Many people want to retire before they are eligible for Medicare coverage at age 65, and some individuals are unfortunately getting forced into early retirement whether they like it or not. The annual Gallup Economy and Personal Finance survey has consistently revealed discrepancies in the age people think they will retire versus when they actually retire. Since 2002, the average retirement age was 62, as compared to the average anticipated retirement age of 64.
For those who retire before 65, it is important to understand what early retirement health insurance options exist to cover that gap in health care until Medicare is available. Many people underestimate the cost of paying for private health insurance, and some assume they will remain as healthy post-retirement as they were in pre-retirement years.
Premiums for private health insurance, even for just a few years, can significantly drain savings and create a financial challenge for living comfortably in retirement. With some planning ahead, however, there are a number of early retirement health insurance options available:
The Consolidated Omnibus Budget Reconciliation Act (COBRA) generally requires that group health plans sponsored by employers of 20 or more people give prior employees and their families the choice to extend that health coverage in the event of job loss, a reduction of hours, death, divorce, and other life events. This coverage often becomes more expensive, because you will be paying your share of the premiums in addition to your previous employer’s share.
Employer Retiree Health Insurance Benefits
Some employers (generally larger ones) offer continued group health benefits for retirees for these gap years, and some of those employers may even cover a portion of the premium. While not common, it is worth asking your HR department about.
Spouse’s health insurance
If you are married and your spouse is employed, you could have access to health care coverage through your spouse’s plan. Some employers have become more restrictive in recent years on allowing health care coverage for one’s spouse if they already have access to coverage through their own employer. However, sometimes they will permit coverage if the spouse loses access via a qualifying event such as job loss.
Public Health Insurance Marketplace (ACA)
Also frequently referred to as Obamacare, this health care reform was enacted in 2010 via the Affordable Care Act to make affordable health insurance available to more people. Individuals and families can purchase a health insurance policy from their state’s exchange up to 60 days before or after they lose qualifying health coverage. Some people may be able to get a premium tax credit or other savings on these plans depending on income level. The Kaiser Family Foundation has a free online calculator that you can check out to get a sense of what your options may be.
Some people will reduce work hours at their current employer, or simply take a part-time job and only work enough hours to qualify for group health coverage through that employer. State and local laws vary and may require employers to offer benefits such as paid sick leave, short-term disability, or health insurance plans to part-time employees. The previously mentioned Affordable Care Act (ACA) requires employers to offer health insurance to employees working at least 30 hours per week (or 130 hours per month).
Membership-based group health plan
There are many professional and member-based organizations that offer access to group health insurance coverage at a discount. Be sure to check out regional chambers of commerce, alumni organizations, industry groups, religious health care sharing programs, AARP, or even Costco to see what is available.
School – Offered Insurance
Are there any classes or skills you would like to work on during retirement? Sometimes taking classes at a local college or community college can also give you access to a school-offered health insurance plan. The downside here is that you may have to be a full-time student to qualify. Be sure to check out the educational programs in your area to see if anything like this is an option.
The Affordable Care Act (ACA) created the opportunity for states to expand Medicaid to cover nearly all low-income Americans under age 65. MAGI, or modified adjusted gross income, is the basis for determining Medicaid income eligibility for most children, pregnant women, parents, and adults. Some people are exempt from the income-based rules, but this is typically for a disability.
States have the option to establish a ‘medically needy program’ for people with significant health needs whose income is too high to otherwise qualify for Medicaid under other eligibility groups. These individuals can typically become eligible by ‘spending down’ the amount of income that is above a state’s ‘medically needy’ threshold. It is worth checking to see if your state has an option like this if you otherwise believe your income is too high to qualify for Medicaid in general.
As always, be sure to explore all your early retirement health insurance options before making a decision. Healthcare is a cost you simply can’t avoid in retirement and can be one of the biggest expenses for retirees. Consulting a financial planner can help you assess income needs when you retire, set aside the right amount of money for health expenses, and structure your investments in a manner that reduces your tax burden when you may need to use them for income. As always, our financial advisors in Austin are here to help so please reach out with any questions regarding this topic or any other.