In most cases, you can begin receiving Social Security benefits at age 62 but are not eligible for Medicare until age 65. This leaves a three-year gap in health coverage if you retire at your earliest Social Security start date and an even wider gap if you are able to retire before that time.
Without health insurance, unexpected medical bills could derail your financial plan before you even begin to enjoy retirement. For this reason, it is vital to have coverage during the early years of your retirement before Medicare begins. You have several options to gain this coverage and they vary in cost and benefits.
Join Your Spouse’s Health Plan
If you retire before your spouse, the simplest way to ensure your medical costs are covered is to join their employer sponsored health insurance plan. However, this strategy is only available if your spouse has coverage through their employer and they can add you to the plan.
Employer sponsored health coverage is often the least expensive option as well as the simplest due to the structure of group health plans. Rather than rates based on your individual risk, the rates in a group plan are based on the aggregate risk of the entire group – which can lead to lower costs for older employees and those with preexisting health concerns. Additionally, some employers subsidize insurance costs to keep them manageable for employees. For these reasons, joining a spouse’s plan is typically the preferred choice for early retirees, but it still makes sense to explore your other options.
COBRA Health Insurance Coverage
If joining your spouse’s health plan is not a viable option in your situation, you may consider continuing health insurance from your previous employer – known as COBRA coverage. This type of insurance is an acronym of the legislation that made it a requirement – the Consolidated Omnibus Budget Reconciliation Act.
Companies with 20 or more employees are required to allow you to continue participating in the group health insurance plan for a limited time after retirement – usually 18 months. However, you generally only have a 60-day window to elect to receive COBRA coverage after leaving the company.
COBRA coverage may seem like the perfect solution because you get to keep your current insurance, but the cost is often much higher than you may realize. With COBRA, you are required to pay the entire premium and that can make this type of coverage much more expensive than when you were employed.
Retirement Health Insurance Through Your Employer
Separate from COBRA, certain companies and public employers offer health insurance for retirees until they reach Medicare age. For example, insurance for teachers and government workers in Alabama is offered through PEEHIP.
Employer sponsored retirement health insurance is a fantastic benefit and generally provides similar coverage to your pre-retirement plan at a much lower cost than COBRA. If you are one of the lucky few whose employer offers this type of coverage, it can be integral in bridging the gap until you reach Medicare age, when coverage typically ends.
Private Insurance and Insurance Through Marketplace
If COBRA is too expensive, you can consider private medical coverage or a plan through the Health Insurance Marketplace. Plans that are ACA-compliant – meaning they meet the criteria in the Affordable Care Act – are available with a special enrollment period when you leave your job or lose COBRA coverage. This special period allows you to sign up for coverage outside of the typical enrollment period from November 1st – December 15th.
There are many health insurance plans available through private insurers and the Marketplace with varying benefits, monthly premiums, and out-of-pocket costs. The vast number of options means there is likely a plan that meets your needs, but the sheer number of choices can make it difficult to determine which is right for your situation.
To choose the right plan, you need to balance cost with potential risk reduction. An experienced financial advisor can help you determine the level of coverage you need to mitigate the risks to your financial plan.
Plan For Early Retirement with Meld Financial
At Meld Financial, we can help you understand your healthcare decisions when you have earned an early retirement. Our team of tax, legal, and investment professionals can also help you make the most of your financial situation in retirement including maximizing benefits from Social Security and Medicare.
Our proprietary wealth management program, Financial Fingerprint®, considers the most important aspects of your retirement plan from saving to planning for your funds to last a lifetime. To learn more about Financial Fingerprint® or discuss your personal situation, contact a member of our team today.
