Presented by Stacy L. Long, CFP®, AIF®
For most people these days, the idea of retiring early is just a dream—it’s not very realistic. This is due, in part, to the costs associated with obtaining health insurance before age 65, when Medicare eligibility kicks in. And, even with Medicare, a retiree’s younger spouse or dependents often aren’t covered.
Fortunately, the Patient Protection and Affordable Care Act (PPACA), otherwise known as the Health Care Reform Act, has changed the playing field somewhat, opening up new avenues for the early retiree; however, its provisions will take several years to be fully effective. So what can you do to find affordable care in the interim?
Tips for bridging the gap
Enroll in the working spouse’s group plan. This is probably the most common and least expensive way for a retired spouse to obtain health insurance. Some companies offer family coverage for domestic partners. Be aware, however, that the working spouse usually has a limited time in which to enroll the retired spouse after the retiree has lost health insurance coverage.
Qualify for retiree health insurance with your current employer. Although employers seldom subsidize the cost of retiree health insurance, such coverage still tends to be much less expensive than an individual insurance policy. Few employers offer this option, however, and you should not assume that you, or your spouse, are eligible. If it is available, be aware that:
- Premiums can increase.
- Benefits can change.
- Employers can discontinue coverage.
Be sure to determine whether the retiree coverage will replace or supplement Medicare. Missing the enrollment date for Medicare could be an expensive oversight.
Continue group health insurance under the federal Early Retiree Reinsurance Program (ERRP). The new ERRP reimburses employers up to 80 percent of the premiums for group insurance for retirees age 55 or older, their spouses, and their dependents. While this may prove to be an affordable option, be aware that the federal subsidies for the employer do not automatically reduce the retiree’s premium cost.
Elect COBRA benefits. Retirees and their dependents may be eligible for continued employer benefits under COBRA. COBRA mandates that employers with 20 or more employees must continue group health insurance for terminating employees for a period of time. The number of months someone can retain group insurance coverage depends on the state. At a minimum, retirees can continue their coverage for an additional 18 months, but at an unsubsidized cost (which may cause sticker shock).
Today, most states require group plans to offer a conversion privilege after COBRA is exhausted.1 Be aware, however, that the benefits are generally limited and the rates expensive.
Buy a state-sponsored guaranteed health insurance plan. These are called HIPAA-eligible plans or high-risk pools, depending on the program the state offers. Under PPACA, states must offer insurance coverage for qualified residents, regardless of preexisting conditions. By 2014, uninsured retirees who make too much to qualify for subsidized health plans will be able to buy coverage, regardless of health, through private insurers via a state-sponsored insurance exchange.
The cost for state-sponsored guaranteed health insurance will be higher than insurance purchased through private insurers, but you cannot be turned down. Most states cap the premiums at 125 percent to 200 percent of comparable private coverage.
Start a small business or work part-time. Some states require insurers to offer group plans to the self-employed. Small group plans are usually more cost-effective and offer better benefits than most individual health insurance contracts. If starting a business is unrealistic, retirees may get health insurance through part-time work. While it is rare for employers to cover part-time employees, some businesses—such as Starbucks, Nordstrom, and Barnes & Noble—provide benefits for employees working 20 hours or more.
Buy an individual insurance plan. Because premiums frequently increase along with age and health complications, insurance purchased from a private insurer is the retiree’s most expensive option, if he or she can qualify at all.2 But individual plans often do not provide the comprehensive coverage the retiree is accustomed to.
High-deductible plans combined with a Health Savings Account are becoming an increasingly popular solution. These plans usually have a $5,000 to $10,000 deductible with a limit on out-of-pocket costs. Read the fine print and understand what expenses meet the deductible. Some plans consider only “normal and customary” expenses. Any excess out-of-pocket expense will not be credited toward the deductible.
Estimating your future medical costs is challenging. Not only are medical and drug costs growing at a rate higher than inflation, but long-term costs due to an individual’s medical conditions and longevity are hard to predict. Your best move is to work with a financial professional to determine what may be appropriate for you.
With proper planning, the ability to retire early may be more than just a dream.
1 See the Kaiser Family Foundation website, www.statehealthfacts.org, for more information about states’ COBRA extension laws and guaranteed insurance protections.
2 After 2013, insurance companies cannot deny applicants due to preexisting conditions.
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Stacy Long is a CERTIFIED FINANCIAL PLANNERTM Practitioner practicing at NTrust Wealth Management, 780 Lynnhaven Parkway, Suite 190, Virginia Beach, VA 23452. She offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network®, a member firm of FINRA/SIPC, a Registered Investment Adviser. She can be reached at 757 301 8520 or at Stacy@ntrustwm.com
© 2012 Commonwealth Financial Network®