TURNING 65: Pre-65 health insurance options for early retirees
First in a series of articles about necessary steps to take involving federal entitlement programs as age 65 nears
Age 65 is a shared national milestone for Americans. If it no longer automatically triggers retirement, it usually still signals its imminent approach. More importantly for most, it is the age when everyone becomes eligible for national health insurance as provided through Medicare.
We will delve into Medicare and Social Security-related issues in subsequent articles. First, we examine the different ways to obtain health insurance before 65.
For those who retire early or are otherwise not working prior to that traditional retirement age, obtaining coverage for medical, hospitalization and prescription drug costs can be a challenge. Several options exist to choose from, however.
Spouse’s Health Insurance
The best, most cost-effective solution if you are married is usually to obtain health insurance under the employer plan of your spouse, or domestic partner in some cases, assuming he or she is still working. The coverage can be better than what is available outside a group plan. And the ability to cover the years between early retirement and Medicare with your spouse’s insurance can save you a significant amount of money and continue to provide you with access to your preferred doctors and hospitals.
You cannot get coverage through a spouse’s Medicare plan, however. Only those who are 65 and older are eligible for Medicare.
Group Retiree Coverage
Some private employers and government organizations offer health plans that provide coverage for early retirees. Ask in advance whether this option exists if you are planning on retiring early. Where available, coverage is likely to be offered for a fixed time period or until the former employee becomes eligible for Medicare. Coverage commonly continues at the same levels as before retirement, so this option carries a big cost advantage over most others. As with a spouse’s plan, coverage also is likely to be better than most other options.
Health Insurance Marketplace (aka Obamacare)
Health insurance marketplaces, or health exchanges, are state-based – each state has its own unique set of policies offering comprehensive health coverage. Operational since 2014 under the Patient Protection and Affordable Care Act (ACA), these exchanges carry a range of government-regulated and standardized health care plans offered by participating insurers. Anyone can get coverage there, even those with a preexisting condition – a barrier in the past.
The program has been very turbulent the past few years and is still evolving. Many insurers have limited their network access for individuals in order to lessen their financial exposure, which can mean losing access to preferred hospital and doctor choices for those not in group plans. Others have left the market altogether. Your options for the coming year will become clear during open enrollment.
Normally you must sign up during the open enrollment period, which runs for November and part of December. If you lose your employer-provided coverage, you can enroll in ACA outside that period because it is deemed a qualifying event for obtaining coverage.
It is very important to look through the coverage, premiums, out-of-pocket costs and the network of doctors and providers. If you spend part of the year in another location, it also is critical that you check coverages in both states.
If cost is not the determining factor, you may wish to explore individual policies outside the exchange. Checking directly with insurance carriers, you may find more plan choices available. As with the public marketplace, however, the private market for individuals comes with limitations. Insurers make smaller networks available to individuals than they do to those in group plans. This means, for example, that most teaching hospitals and perhaps your preferred doctors may be out of network (limitations vary by insurer).
The only way to have greater access to specific hospitals and doctors is to create or become a part of a group insurance plan.
Unlike the public marketplace, it remains possible to buy private insurance plans outside the open enrollment period, at any time of year. You can find these plans through insurance providers, agents, brokers and online health insurance sellers. Your preferred plan must meet the Affordable Care Act requirement for coverage in order to avoid paying a penalty.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives former employees and their family members the right to continue their company health coverage at group rates for no more than 18 months in most cases. Employers rarely subsidize COBRA premiums, making this almost certainly the most expensive plan option if coverage is not obtained through other means. You will typically pay the portion of the premium you were paying previously plus your employer’s portion and a 2 percent service charge. But it will still likely be less expensive than paying for health insurance on your own since you will pay group premium rates, which are generally lower than individual rates.
If you are close to your 65th birthday or if you are undergoing treatment and the new policies do not cover your current doctors and providers, it may make sense to keep your current coverage under COBRA.
For detailed information, see An Employee’s Guide to Health Benefits Under COBRA on the U.S. Department of Labor website or at this link.
Determined to avoid the high costs of COBRA or the other options? You may wish to seek part-time work that provides access to health insurance coverage or form a company or a family business to access a group health plan. Participating in a group plan as opposed to an individual plan will likely get you access to more comprehensive coverage.
ON THE WEB
U.S. government site on health insurance: www.healthcare.gov
Next: Medicare basics and enrollment requirements
The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice. Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training. While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented.