible for Medicare, and that's assuming it will still be available with decent coverage.
I realize I'm one serious accident or illness away from bankruptcy or major debt for the rest of my life. There has to be a way to lower the cost of health care in this country. It is reaching a point where neither individuals nor employers can afford it.
Pat S. says:
Your advice is good, as far as it goes. Where my husband and I live, in the Finger Lakes region of New York State, high-deductible health plans are only available to employer groups or self-employed individuals. As retirees who are not working, we are precluded from taking advantage of a HDHP and an associated health savings account. Maddening!
Patricia B. says:
ICHIP is a state program in Illinois where I finally found insurance after being rejected by other companies. Unemployed/retired in my 40s, the only requirement was that I had been trying (unsucessfully) to get insurance for at least a year and had no other access to insurance (had to wait till Cobra 18months ran out). Taking the highest deductible allowed results in affordable premiums and excellent prescription drug plan. On the down side, my health insurance requires that I live in Illinois, which limits my job opportunities. I'm looking forward to Obama's healthcare plan because I'll be able to get healthcare AND live where ever I choose!! Perhaps other states in the US have similar programs?
Susan T. says:
I unfortunately have been downsized from my job and am 57 and don't expect to find a full time job anytime soon. I have purchased the least expensive insurance I could find and when my unemployment runs out so will my insurance!
Deborah_W says:
Caution: Check your COBRA rate before you exercise option to use. You may be surprised by the rate you will have to pay.
LuluM says:
Here is a thought of another source to check for group insurance. I haven't looked at these, but they may prove useful. AARP. AAA and if you are a professional of some sort look at your associations. Even if you are self-employed, or were, there may be an association for your kind of business. Also unions may be able to help.
LuluM says:
Also try Ehealthinsurance.com
Jean says:
Want to move to San Diego in Sept. 2012 and retire at 62, have lived in Canada since 1972, but have U.S. citizenship. Will have to get private health insurance, anybody in this situaion that can comment. Thanks.
MaryEllen says:
This article in AARP has some useful info. My husband will retire in a few years at age 66. I will only be 58 and trying to figure out what to do. We will be moving to NC and I'm not too optimistic about finding a full time job with coverage. http://www.aarp.org/health/medicare-insurance/info-2006/individual_insurance.1.html
Randy says:
I am planning on moving retiring from my present job and moving to another state before i reach 65. I currently have a Employer sponsored health plan. Can I continue with my current provider until I reach 65. Both my wife and myself are on the current plan.
Editor Comment: Talk with your employer about what is possible. If your employer provides healthcare as a retirement benefit probably yes, if you go on to COBRA it depends on your age when you retire - assuming 18 months is the usual continuation period. But your employer can answer the question.
Earl says:
Another option some folks might have is bridge insurance from your union if you are in one.
says:
This is a topic near and not so dear to my heart. I retired early and went through the process of obtaining coverage before my COBRA ran out. Although the new law will eventually make insurance accessible regardless of your health status it is not really clear that it will be affordable for those with higher risks. At any rate the current situation is a 'seller's market'. Some things to be aware of if you need to purchase coverage: (1) All insurance is regulated on a state by state basis. So what you can get in one state you may not be able to get in another and pricing may also differ. For example (as one reader pointed out) you may be able to get a type of plan in Connecticut but not in New York. Also you may be rejected in one state and not in another. This is usually due to the type of coverage that is offered. Also, every state is different as to how they approach the availability and cost of high risk pools. (2) It is very likely that no matter how you purchase your coverage a commission will be paid to somebody, so you might as well use an agent who has knowledge and contacts. If you don't understand health coverage do not buy it online on your own. (3) If you can get it and can tolerate the risk look very closely at getting a high deductible plan as the article suggests. If you do the math you may find that your deductible plus premiums is much less than a more 'robust' plan. That along with the HSA, ususally can't be beat. You can take the tax advantage of an HSA even if you don't itemize. Also you can pay for any medical or OTC medications with the HSA even if your plan doesn't cover them. Agents want to sell more expensive premium plans because that is how their commission is normally calculated. Just be sure you understand what is covered before and after the deductible is reached. (4) Be sure you understand how medication is covered. It's easy to forget about this. (5) Don't wait until the last minute to apply. Most companies have some rules about how recent your application information must be but it is probably between 60 and 90 days. So talk to an agent beforehand. If you go for a period of time without coverage you may have a waiting period before your new coverage will start. Also, even though COBRA may look good, easy to get and lasts 18 months you may want to think about whether getting your own coverage sooner makes sense. Not only for cost but for the risk of developing a condition in those 18 months that may prevent you from getting coverage.
