Many people are convinced that retiring before 65 may be too difficult due to the high costs of healthcare before being eligible for Medicare. We are here to tell you that this simply is not the case! With careful planning and consideration, retiring earlier than the traditional retirement age is well within your grasp. This, however, can be complex and does require careful planning and consideration which is why we recommend working with the experts at Farnam Financial to determine the best course of action for private health insurance coverage in early retirement.
There are 5 options for healthcare in retirement for early retirees: coverage from the ACA Health Insurance Market Place, Short-term health insurance, bridge-plans from your previous employer, healthcare sharing programs, and COBRA.
ACA Health Insurance Marketplace
For most early retirees, the health insurance option that makes the most sense financially is the ACA Health Insurance Marketplace. You can look at the marketplace here. There are a few benefits to health insurance through the ACA that make it particularly attractive for early retirees. First, coverage cannot be denied to you based on pre-existing conditions, meaning that if you have health issues that have prevented you from retiring due to the anxiety of not being able to find coverage, you can receive coverage through the ACA marketplace. Second, coverage through the ACA while still expensive is usually more affordable than other options.
Both an advantage in some cases and a disadvantage in others, health insurance through the ACA marketplace can be quite expensive, it is subsidized by the federal government. We’ll discuss some of the ways you can reduce the cost of your ACA health insurance by leveraging subsidies later in part 3.
COBRA
The first option many consider when they are approaching retirement is COBRA. According to the DOL, “(COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102% of the cost to the plan.” If the company you are retiring from has less than 20 employees, they likely will not have COBRA available.
COBRA is more often than not, exceptionally expensive. For most individuals even if they will only be using private health insurance for a limited time, health insurance through the ACA Marketplace will be more affordable than COBRA. Another disadvantage to COBRA is if you have voluntarily left your employment, you can only utilize COBRA for 18 months.
Short Term Health Insurance
Short-term health insurance is simply temporary insurance. It can function like a bridge loan including between retirement age 65. These plans are generally designed to last up to 36 months, but can be renewed after that period. The deductibles on these plans range from high to very high. Generally, their purpose is to cover major medical events. Available coverage is dependent on your state of residence. Beginning September 1st of 2024, a new rule passed by the Biden administration will limit the duration of these plans to just four months.
Previous Employer Coverage
Some employers will allow retirees to remain on their health insurance after retirement. This is different from COBRA and is seen more as a retirement benefit rather than a requirement. These plans are unusual as they are very expensive for the previous employer, but it is worth inquiring with your HR department prior to early retirement to see if there are options for healthcare continuation in retirement through your previous employer.
One important note is that the healthcare coverage you receive may be different than your current coverage even if it is through the same insurer. Read the fine print carefully – you may be looking at higher premiums and deductibles and less coverage than going through the ACA.
Healthcare Sharing Programs
Healthcare sharing programs are usually a group of religiously affiliated people. They are often run by non-profit ministries. Health share plans are often choose what you want and leave what you don’t. Rather than paying for a total coverage as with health insurance, instead you can pick and choose the kinds of coverage that you want.
Health Share plans are technically not health insurance. They are not subject to the same regulations that health insurance companies are, and you may be denied for pre-existing conditions. Further, you may be denied if your religious beliefs are not aligned with the health sharing organizations beliefs. You still get the same negotiated discounts on healthcare that you would with a traditional health insurance company, but be aware that these companies do operate outside of the traditional regulatory scope of health insurance, but they are still bound to the contract and plan that you sign up for. Since you choose what you want and what you don’t Health Share plans can be much cheaper than going through the ACA. So, if you are health and religiously affiliated, a health share plan can be a great alternative to an ACA plan to bridge the gap between retirement and Medicare.
In part 3, we’ll discuss some of the questions surrounding subsidies and the ACA Healthcare Marketplace.
If you would like help with health insurance prior to retirement, schedule a free consultation with one of a fiduciary financial planner at Farnam Financial today!
