Health Insurance Options when retiring before age 65
Thinking of retiring before age 65? One of the most important decisions you’ll face is determining how to protect yourself against unexpected and potentially costly medical expenses. You won’t be able to rely on Medicare for health insurance until age 65 (unless you’re disabled) so it’s important to understand your other options.
If you or your spouse had group coverage through an employer you may be able to continue on your spouse’s plan if they continue working. Some employers also offer retiree group policies (although these are becoming less common). If your previous employer had at least twenty employees, you may also be eligible for COBRA which is basically the continuation of your existing coverage.
The main difference between employer coverage while working and COBRA insurance coverage after you retire is the cost. Companies no longer subsidize the monthly COBRA insurance premium so it’s not uncommon to see premiums double or triple which often makes COBRA coverage unaffordable. In addition, COBRA benefits typically only last for up to eighteen months after you retire. One exception is if you retire between age 65 and 66.5, your spouse may be eligible for up to thirty-six months of coverage starting from when you turned 65.
If group coverage through your previous employer is unavailable or unaffordable, your other choice is selecting an individual health insurance plan. Fortunately, the Affordable Care Act (ACA) prevents insurance companies from excluding pre-existing conditions which used to be a major barrier for people retiring early with medical issues.
Depending on your anticipated income, selecting a plan through an ACA Health Exchange or Marketplace can entitle you to significant tax credits to offset the cost of insurance. In 2019, if your income is less than $48,560 for singles or $65,840 for couples, you could be eligible for a credit which can be $10,000 or more. If you don’t expect to qualify for the tax credit, you can also buy individual coverage without going through the Marketplace.
To get an understanding of the potential cost and benefits from a Marketplace plan, visit www.healthcare.gov. To get an estimate of the potential tax credits, explore the calculator at www.kff.org/interactive/subsidy-calculator/.
Besides the monthly premiums, other factors to consider include the deductible and maximum out of pocket as lower premium policies typically have higher deductibles. When switching insurance companies, it’s also important to determine if your existing health care providers accept your new insurance coverage. It’s not uncommon for married couples to have two different insurance companies in order to stay with their preferred providers or if they expect different amounts of expenses.
When it comes to planning an early retirement, ensuring you have appropriate health insurance is integral to creating a sustainable financial plan.