Early retirement, whether desired or forced, can dramatically impact your health insurance coverage. Depending on the circumstances, you may find yourself responsible for funding your own coverage. The cost of monthly premiums differs widely based on your age, location and benefit needs.
When the Covid Pandemic hit the US in 2020, many people who anticipated waiting until 65 to retire, reexamined their plans. Some people found that businesses they had grown from the ground up were suddenly struggling to make ends meet. Others found their hours cut and occupations furloughed. Regardless of the specific reason, many people approaching the age of 65, and many some distance from this traditional retirement age, began to reconsider their plans for retirement.
Although some individuals who are considering an earlier than expected exit from the work-a-day world, have established a cushion from rising stock values and increased housing values this really is more of the exception than the rule. Most people who watched their careers take an unexpected turn during the Covid pandemic are in a much less enviable position. According to a New School for Social Research professor of economics and policy analysis, Teresa Ghilarducci, most people considering early retirement due to the pandemic have much more modest means as they exit the workforce.
Of course, this means that most of those entering retirement early are having to be conservative with the money they are leaving the paid labor force with. Since many people approaching an early retirement are looking to control their expenditures, they are going to want to be mindful of long-term costs like healthcare. If you are leaving a position where your employer carried some of the cost of your insurance premiums, you may be rightfully concerned about what you can expect to pay for your health insurance coverage moving forward. Although the cost of your monthly premiums will differ according to your location, age, and the coverage you are looking for, there are a few things you are going to want to be sure you consider.
Securing health insurance with early retirement.
If you are like many people, you have an insurance plan associated with your work. These employer-sponsored health insurance plans are one of the most sought-after benefits associated with work these days. Typically, your employer will shoulder a portion, and in some cases the full burden, of the cost for your health care coverage. Since most people lose their health insurance coverage when their employment ends, you need to consider how you will provide for your health care needs going forward. To secure insurance coverage at a price you can afford, you are going to want to consider your options for obtaining health insurance coverage once you retire.
Coverage options may include:
- COBRA: Just as when you leave one job to move to another, you may be eligible for COBRA, or continuation coverage, if you find yourself facing early retirement. If you choose to continue your insurance through COBRA, you will be required to pick up the full cost of your health insurance plan costs, but you can continue for a period of time (usually 18 to 36 months) to obtain your health care coverage under the plan your past employer set in place.
- Your spouse’s health insurance: Assuming you’re married to a partner with an employer-sponsored health insurance plan, the simplest and often most cost-efficient choice will be to have them add you to their existing health insurance plan.
- Retiree health insurance benefits: If you have worked in a union or in a highly valued occupation, you may have access to what is referred to as retiree health insurance through your past employer, your union, or, in some instances, an established trust. This plan is generally a group health insurance plan established specifically to support employees and their spouses in retirement.
- Health Insurance Marketplace coverage with a subsidy: If you fall between 100 and 400% of the federal poverty limit, you can find some health insurance plans through the Marketplace that will give you a governmental subsidy regardless of which state you reside within. If you choose to go this route, you should make sure you understand which plans allow you to use a subsidy. Even if you qualify for a government subsidy, they are only available on some of the plans available to you.
- Private insurance without a subsidy: Obviously, you can always buy your health insurance plan from a private agency. However, you should be clear that there are no governmental subsidies available to you if you choose this option. If your pandemic stock strategy has placed you outside of the federal subsidies, there are plenty of options available to you from private insurance agencies.
- Short-term insurance plans: If you are looking for an insurance plan to get you over a short stint, you may wish to consider a short-term plan. You are going to want to make sure, however, that you understand that these plans often fail to cover preexisting medical conditions. Also, if you have a history of complex medical issues, you can be turned down for these types of plans.
Knowing which option is best for you
The best health insurance plan for you is going to depend upon your specific needs. Some people are going to be most concerned about controlling their monthly budget. If this is your concern, you may wish to seriously consider buying your insurance plan through the Health Insurance Marketplace. Even if you have failed to meet criteria for subsidies here in the past, you may meet criteria this year. As part of the American Rescue Plan Act of 2021, tax credit subsidies were increased and extended to cover individuals with higher income levels than were covered in the past.
If you qualify for insurance coverage through your spouse’s company, you will likely fail to qualify for a government subsidy through the Marketplace. However, you will still want to compare the options you do have. If you find yourself choosing between having your spouse add you to their plan or using a COBRA plan, you are likely to find it less expensive to have your spouse place you on their plan. This option may be more cost effective than either a COBRA plan or plans you can acquire through private insurance companies. Remember, when you are making your choice, to compare all costs of the individual plans and not just the cost of your monthly premiums. Make sure you are clear of all copayments, deductibles, and the out of pocket maximums associated with each of the plans you are considering.
If you find you don’t qualify for a subsidy through the Health Insurance Marketplace, and the other options available to you are more expensive than you can comfortably afford, you may want to consider a short-term insurance plan. This is more likely to be a good option for you if you are in general good health and are only waiting a short time to become eligible for Medicare coverage. However, you will want to be aware that these plans aren’t required to provide the minimum essential benefits that are required by the Affordable Care Act (ACA). This means that not only are your pre-existing conditions unlikely to be covered, but some of the medical concerns covered under the plans offered to you in the Health Insurance Marketplace may not be covered in your short-term plan.