Over my career, I’ve worked with many clients who were fortunate enough to retire before the age of 65. While most people have the goal of early retirement, actually achieving it can also present its share of problems. In the past, most workers had some type of Retiree Medical program sponsored by their employer which acts as a person’s primary insurance before 65, then becomes secondary to Medicare thereafter. These programs have gone by the wayside for the most part, so what are Pre-65 retirees to do?
To help with this situation, I spoke with Bill Minnis, an independent insurance broker with The Minnis Group who specializes in Group and Individual Medical coverages. Bill has over 25 years’ experience helping his clients navigate the complexities of the health insurance market, including both individual policies, Medicare and the Affordable Care Act. Here is our conversation in question form:
- Clients that retire before 65 are (for the most part) not eligible for Medicare. What do you typically advise people to do in this situation?
I typically use an individual plan from a big insurer, such as Blue Cross. They offer more than 12 different Plans, and they do it in all four of the Metallic Colors: Platinum, Gold, Silver, and Bronze. These plans give people the choice of being able to buy rich benefits (Platinum), or a High Deductible plan (Bronze). I explain each plan from the high end to the low end, not ever knowing how the person is going to respond. I don’t steer them towards a Plan, unless I know they have medical conditions that may warrant a better plan.Individual Policies are age rated. If by chance the person is late 50s to early 60s, and they work at a Firm of over 50 employees, they may do better by using COBRA for the first 18 months after early retirement. Groups of over 50 people are demographically rated, and so the younger employees bring down the average rate. Again, Individuals and small groups are rated by the person’s age, and so for 18 months they could probably pay much less!
- How has the Affordable Care Act changed obtaining individual coverage?
It depends on their age! If the person is young, they may get a good rate, but the older people really get hit hard! For younger people, if they get laid off, they may qualify for a Government subsidy because of their lower income. It really is a case by case situation.
- For those that have sufficient savings, what do you find is the best option for health insurance pre-Medicare?
Well, for the healthier people, they could consider a Health Savings Account (HSA) Medical Plan. It has a high deductible before any benefits are paid, but the law allows people with that type of Plan to also put away tax free money, from which they use to pay the deductible and other items. The tax free aspect is very favorable for a high tax bracket person.Now, if the person has known health conditions that would cause them to fly through the deductible every year, then maybe paying higher premiums is the way to fund the medical condition, especially if the person still has some type of business they are running (since the premiums would be tax deductible). You have to take a lot of things into consideration. See our recent blog post which highlighted the benefits of the HSA account.
- What health insurance planning would you advise for pre-65 retiring worker?
As said earlier, depending on a person’s age, an individual policy may be very expensive, sometimes well over $1,000 per month! Make sure to shop around on the exchanges (www.healthcare.gov) and with different insurance companies to get the best price. Also, take advantage of the cheaper rates offered to groups of over 50 employees if you have the ability. And, this is not always a guarantee. If the 50+ employee company has an average age of 55 or 60+, this may not be true at all. If you’re still working, you should find out what the COBRA offer is going to cost. This way you can compare what the best thing is to do.
- What can someone expect to pay per month for health insurance in retirement (both single and married couples, assuming relatively good health)?
In 2016 Blue Cross’ monthly rates for a 60 year old person would range from a high of $1,204 for a Platinum PPO with very little co-pays, down to a Bronze HMO at $482 with a deductible of $6,000, IF you don’t use tobacco. If you do, it could increase between $200 and $400 extra per month. I must admit most people use Gold Plans, and they are typically $865 to $979 per month. If you’re a married couple, both 60, it’s doubled! And keep in mind the “relatively good health” doesn’t matter anymore with some of the recent law changes.
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