As my clients and readers know, my posts are often philosophical in nature. I tend to gravitate toward principles that can be helpful across broad applications, as opposed to specific advice that is relevant only in unique circumstances.
I have always believed that getting the big ideas right is more valuable than the minutia. Put another way, no matter how effectively you go down the wrong road, it will never lead to the right destination.
At the same time, if the roadmap is sound, there are usually many paths that lead to the castle. Therefore, I prioritize strategy over tactics.
Having said that, tactics can be crucial and as we progress in life, the less we want to get things wrong. Healthcare coverage prior to age 65 is an area we do not want to get wrong but is fraught with pitfalls. Besides health insurance being expensive and the options being complex, our very lives might depend on it.
This complexity often leads people to making early retirement healthcare decisions by default, rather than by design. This can lead to expensive errors that I am going to do my best to help you avoid.
Before that, however, there are some important disclaimers I must add. First, I am not a healthcare insurance specialist. If you are interested in healthcare options prior to age 65, you should consult with an expert.
Also, this post is intended for educational purposes only and should not be considered a recommendation of any kind. Most Americans will qualify for Medicare at age 65. This post addresses options for health insurance coverage prior to age 65.
Last, this post is intended as a general guide and starting point to understanding the most common health insurance options. Each option comes with its own set of constraints, limitations and tradeoffs which you must familiarize yourself with before making any decision. With that said, let us hop in.
There are five main healthcare options in early retirement. They are:
- COBRA
- Short Term Major Medical
- Retiree Health Coverage Benefits
- Healthcare Sharing Programs
- The ACA Marketplace
The Consolidated Omnibus Budget Reconciliation Act or COBRA gives you the option to remain enrolled in your employer health insurance plan if it meets the requirements. Some things to be aware of are that because COBRA is expensive. It is only available to individuals who worked for companies with over 20 employees. It generally appeals to folks who separate from service close to age 65. Some states offer mini-COBRA plans that are available to employees of entities with under 20 employees.
Pros:
- Same coverage you are accustomed to.
- You will not need to change doctors/medical professionals.
- No waiting period.
Cons:
- You must cover the entire cost of the plan. Your former employer will no longer contribute.
- Limited time frame. Coverage lasts only 18 months but can be extended to 36 months under certain circumstances.
Short-Term Major-Medical plans are, as the name suggests, for shorter timeframes and bridge gaps in coverage. This will be an option that often appeals to younger people, in good health, who are between jobs.
Pros:
- Flexible premium/co-pay options.
- Potential for “next day” coverage.
Cons:
- Does not cover prescription drugs.
- Medical underwriting required.
- Can be denied coverage based on pe-existing conditions.
- Limited coverage. There can be dollar amount or frequency limits.
- Complex documentation. Potential for lots of fine print, cutouts and exclusions.
Retiree Health Coverage is health insurance that some employers and unions offer to retiring employees and their spouses. It is usually group health insurance similar to plans offered to active employees. Eligibility, enrollment, coverage and other rules are specific to each employer’s retiree plan.
Pros:
- Ease of implementation since it is coverage through your former employer.
- It can be coordinated with Medicare to cover things Medicare might not.
Cons:
- It is likely not the same as your healthcare while you were employed.
- Benefits have been dwindling over time.
- If you do not coordinate it with Medicare when you become eligible, there can be serious gaps in coverage.
Healthcare Sharing Programs are healthcare programs that are typically faith based. That is, they are organized through religious institutions. Plan members pool their resources to cover participants medical costs.
Pros:
- Usually, it is lower cost than an ACA plan.
- An option for people whose income disqualifies them for healthcare tax credits.
- Will reimburse out of pocket qualified expenses.
Cons:
- Plans are not required to cover pre-existing conditions, such as cancer, diabetes, or conditions related to lifestyle such as smoking.
- Can be rejected based on pre-existing conditions.
- Generally, does not cover preventative care or mental health counseling.
The Affordable Care Act (ACA) Marketplace, also known as Obamacare, was written into law in 2010 and hit the healthcare market in 2014. This option has become popular with early retirees in the 55-64 age range.
Pros:
- Guaranteed issue. You will have healthcare regardless of pre-existing conditions.
- Qualifies for Advanced Premium Tax Credits. They can lower your healthcare premiums substantially, based on your income.
- Tiers of coverage provide options.
Cons:
- Higher tier plans can be expensive.
- Higher Premiums for some.
- The possibility of fewer healthcare provider options.
This is only a basic list, to be sure. However, it should act as a good foundation for beginning to understand your pre-retirement healthcare options. If you would like to discuss this, or any other aspect of financial planning in greater detail, please call me at 732-844-3000. I am here to help.
Scott R. McGimpsey June 28th , 2024
This material was prepared by Scott McGimpsey and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Neither Cetera Advisor Networks LLC nor Scott McGimpsey is engaged in rendering legal, accounting, or other professional services. If such assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any federal, state, or municipal tax penalty. Moreover, a diversified portfolio does not assure a profit or assure protection against loss in a declining market. UNIFIED PLANNING GROUP is an independent firm.