Retiring early is a dream for many individuals. The thought of leaving the daily grind behind and enjoying the freedom of retirement is enticing. However, early retirement often comes with concerns about health insurance coverage. Without the support of an employer-sponsored plan, individuals must navigate the complex world of health insurance on their own. In this article, we will explore the various health insurance options available for those who retire early. From private insurance plans to government programs, we will help you understand the choices you have to ensure your health needs are met during this exciting phase of life.
What qualifies as early retirement?
Typically, early retirement refers to the decision to leave work before reaching the conventional retirement age of 65. It’s crucial to note that Medicare benefits aren’t accessible until you turn 65, meaning that if you retire early, you must secure health insurance coverage until Medicare becomes available.
What health insurance choices exist for early retirees?
When retiring early, it’s essential to seek health insurance that aligns with your medical requirements and financial capabilities. Here are 9 options worth considering:
1. COBRA
COBRA, the Consolidated Omnibus Budget Reconciliation Act, is a federal law that enables you to retain your employer-provided health insurance plan even after leaving your job. If you qualify, you can continue using your existing coverage for up to 18 months. In case of another qualifying life event like job loss or death, you may extend the coverage for an additional 18 months. Normally, employer-based health insurance coverage ends either on your last working day or at the end of that month.
Your eligible family members may still qualify for COBRA continuation, even if you choose not to enroll. Your former employer is required to inform you about your COBRA rights. You have a 60-day window from either the last day of your coverage or when you receive the “election notice” regarding your eligibility (whichever is later) to decide whether to continue or decline COBRA coverage.
While COBRA allows you to stay on your employer’s health plan, the cost will be significantly higher compared to when you were an employee. You will be responsible for paying the entire monthly premium, as your employer will no longer contribute.
2. Employer-provided retiree benefits
Depending on your employer, you may be able to avoid the high costs of purchasing your own health plan. According to a survey, 21% of large companies that offer health benefits also provide retiree health plans for some employees. These policies are often similar to the group health plan for active employees, and some employers may still contribute a percentage of the monthly premiums.
Once you sign up for Medicare, you have the option to keep your former employer’s retiree plan as a supplemental policy if you prefer.
3. Health insurance marketplace
The health insurance exchange established by the Affordable Care Act (ACA), commonly known as Obamacare, offers access to affordable health insurance, even if you have a pre-existing medical condition. All ACA plans are required to cover 10 essential health benefits, including preventive care, mental health services, and prescription drugs.
To enroll in an ACA plan, you can visit Healthcare.gov during the annual open enrollment period. If your state has its own health insurance marketplace website, you will apply through that site. In certain cases, you may be eligible to apply during a special enrollment period if you lose your workplace insurance coverage outside the standard open enrollment period.
Enrolling in an ACA marketplace plan may make you eligible for a premium tax credit based on your income. This credit can help you pay for your monthly insurance premiums or provide a tax benefit when you file your taxes.
4. Medicaid
If your household income decreases after retirement, you may qualify for free or low-cost health insurance through Medicaid. All Medicaid programs are required to cover specific mandatory benefits such as home health care, nursing facilities, and outpatient hospital services.
Medicaid is a federal program, but it is administered by individual states, and the additional benefits offered may vary. Check your state’s Medicaid program to determine eligibility, costs, and benefits.
5. Part-time employment
If you are concerned about high insurance premiums, considering a part-time job after retirement could be an option. Some companies offer health insurance to part-time workers, although it is not mandatory for employers to do so.
If your employer provides insurance, you may need to meet certain criteria to qualify for benefits, such as completing a probationary work period and committing to working a minimum number of hours, usually around 20 hours per week. Generally, if you have access to other health insurance, you won’t be eligible to sign up for a marketplace plan. However, you might still qualify for savings through the marketplace if the insurance offered by your employer doesn’t meet specific criteria:
Affordability: For health insurance to be considered affordable, the monthly premium for the lowest cost available plan cannot exceed a certain percentage of your income. In 2023, monthly premiums are considered affordable if they are less than 9.12% of your household income.