Because the individual market is small relative to the rest of the market there are fewer companies offering coverage and fewer types of coverage. If you have coverage now, be aware that if you go to change it, whether moving to another state or not, you may not be able to get the exact same coverage due to some of the requirements that have already been mandated by the new health law. Some older policy's have been grandfathered giving the policyholder the option of keeping it or taking new coverage. For example, the ability to keep children on up to age 25.
As some have pointed out, in the current market you can just be denied and there are many pre-existing conditions that will cause outright denial. However, also keep in mind that with a high deductible plan (if you can get it) you take on more of the risk so the insurer may be willing to be more flexible. I actually ended up with a High Deductible plan that so far has proven to be quite manageable for me. I am single so I know it is more complicated if you are trying to insure two people. I am however not happy that the insurance is not 'portable' so if I decide to move to another state I take the risk of a negative impact on what I can get and the cost. This is really insane in an industrialized nation but it is due to the state regulation and the fact we have chosen to have medical coverage offered as a consumer product before age 65. By the way, for those who may travel overseas, keep in mind that you should check what your coverage will be and when you go on medicare you are not covered outside the USA.
I know one thing, once you become a purchaser on the open market and start seeing not only the premium bills but the medical bills you start approaching your utilization in a very different manner. Well, this seems long winded but I'm still sure I forgot something. I did a great deal of homework on this and went through the process and so hopefully some of this is helpful.
Car60 says:
Thank-you very much for taking the time to explain all of this! So many of my educated friends have left California as they were laid off their jobs or could not afford the cost of Ca.(though they grew up here and things were conservative and right at ONE time). I am sticking it out here as in other states, say Texas, the PROPERTY TAXES are high, etc., Nevada has money issues along with Arizona... so these states will get you in other ways!! As a native Californian, I am livid that California has turned this way and baby boomers are the ones paying the price here!!! It is sad to see everyone I grew up with, scrambling to live in Ca. or get out of it because THEY STILL NEED TO WORK due to "spreading our wealth." Wish you the best where ever you are from!
Susan says:
I believe I am correct in saying that when you turn 65 in Texas you can homestead. That prevents your property taxes from going up. Ten years from now when my taxes in Wisconsin have gone up, those in Texas will not have gone up: making them cheap.
says:
Mejask, thank you so much for all of the information you provided. I am sure a lot of people will be able to make use of it as I am.
Car60 says:
I apologize if I offended any person by my conservative blog. We educated people talk about exactly what it "use" to be in Ca., and in the USA, and how we have been left off of our jobs, told to "work till you are 70" but there are few jobs for older people, get sick while attempting to "get the job" and then medical insurance is out rageous so we end up sick or die! As well, the jobs have been outsourced. Facts are facts except for those who are very wealthy and dictate what happens to us or very liberal people who still have their jobs. The millions out of work think different. Being I offended some I will not write in again and will advise my friends who discuss every day on the subject I got deleted, to do the same. Again, my apologies.By the way, all of them are college educated, can't find jobs, and can't afford health insurance.
says:
To Pats: Have you looked into 'Healthy NY'? They offer a HDHP plan with HSA option.
www.HealthyNY.com
I live in Monroe County and this is what I thought I would do when I first retire. You have to meet certain eligibility requirements, one of which is working within the last year, so if you've been retired for more than 1 year, you've missed the window of opportunity unless you want to go back to work (part-time?) to qualify again. The other big one is income restrictions, for an individual you have to earn less than $2257 / Month (2009 numbers). But for an ealry retiree, the only income that is probably included is any pension you might have and Interest and Dividends. (Account withdrawls and Capital Gaims are not included.) The website has all the details.
The other potential drawback is you have to be a resident of NYS. :lol: For someone like me who was hoping to retire to a lower tax state, this is only a short term solution.:sad:
I'd also like to say thank you to Mejask for all the helpful info.
John Brady says:
Thanks so much to Mejask for adding so intelligently to this discussion. Very useful to all of us, I am sure. While I am at it, thanks to everyone at Topretirements who is adding to these discussions - we are all learning so much from each other! At the risk of overlooking many key contributors, notable commenters of late include Mejask, Sandy, Scottp, OldNassau, Jan Cullinane - and many others. Thanks for helping this such a vibrant community!
Susn Brooker says:
Living in California and being 62 looking for a job with or without a degree is a bad dream. Paying for rent and health insurance on early SSI is impossible. If you are lucky enough to land a paying position you will be penalized on the money over the limit you are allowed to earn on SSI but need in order pay for insurance and food. What to do? Such is life in sunny California.
Kate says:
Our solution to the $1,000 per month with the $5,000 deductible JUST FOR ME is to move out of the country until I am eligible for Medicare in eight years. My DH is a Brit and we are planning to live there for a few years. The situation in the USA regarding medical insurance and care is a travesty.
says:
PAY IT! Just as I've always done and always will...Amerihealth HMO $360 a month
sheila says:
Two things I found out when I became eligible for medicare. The first was that I had to file my tax returns as MARRIED FILING JOINTLY rather than MARRIED FILING SINGLE - which I had been doing because my pension came from another country. The second was that the tax income that was used to calculate my monthly premium was TWO YEARS BEFORE I turned 65. As a result I was paying 3 times what I should have been paying in monthly Part B premiums. I appealed and won. I am now filing properly and since my current income - for the purpose of paying based on MAGI (adjusted gross income) is half of what I made two years before 65 (because I was working then). I also received a cheque for the "overpayment" before appeal. So its important to know all this before applying for Part B. (I couldn't find this info. in any of the Medicare material). Just though I'd share my experience ...
Elaine says:
I am also just facing a higher premium beause of a high 2010 earnings because of one time event in addition to wages. In my talks with SSI I found that premiums can continue to go up and down with your earnings in retirement. They told me that is easy to appeal and told me what form. However, I think it is sad if someone needed to take a large amount from an IRA for a large medical expense and their premium went up because of that. For most of us I expect that the MAGI will be lower in retirement. They use the two year old earnings (often it is the last filed) so it is not uncommon to have a higher premium year 1 and often year 2, but you can get a reduced premium and a refund http://www.ssa.gov/online/ssa-44.pdf
Pam says:
WOW Doug061363 ... how fortunate for you that you can "just pay it". In the world of many folks like me, we don't have the money to "just pay it". I was laid off end of 2008 at age 59. Was unable to find work, so moved to find work in another state, still unable to find work which had NEVER been a problem in my entire working life ... until then. I was forced to use all my savings, cash in my IRA, and then at 62 took early social security and a very small pension. For me, paying $360 a month is not even an option.
Jan Cullinane says:
Some part-time jobs offer health benefits, such as ones at Starbucks, Costo, and Trader Joe's. Positions within a school system, such as crossing guards, or teachers' aides, can also offer benefits. And, go to www.hrsa.gov and click on "Get Health Care." Very helpful site.
Jan Cullinane
AARP's The Single Woman's Guide to Retirement (John Wiley & Sons)
The New Retirement: The Ultimate Guide to the Rest of Your Life (Rodale)
says:
Pam - Yes I am very fortunate and thankful everyday for my position. $360 a month for my HMO without a drug program and that's cheap today my premium was about $200 before Obamacare. Again I'm fortunate I'm healthy and don't use my insurance which brings to light a different spin on this topic. I pay over $4,000 a year for insurance I don't even use...
LarryS says:
One is fortunate if they never need to use insurance. Who wants to have to file a claim for a car wreck or tornado damage to your home or cancer treatments? If you are in good health, perhaps you should look into a high deductible health plan to just insure against the catastrophy.