September 30, 2014 Note: This is an update of an article from July, 2011. A lot has happened in the health insurance world since then, particularly with the implementation of the Affordable Care Act (aka Obamacare). This is Part 3 in our Health Care Insurance series – see links to Parts 1 and 2 in Further Reading below
Congratulations on your retirement before the age of 65. Now, what the heck are you going to do about health insurance?
Millions of baby boomers are finding themselves retired before the traditional 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 (see links to our Medicare articles and resources in “Further Reading” below). You could still face major out-of-pocket costs for non-reimbursed expenses, so supplemental insurance might be a good idea. But if you or your spouse have not yet reached the magic age of 65, what are your health care options?
You must have health insurance now, or face a fine. In the past you might not have had health insurance 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 provide it for you (Medicaid). If you make less than $46,000 a year for an individual or $94,200 for a family of four, you should be eligible for a tax credit to make your insurance affordable under the ACA.
The Health Insurance Options
These are the major ways to get coverage:
– Healthcare insurance provided by your previous employer. Traditionally this was the ideal situation, particularly if your employer paid all or most of the premiums after you retired. 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. Medicare will almost always be your primary provider after age 65.
– – You are on COBRA. Government regulations require that you have the option to continue your existing health care insurance for at least 18 months after you stop working. You will, however, have to sign up for it and (normally) pay for it. 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 (30 months in some states). The Affordable Care Act (ACA) provides options when that happens, especially if you have a pre-existing condition.
– Get insured from your state health care exchange The easiest way to find your state health care exchange is go to the federal site, Healthcare.gov. The process is quite clear and easy. It will ask you what state you live in and a few other questions, like how old you are and if you smoke. If there is a state exchange where you live, it will refer you there. After a few questions you will start getting into the nitty-gritty of various plans, along with whether or not you are eligible for subsidized coverage.
A page will come up with various plans, types of coverages (which are much more standard now than they used to be), and costs. There are 4 levels of plans in ascending order of features and costs: Bronze, Silver, Gold, and Platinum. All plans have to cover things like doctors visits, maternity care, and preventative care.
There are multiple reasons to sign up for coverage in the next enrollment period, which begins Nov. 15, if you haven’t already. For one, you are now required to have health care coverage or face a fine. For another, everyone needs insurance – you can’t predict if and when you will get sick or injured. Rates will vary depending on where you live, number of people in your family, smoker vs. non, and how many companies are competing to provide coverage. The good news is that you have a good chance of getting 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 plan you can afford. The maximum out of pocket permitted is $6,350 for an individual and $12,700 for a couple. 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 pay money into your account and get a deduction from your income tax on that amount. You can then use that money 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 (but you can keep the money in the account). 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 health care exchanges can be confusing because there are so many plans to choose from. You can use a feature at Healthcare.gov to get local help, or call 1 800 318 2596 to get personal assistance.
How much will you have to pay?
Your premiums will vary according to your personal situation. Factors like age and smoking will have an impact. Quotes will vary by company and state as well. We ran a test for a 61 year old non-smoker in Monroe County with a household income of $45,000. The results were surprisingly low – after applying the tax credit that applied to that income level the lowest price plan for our test individual had a premium of $221 a month, with a yearly deductible of $6100 and max. out of pocket of $6350. The most expensive plan was a litle over $700/month with negligible deductibles and out of pocket costs.
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. VA coverage and TRICARE coverage count – you are considered to be insured if you are in these programs. However you need to get registered into the VA system to take advantage. 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. If you are a smoker, stop now, because you will pay higher rates. Likewise if you are overweight or out of shape, shed those pounds now. Smoking is the only factor that affects your premiums, but your poor health could affect how much you are ill and the co-pays and deductibles you are on the hook for. 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.
– Still confused – talk with an insurance professional. If the quotes you are getting don’t make sense to you, talk with an insurance pro or call the government number. 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.
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!
Now That You’re 65 – 10 Things You Need to Know (Part 1 in a series – includes how to sign up for Medicare)
Part 2: Topretirements Survey Results: Our Members Love Medicare!
Healthcare.gov – Start here for answers to almost all your questions.
Is Medical Tourism in Your Future?
Affording Health Care Costs in Retirement
Consumer Reports info on Medigap Policies
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!