Minimum value standards: The insurance must generally cover at least 60% of healthcare expenses and offer substantial coverage for doctor and hospital services to meet the requirements for a basic level of coverage.
6. Private health insurance
Many individuals gain access to private insurance through their job or an ACA marketplace health exchange. However, private health insurance plans are also directly sold to consumers by insurance companies or through brokers. These plans are commonly referred to as commercial policies.
One advantage of obtaining a commercial policy is that you can choose a plan that fits your budget and medical needs. However, these plans can be expensive, and you won’t have access to premium tax credits (subsidies) available through the ACA. Additionally, you won’t have the cost-sharing benefits provided by an employer-sponsored plan, meaning you will be responsible for paying the full cost of your premiums.
7. Short-term insurance plans
Short-term insurance plans offer temporary medical coverage, which can last for less than three months or up to three years, depending on the regulations in your state. While short-term plans may be less expensive than ACA plans, they often provide fewer major medical benefits. These plans could be an option if you have a short gap between retirement and becoming eligible for Medicare.
8. Spousal insurance
If your spouse is employed and has an employer-sponsored health plan, they may be able to add you to their plan once your coverage ends. Keep in mind that eligibility and enrollment rules vary between companies. Before retiring, discuss the options and benefits of your spouse’s health insurance plan with them.
9. Membership organization benefits
Membership organizations often provide resources and exclusive benefits to their members, including access to affordable health insurance coverage and healthcare discounts. These organizations offer health plans based on your membership status, so you may be able to obtain affordable health coverage through them even if you are not employed. Examples of membership organizations include AARP, Alliance for Affordable Services, and Freelancers Union. When exploring these options, ensure that the benefits meet ACA compliance standards.
FAQS
Can I use my HSA if I retire early?
If you have funds in a health savings account (HSA), you can use them to pay for qualified medical expenses in the event of early retirement. Your HSA can also help cover deductibles, copays, and coinsurance using tax-free funds. Generally, you cannot use your HSA to pay for health insurance premiums unless they fall under the following categories:
COBRA
Health insurance received while collecting federal or state unemployment benefits
Long-term care insurance
Medicare
After retiring, you won’t be able to make additional contributions to an HSA unless you maintain a high-deductible health plan (HDHP).
Can I stay on my employer’s health insurance plan after early retirement?
Depending on your situation, you may be able to continue your employer’s health insurance plan through COBRA coverage. COBRA allows you to maintain the same coverage you had while employed, but you will be responsible for the full premium. However, COBRA coverage is typically temporary and can be costly, as you’ll be paying the full amount previously shared by your employer. It’s important to carefully consider the duration and cost of COBRA coverage before making a decision.
What if I don’t qualify for Medicaid or Medicare?
If you retire early and don’t qualify for Medicaid or Medicare, you still have options. Private health insurance plans, including those available through health insurance marketplaces, can provide comprehensive coverage. These plans allow you to choose the level of coverage that suits your needs and budget. It’s advisable to explore different options and compare plans to find the best fit for your situation.
Can I switch health insurance plans if my needs change during early retirement?
Yes, you can switch health insurance plans if your needs change during early retirement. Open enrollment periods, usually occurring annually, allow you to review and change your health insurance coverage. Certain life events, such as marriage, divorce, or the birth of a child, may also qualify you for a special enrollment period. It’s important to stay informed about your options and make adjustments to your coverage as necessary.
Conclusion
Retiring early brings exciting possibilities, but it also requires careful consideration of health insurance options. From private health insurance plans to government programs like Medicaid and Medicare, there are various paths to ensure you have the coverage you need during your retirement years. Take the time to assess your needs, compare different plans, and explore potential subsidies or assistance programs that may be available. By being proactive and well-informed, you can make confident decisions about your health insurance and enjoy a fulfilling and worry-free retirement.
Need help? Call Health Plans in Oregon: 503-928-6918. Our assistance is at no cost to you.
*By completing this form, you agree that an authorized representative or licensed insurance agent may contact you by phone,email,text, mail or face to face to answer your questions or provide additional information about your Medicare plan options. Not affiliated or endorsed by Medicare or any state or federal governmental agency.
