Health Insurance Options For Early Retirees
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People who retire early before age 65, when Medicare eligibility begins need to find a health insurance option that can cover them in the meantime. Even if you don’t retire too early for Medicare, a younger spouse might need coverage to bridge the gap until he or she can qualify, too.
How To Buy Health Insurance On The Open Market
The easiest way to buy health insurance is to call up a health insurance broker and have them outline your options. It’s a bit like buying life insurance or disability insurance, except there is no physical and you probably have to shop it every year instead of just once. Once you pick the option you like, you sign the contract, write them a check for the first payment, and set up automatic ACH payments for the rest of the year. Easy peasy. Seriously. I’ve done this at least 5 times in the last decade. I assure you that it is no different to do it at 55 or 60 as at 40. Just Google health insurance broker in and choose from the dozens of options. If you don’t like the person you chose this year, pick a different one next year.
So what should you look for in a policy? Well, mostly it’s finding your place on the continuum from high premiums/low deductibles/low co-insurance/large panel of doctors and hospitals to low premiums/high deductibles/high co-insurance/small panel of doctors and hospitals. If you usually have lots of health care expenses, pick something on the left side of the spectrum. If you usually don’t have any, then pick something on the right side of the spectrum.
As a general rule, I’m a big fan of HSA-eligible plans. They usually have a bit higher of a deductible , but they give you access to a sweet triple-tax free investing account.
Do I Need Health Insurance If I Have Medicare
While Medicare is an excellent option for retirees, you wont qualify for it until you turn 65. If you retire before that date, youre responsible for getting your own coverage. However, even eligible Medicare beneficiaries may need additional insurance.
Medicare covers a large portion of your health expenses, but it doesnt pay for all of your necessary medical services. Original Medicarewhich includes Medicare Part A and Medicare Part B doesnt cover:
- Dental care
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Do I Need Medicare If I Have Retiree Health Coverage
Even if you have a retiree health plan, you will likely need to enroll in AARP early retirement health insurance plan. Depending on the plan, you may need to sign up for Part A and Part B, or just Part A .
Retiree Health Coverage may not pay for certain medical expenses during any period in which you were eligible for Medicare but did not enroll.
For people who retire before they are eligible for Medicare, retiree health coverage can be used to bridge the gap between employer health coverage and Medicare. When Medicare eligibility begins, retiree plan or coverage may change.
If You Retire Before Age 65 Without Health Coverage
If you retire before youre 65 and lose your job-based health plan when you do, you can use the Health Insurance Marketplace® to buy a plan.
Losing health coverage qualifies you for a Special Enrollment Period. This means you can enroll in a health plan even if its outside the annual Open Enrollment Period.
If you want to enroll because you lost your job-based coverage, see our Special Enrollment Period page for more information.
When you fill out a Marketplace application, youll find out if you qualify for a private plan with premium tax credits and lower out-of-pocket costs. This will depend on your income and household size.
Youll also find out if you qualify for free or low-cost coverage through the Medicaid program in your state.
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State Health Insurance Marketplace
As a result of the Affordable Care Act, every state has a health insurance marketplace/exchange where private individual/family health plans can be purchased. These plans are all guaranteed-issue. This means you can enroll regardless of medical history, and any pre-existing conditions you have will be covered as soon as your plan takes effect.
Enrollment is limited to an annual open enrollment period or a special enrollment period triggered by a qualifying event. The loss of your employer-sponsored health plan is a qualifying event, so youll be able to switch to a plan in the marketplace when you leave your job and your health plan ends.
Get The Right Coverage
Something to consider as you shop for coverage is that your healthcare costs will likely go up as you age. The average healthcare expenditure for someone who is 65 years old is $11,300 per year. This is nearly three times the average annual cost for someone in their 20s and 30s. If youre in the habit of choosing a plan with a high deductible and low premium because youre relatively healthy, you may want to adjust your coverage as you get older. The vast majority of your lifetime healthcare costs will come after the age of 45.Early retirement can be a great option if you have achieved the financial status you need to comfortably retire before the standard age. Make sure youre prepared and informed, so you know what to expect as you embark on the next stage of your life.
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Group Employee Health Insurance
Many companies offer group employee health insurance to current employees, and most of these employers subsidize the cost. People who retire usually lose that coverage for themselves as well as their spouses and children.
Health insurance for retirees used to be common at large firms, but now fewer than 1 in 5 big companies offer retiree medical benefits. Those that do may end coverage at 65 or may continue subsidizing at least some of the cost by contributing toward Medicare premiums and deductibles.
