When we talk to clients considering early retirement, the first question they ask is almost always: Can I afford to do this and what does it look like?
The second question tends to be: What will I do for health insurance?
For better or worse, health insurance in America tends to go hand-in-hand with employment—at least until you turn 65 and qualify for Medicare. Thinking about coverage options outside of work and government benefits requires a bit of a mindset shift. That said, there are several options to consider.
Health insurance options for young retirees
ACA compliant marketplace coverage
The first, and arguably the most-talked-about option, is to purchase coverage via a health insurance marketplace. The Marketplace (created in 2014 by the Affordable Care Act) offers various tiers of coverage and are prohibited by law from rejecting applicants due to preexisting conditions; there is no underwriting process to go through in order to secure coverage.
You may even qualify for advance premium tax credits (APTC); there are scenarios where families who expect to earn six figures (in terms of modified adjusted gross income) qualify for credits.
Off-marketplace coverage
These alternatives to employer-sponsored coverage, which were referred to as private insurance in the days before the Affordable Care Act, are technically called short-term limited duration plans. Many insurance experts simply call them off-marketplace, since they don’t follow the rules and regulations of the ACA marketplace.
Purchasing off-marketplace coverage usually requires you to answer questions about your health, which can influence your coverage and rates, or even a straight denial based on preexisting conditions. Similarly, coverage costs can increase if you develop a serious or ongoing ailment. Generally, these plans work best for younger people who are relatively healthy and won’t need the coverage for long periods; in fact, you can’t use these plans for longer than four months in most states.
Employer-sponsored plans for retirees
Some employers continue to provide health insurance coverage options to ex-employees until they hit 65. For instance, government employees who retire early may be able to participate in the Federal Employee Health Benefits Program if certain conditions are met.
There are a handful of private institutions that offer this type of benefit as well, such as universities or large corporations that tend to hire employees for 20- or 30-year careers, but it’s not particularly common. To find out if your employer offers this type of program, check with your Human Resources department.
Some people who retire early choose to work part time at companies that offer health benefits (specifically for that perk), though we don’t see this very frequently with Quorum clients.
COBRA
If your (previous) employer doesn’t offer a retirement option, you may be able to continue your coverage for up to 18 months using COBRA. Named after the 1985 Consolidated Omnibus Budget Reconciliation Act that created them, COBRA allows you to stay on your employer’s group health plan with a key difference: You must now pay for the part of your plan that had previously been subsidized by your employer. This caveat means COBRA plans tend to be pricey, and you generally cannot extend coverage beyond 18 months after you leave employment. Similarly, if your previous employer had fewer than 20 employees, COBRA may not be available to you.
Healthcare sharing programs
Healthcare sharing programs are not insurance and are not subject to most of the rules under the Affordable Care Act. Essentially, a group of people pay into a pool and agree to use those funds to cover the healthcare expenses of the group. Many of the healthcare sharing plans that exist today have some religious or faith basis for membership.
As the cost of healthcare increases across the board—and with premiums and expenses associated with ACA-compliant plans on the rise—these programs are becoming more popular.
Proponents say that you can opt out of coverage you don’t need. Opponents say that the programs can be risky and complex, as coverage isn’t guaranteed or protected like traditional insurance, and you may need to apply for charity care or handle additional paperwork before cost sharing kicks in. As with any type of healthcare, it’s important to understand the fine print, including costs and coverage, before deciding to go with a health share plan.
Choosing the right coverage
While you may be tempted to put off a decision about healthcare if you retire early (or even go without insurance), doing so introduces a new and significant risk to your financial plan.
While costs are an important consideration—if you’re retiring early, we need to think about the extended timeframe—so is your health. Unsurprisingly, there’s no one-size fits all solution.
With that in mind, we suggest meeting with a financial planner and health insurance expert to help you make an informed decision. If you’re relatively healthy, a financial advisor can help you get a better sense of what price range makes sense, and from there, you can evaluate what coverage options work best for you in that price range.
If you know you need a specific amount of coverage, a health insurance expert can help you explore the different options and price ranges; from there, a financial advisor can help you build a retirement plan and budget that accommodates those costs.
While health insurance can be a major expense and factor in retirement, we rarely see situations where healthcare considerations prevent a client from retiring early. Rather, careful and strategic planning that accounts for myriad options (including some unconventional ideas) can help ensure you don’t sacrifice your health and well-being when you stop working.
Questions about retiring early or healthcare in retirement? Set up a time to discuss.
