IF YOU RETIRE BEFORE Medicare eligibility begins at age 65, you will need to purchase health insurance. It is important to find c
overage for routine medical checkups and prescriptions as well as hospital stays and unexpected health conditions.
“An early retiree can expect to budget between $500 and $1,000 per person for health insurance each month prior to the age of 65,” says Sahil Vakil, a certified financial planner and CEO and founder of MYRA Wealth, a remote wealth management firm in Jersey City, New Jersey. Your exact cost may be more or less than that, depending on your income, eligibility for subsidies and employer situation.
Consider these health insurance options for early retirees:
Your former employer’s insurance.
COBRA.
A spouse’s insurance.
Medicaid.
The marketplace.
A health sharing plan.
A part-time job.
Here is how to set up early retirement health insurance if you retire before age 65.
Stay on Your Former Employer’s Insurance
Not many employers offer it, but you can check with your company’s human resources department to see if retiree health insurance is an option. “This has been an important benefit to employees historically, but the recent trend is that employers are eliminating this benefit due to the costs associated with providing it,” says Tyler Lerman, a financial planner and advisor with the Smith Wealth Advisory Group of Janney Montgomery Scott in York, Pennsylvania. Just 18% of large firms that offer health benefits to their workers also provide retiree coverage, according to the 2018 Kaiser Family Foundation survey of employer health benefits. If you are eligible to receive insurance through your employer after retiring, it will likely be available for a limited period, such as until Medicare coverage begins.
Look Into COBRA
The Consolidated Omnibus Budget Reconciliation Act created a program that allows former employees and their spouses and dependent children to continue receiving health insurance coverage from a former employer. “The rule generally applies to employers with 20 or more employees, and it applies to both employers in the private sector as well as state and local government,” Lerman says.
Through COBRA, you will receive the same health insurance coverage you had while working for up to 18 months. However, you will need to pay the entire premium, which your employer likely helped cover during your working years. In addition to the premium, you may have to pay an extra 2% to cover administrative fees. “The premium charged cannot exceed 102% of the cost of the plan,” Lerman says. The average annual premium for employer-sponsored health insurance in 2018 was $6,896 for a single person and $19,616 for a family, according to a 2018 Kaiser Family Foundation survey.
Join Your Spouse’s Insurance
If your spouse is still working and receives health coverage, you might be able to enroll in the plan. “This is the most comprehensive option for the price, which will vary based on the employer’s health care options,” says Myles Ma, a health care expert and the managing editor at Policygenius Magazine in New York City. If you have dependent children, they can stay on the plan until they turn 26.
Check If You Qualify for Medicaid
To receive Medicaid, you’ll need to meet a number of requirements, including an income that is considered to be low or very low. You also must be a U.S. national, citizen or have immigration status that meets certain criteria. “If you qualify, this may be your cheapest option,” Ma says. “However, it’s important to note that not all providers accept Medicaid.”
Shop the Marketplace
The Affordable Care Act of 2010 created a new health insurance marketplace. To see your options, you can peruse policies at HealthCare.gov. The site will direct you to the exchange that is available to you based on your location. You can purchase a policy through your state's exchange until you turn 65. “Depending on your income, you may qualify for help covering your monthly health insurance premium payment and other health expenses,” Ma says.
Look at a Health Sharing Plan
Also known as “health sharing ministries,” these plans are based on the idea of sharing bills with individuals who share similar values. You might pay a certain amount each month in exchange for help covering unexpected medical expenses. These plans “have become popular in recent years but are very limiting,” Vakil says. If you have a preexisting medical condition, you may not be eligible to join a plan. Health sharing plans also might not accept individuals who consume alcohol or tobacco.