Roughly 1 in 10 employers offer a formal phased-retirement plan, which allows workers to cut back their hours while typically still keeping benefits including health insurance. If your employer doesnt have a formal program, it may still be receptive to cutting you such a deal, especially if youre a strong performer.
Another option is to switch to an employed spouses health insurance plan, if available. You may each have had your own coverage while working, or both opted to use your coverage because it was better. Even a mediocre group employee plan, however, may be better than the other choices.
Something to keep in mind: If you are 65 or older and covered under a currently employed spouses health insurance plan, and the company employs 20 or more people, you can put off signing up for Medicare Part B a little longer.
How Do I Find Out If I Am Eligible For Medicare Coverage
You should contact the Social Security Administration at least 3 months before your 65th birthday to apply for benefits. The Social Security Administration will have records pertaining to your eligibility for Medicare coverage. If they don’t, and you or your employer need to get a statement of your earnings to apply for coverage, then you should write to:
General Services Administration National Personnel Records Center Civilian Personnel Records 111 Winnebago Street St. Louis, Missouri 63118
You should provide the following information in your request:
- Your name, as shown on your payroll records
- Date of birth
- Years for which earnings are needed
- Name and location of employer for each year
- Reason for the request
- A statement that all other sources of information have been exhausted
- Your written signature
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How Do I Retire Early And Maintain Health Insurance Coverage
Its a common question as people plan for retirementhow will I pay for health coverage as a retiree before I am eligible for Medicare? Health insurance can be one of the more significant costs in retirement and should be given serious attention. However, before closing the door on retiring before you turn 65, its important to understand other health insurance options, including:
Early Retirees And The Affordable Care Act
For millions of Americans, retiring early has meant losing the security and the peace of mind that come with employer-sponsored health insurance. Today, fewer and fewer employers offer coverage for workers who retire early. In fact, only 1 in 3 large employers offers retiree health coverage of any kind.
Buying private insurance is often impossible due to very high premiums or common exclusions on account of pre-existing health conditions like high blood pressure or diabetes.
The Affordable Care Act helps early retirees by controlling costs for them, their families and their former employers, improving the quality of care for everyone, and strengthening Medicare. The Early Retiree Reinsurance Program provides much needed relief for early retirees and for businesses. Heres how:
- The Affordable Care Act provides $5 billion in financial assistance to employers to help them maintain coverage for early retirees age 55 and older who are not yet eligible for Medicare, and their spouses, surviving spouses and dependents.
- Employers can use the savings to reduce their own health care costs, provide premium relief to their workers and their workers families, or a combination of both.
- This will make it easier for employers to sustain benefits for the workers who made their companies strong–and give retired workers the peace of mind that comes with employer-sponsored health insurance.
Learn more about the Affordable Care Act and Early Retirees
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How To Qualify For Premium Subsidies In Early Retirement
Health insurance premiums can be a shock to the system when youre hoping to retire prior to becoming eligible for Medicare. After all, its hard enough to build up a nest egg that can sustain your spending and inflation for 30 years or more.
On top of that, you now have to worry about saving enough money to pay for exorbitant health insurance premiums until age 65. And, these premiums dont even take your annual deductible and other out-of-pocket healthcare expenses into account.
Interestingly enough, a quick look into the way health insurance premiums are set and how premium subsidies are doled out makes it easy to see how retirees could actually pay reduced premiums. You might ever be surprised at how reduced.
Some background: When the Affordable Healthcare Act was brought to fruition, its architects knew that covering everyone with health insurance regardless of pre-existing conditions would be an expensive affair. As a result, they built in premium subsidies and assistance with out-of-pocket healthcare expenses for Americans whose incomes were below a certain threshold.
To qualify for premium credits and other help, your household income must fall between 100% and 400% of the Federal Poverty Limit . Families below that should qualify for Medicaid, the theory goes, but families who earned above the 400% FPL threshold should be able to afford their health insurance premiums without any help – at least according to the government .
Have A Good Overall Retirement Plan
Covering your health costs whenever you retire early or late is important.
Having an overall plan for how to fund retirement is absolutely necessary.
A really good retirement plan defines how much money you have now and in the future and it describes how much you are spending now and in the future. The NewRetirement Retirement Planner is an easy-to-use tool that helps you figure this out. This tool was recently named a best retirement calculator by the American Association of Individual Investors .
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Early Withdrawal Of Ira Without Penalty
If you are unemployed and need the extra cash to keep your health insurance active, you will also be able to use your Roth or traditional IRA before age 59.5 without paying the 10% early withdrawal penalty. .
