There are many benefits to early retirement, but finding health care coverage isn't one of them.
Medicare generally doesn't kick in until age 65, although some people qualify for Medicare at 62. According to the Fidelity Retiree Health Care Cost Estimate, a couple who waits until age 65 to retire may spend $315,000 on health care expenses in retirement.
If you decide to retire before then, you could find yourself in a sort of no-coverage middle ground where you no longer have employer coverage but also can't access Medicare. It's a tricky place to navigate, but an important one to consider — and you may need to plan for an even bigger expenditure.
This article will cover the top health care options for early retirees, as well as tips for how to choose a health insurance plan in retirement.
Health care coverage options for early retirees
Option A: Switch to your spouse's plan
If you still have a working spouse, this may be the simplest and most affordable option for health care coverage in early retirement. For this strategy to work, your spouse must have a workplace health care plan that will allow you to participate, too.
If your spouse's employer does allow it, your spouse can request to add you to his or her coverage by speaking to the company human resources department. You have 30 days from when you lose your own employer health care coverage to be added to your spouse's plan.
The cost will vary depending on your spouse's plan. Some employers may charge an additional fee for spousal coverage, called a spousal surcharge, although this is more common for working spouses.
Unfortunately, not all employers offer extra coverage. If your spouse doesn't have a workplace retirement plan or has retired with you, then you'll want to consider one of the next options.
Option B: COBRA coverage
COBRA coverage, or continuation coverage, lets you stay on your former employer's health care plan for a certain amount of time. This coverage can last for 18 or 36 months, or potentially longer, depending on your plan.
The upside to the strategy is you get to keep the same coverage you had while you were working. The downside is that it may cost you more — a lot more. Not only will you no longer have your employer sharing some of the premium costs, but you could be required to pay up to 102% of the cost of the plan.
You'll have 60 days from the date you receive an election notice letting you know COBRA coverage is available to decide if you're going this route or not.
Option C: Public marketplace coverage
A more affordable option than COBRA may be seeking coverage through the public Health Insurance Marketplace. Whenever you lose health insurance coverage, you can qualify for a special enrollment period (SEP), which allows you to join a health plan any time of the year, even if it’s not open enrollment.
A new rule called the Affordability of Employer Coverage for Family Members of Employees may make it less costly to go this route. Under the rule, if the coverage for your whole family under the lowest-cost employer health care option is more than 9.12% of your household income, nonemployee family members may qualify for financial assistance on ACA marketplace plans.
To apply for coverage through the public marketplace or preview the available plans, go to Healthcare.gov.
Option D: Private insurance
You can also get health care coverage outside of the Health Insurance Marketplace. Local health insurance agents, professional associations or private exchanges may offer plans from various carriers in your area. Healthcare.gov also provides a Plan Finder tool that lets you search for plans outside of the Health Insurance Marketplace that qualify as coverage under the federal health care law.
Keep in mind that while there may be more plan options available off the public exchanges, you won't qualify for any government-funded tax credits or savings on private plans.
Tips for choosing a retirement health care plan
Choosing the right health care as an early retiree is about more than just where you go to find coverage. Even though this may be only short-term coverage until you qualify for Medicare, you also want to make sure you're getting the best plan for you. Here are some questions to ask that can help you find the right plan:
- How does this coverage compare to the coverage I had under my employer plan?
- What benefits did I actually use under my employer plan? Will I need those benefits in retirement, as well?
- Do I want to keep the same medical providers I had before retiring?
- Does the plan cover the health care providers I need or want to use?
- Do I take any medications regularly?
- How big of a deductible am I comfortable paying?
- What size monthly premium can I afford?
Thinking through questions such as these can help you narrow down your plan options and find the best coverage for you to fill the gap until you qualify for Medicare. As you near age 65, set aside time to research Medicare and how to enroll so you can ensure you're set up for the rest of retirement, too.
Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.
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