More and more people are retiring before age 65, which creates certain problems for healthcare insurance coverage. Most retirees can count on Medicare to pick up most of the tab for their retirement healthcare, but what if you’re too young to qualify?
Gail Marks Jarvis, writing for The Wall Street Journal, offers us a reality check. “For a couple, premiums for coverage can run from $1,700 to $2,200 a month depending on where they live, their age and the source of the insurance. And besides premiums, there are deductibles, copays and prescriptions and coinsurance costs—potentially adding thousands of dollars more in extra costs. The upshot: Leaving work just four years before starting Medicare at age 65 can easily drain $100,000 or more from retirement savings.”
What’s more, some insurance options have a limited local network and might not include preferred doctors or allow participants to see a specialist without a referral. And many don’t cover expenses incurred out of state unless it is an emergency, a potential deal breaker for a retiree who wants to spend winters in a warmer climate.
It’s easy to think you’ll have the same quality healthcare insurance coverage after you retire, but such is often not the case. Planning is needed to address this important issue before your last day of work. What are some options to consider?
Options
- Employer coverage
- ACA coverage
- Private coverage
- Last resorts
Employer Coverage
The cheapest option for a couple is to stagger retirements and have one keep working so both can rely on a workplace plan until Medicare becomes an option at 65. Workplace plans tend to be subsidized, with the employer paying about 83% of the cost of coverage for the employee on average, according to the Kaiser Family Foundation. For family coverage, the employee must pick up an additional share of the expense.
But that approach isn’t always feasible if you’re single or if neither partner wants to delay retirement. So another way to stay on a workplace plan and stay retired is through so-called Cobra coverage, which allows workers at many companies the right to continue health benefits for as many as 18 months if they leave their job under certain circumstances such as voluntary or involuntary job loss, reduction in hours worked or other life events.
Cobra coverage will cost more than if you are employed, with many employers requiring such plan participants to pay full fare, plus a 2% administration fee. However, the Cobra option will allow you to keep your preferred doctors as you consider what to do next. The average Cobra premium for a family recently ran about $25,000 a year, including the 2% fee, according to the Kaiser Family Foundation. That compares with an average of $6,775 a year the employee was accustomed to paying through paycheck deductions.
ACA Coverage
While using Cobra may be a good stopgap, moving to insurance through the Affordable Care Act marketplace is usually far less expensive because most people qualify for subsidies thanks to recent regulatory changes by the Biden administration to guide more people onto the program. Even people with more than $200,000 in income qualify in some parts of the country, and income typically plunges after leaving a job.
The ACA program includes four tiers of coverage: platinum, gold, silver and bronze. The bronze plans have the lowest premiums, silver next, then gold and platinum. Financial planners sometimes say silver is the best value, but that isn’t always the case once all potential out-of-pocket costs are compared, says Chumbley Hogue. Subsidies can be examined with the Kaiser Health Insurance Marketplace Calculator.
Nationally, the average 63-year-old couple with a $150,000 income would get a $13,689 subsidy to significantly reduce the $26,439 premium on a silver plan. Subsidies vary by location and income. A family of four with an income up to $45,000 wouldn’t have to pay a premium for a silver plan. In New York City, a 63-year-old couple with an income of $250,000 could qualify for a small subsidy to reduce their premium.
Beyond cost considerations, ACA plans are more user-friendly than other private options because they won’t disallow coverage based on pre-existing conditions and can’t deny coverage or boot policyholders if they become sick after buying the insurance. Still, retirees who choose this route aren’t home-free after paying premiums. The plans have deductibles and other requirements like copays and coinsurance for doctors, hospitals and prescriptions. Furthermore, you may not have access to the best doctors and hospitals who don’t participate in the ACA program.
(Note: More on options to consider next post.)