Likewise, you may be eligible for a penalty-free withdrawal from either type of IRA before age 59.5 to cover unreimbursed medical expenses that exceed 10% of your adjusted gross income for 2021 .6
You would still be liable for ordinary income tax on any amount withdrawn from your Traditional IRA because they are funded in pre-tax dollars.
Roth IRA contributions are made in after-tax dollars, so you dont have to pay ordinary income tax until you withdraw the income.
Be aware, however, that withdrawing money from your retirement account prematurely can increase your risk of outliving your savings. A financial professional can help you determine the potential impact of early IRA withdrawals.
Get The Taxpayer To Pay
There are lots of government programs to assist you in buying health insurance, both federal and state. Most of them are based primarily on taxable income. They don’t ask WHY your taxable income is low. They generally don’t care if it is low because you are disabled, lazy, caring for an ill family member, or living off capital gains and Roth IRA withdrawals. Early retiree millionaires usually qualify for these programs just as easily as very poor people. These include programs like Medicaid and Obamacare,
Under PPACA , those who purchase health insurance through the state exchange qualify for some form of tax subsidy. This varies by family size and income, but you generally get something until you hit 4X the federal poverty level At half of those income levels, your subsidy is substantial- about half of the annual premiums. Many early retirees can get their AGI down to levels where they qualify for subsidized health care, even while enjoying a nice lifestyle by living off of Roth IRA withdrawals, qualified dividends, long-term capital gains, principal, and loans.
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Insurance Through A Faith
With a health sharing plan, youâll be joining a pool with other members of your faith-based organization to share the costs of group insurance. Youâll pay a monthly contribution, which may be lower than the average health insurance premium.
Be aware, however, that these plans may exclude preexisting conditions and restrict long term prescription coverage. So if you have a chronic condition or need certain medications, you could end up paying some of your healthcare costs out of pocket. Check with your faith organization to see if this option is available to you.
Retirement Healthcare: What Are Your Options
For years, health insurance in the U.S. was a major roadblock to early retirement. If you dared to leave work before age 65, when Medicare starts, you were on your own for retirement health care. In my case, our assets were closing in on financial independence as I reached my mid-40s. But pre-existing conditions precluded purchasing an individual health policy. So I didnt dare take the plunge into early retirement.
But then two lights appeared on the horizon: My wife went back to full-time teaching for a few years, qualifying us for retiree health benefits from our county school system. Those retiree benefits removed the last obstacle to my early retirement, one that I could not have overcome on my own. I couldnt have retired at 50 without them.
The other light was the passage of the Patient Protection and Affordable Care Act in 2009, commonly known as Obamacare. This was our backup plan. It functions today, and is still our backup plan. But for many early retirees its their first, and only, plan. A decade after becoming law, its still under attack on many fronts, both political and financial. Im relieved that we dont have to rely on it for our early retirement, but sympathetic to the many who do. The picture is changing year-to-year. Here is an update on Obamacare and its alternatives.
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Health Insurance Through A Government Exchange
You can also shop for a policy on a government-run online exchange. The U.S. federal governmentâs exchange is at healthcare.gov. Additionally, 15 states run their own exchanges.
With an online exchange, youâll key in some information about yourself, then will be presented with policy quotes from multiple health insurance companies. These companies are required to offer policies with multiple coverage options and premium levels, so youâll likely have several choices to consider. Once youâve chosen a policy, youâll be able to complete the purchase online.
Another advantage of buying a policy through an exchange is the availability of tax credits and government subsidies. These credits and subsidies can help bring down your total insurance cost. However, know that there may be some limitations on these credits if you decide to purchase a policy through an exchange when youâre also eligible for retiree coverage from your employer.
As an early retiree, youâll qualify for special enrollment with the federal governmentâs exchange. This means you wonât have to wait until the year-end open enrollment period to purchase a policy.
Policymakers Need To Monitor Policy Effects On Retirement Behavior And Insurance Coverage
In sum, the policy environment will influence both what employers will do regarding retiree health benefits and what individuals will do regarding the retirement decision. Given a decision to retire early, policies that affect access to continued health benefits after retirement also have implications for whether an early retiree has health insurance coverage.
In the future, policymakers need to continue monitoring the effects of policies both on retiree behavior and on employer decisionmaking. If reforms make insurance more accessible and less costly after retirement and before Medicare eligibility, an increased incentive to retire early will exist. Also, policies that make affordable insurance available upon retirement should reduce the prevalence of the near elderly who are uninsured. At the same time, some policy initiatives may have the opposite effect if they reduce the health insurance coverage options of early retirees, either through changes in employer offers of retiree health benefits or through changes that affect insurance access by other mechanisms.
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