No matter why you left the workforce early to retire, you’ll have health insurance needs until you’re eligible for Medicare.
Quick takeaways
What are the odds you leave the workforce earlier than you anticipate? As it turns out, quite high: Nearly 60% of retirees stopped working sooner than they planned.
When early retirees leave the workforce, they may also leave behind health care coverage. Sixty percent of Americans under the age of 65 get their health insurance through their employer.
If you’re an early retiree, how do you cover your health care insurance gap (and costs and planning for inflation) without draining your retirement savings? One place to start is calculating how much time you have until you’re covered by Medicare. These options can help you decide what works best for you.
COBRA, named for the act that established it, serves as an 18-month extension of your current health care plan after you leave a job. (Many people, not just early retirees, who have lost health benefits can use COBRA.)
A few caveats: You may only use COBRA for 18 months so if you have longer than that until Medicare coverage kicks in, this option may not work. COBRA may also cost more and may not be available if you worked at a company with less than 20 employees. You’re also tied to your former employer’s insurance, but will pay the full premium plus administration costs.
If you’re not eligible for COBRA, want a different policy than your employer’s, or have less than one year until you are eligible for Medicare, you may want to consider a short-term health insurance plan. A short-term health insurance policy is good for up to 364 days. These are only available through insurance companies or licensed insurance agents. While they generally cover very little—not even prescription drugs—they work as a stop gap to ensure you have some health insurance coverage should you have an accident or need emergency care, for example. Be aware that with both short-term and COBRA options, they’re designed for just that: to be short term.
About 17% of employers with 500 or more employees offer early retirees the option to continue their health care coverage.
If an option, you might also consider enrolling in the health care plan of your spouse’s or partner’s employer, especially if you have a longer period for coverage than something like COBRA. Compare costs based on your circumstances; for example, this option may be more expensive but provides more coverage than short-term health insurance. You may have to switch networks though, and premiums will go from single to family.
States and the federal government offer marketplaces or exchanges for qualified individuals to purchase health insurance. A few key things: The standard enrollment period of November 1-January 15 applies, unless you have lost your job. (In that case, you can enroll outside the typical enrollment period.) Deductibles and premiums vary based on your income and household size; check the U.S. Health Insurance Marketplace or your state’s health insurance exchange.
If you are willing to work part-time and your employer covers it, you might be eligible for continued workplace health insurance. Of note: Sometimes companies limit access to the health care coverage benefit to those working 30 hours.
In a health care share plan, a group of members agree to pool funds to cover the medical care costs for one another. This is a non-traditional program, typically available from and administered by faith-based organizations that you’re a member of. Generally, care coverage is limited to basic health care and catastrophic care. Regulations of the plans and in relation to health care law are complicated and there are caveats and lifestyle restrictions. For example, sometimes these programs will not pay past a certain dollar amount. Consult a tax advisor or financial professional for insight.
Are you saving enough for health care costs in retirement? Learn how to save and budget for this important piece of your post-work years.
