For those looking to retire early, there are many questions, but chief amongst concerns is what to do about health insurance! Everyone knows that you can enroll in Medicare at 65, but what if you want to retire early? What are your options? There are a few options to choose from and it’s important that you stay informed so that when it is time to enroll in Medicare, you aren’t subject to a late penalty.
COBRA
If your workplace employs more than 50 full time employees, they are required to offer health insurance and COBRA. Click here to learn all about COBRA. Basically, COBRA is a way for you to keep your exact same employer sponsored health insurance for a specific period of time. You and your dependents will have a seamless transition because there is no change in insurance. When you enroll in COBRA, you can consider it a new open enrollment period. If there are any changes to your insurance that you’d like to make, you can do so at that time. When you enroll in COBRA, you can make any changes to your current plans that you would like.
How Long Can I Keep COBRA?
Usually, you will be eligible for COBRA for a period of up to 18 months. So if you’re only retiring a little early, perhaps this is an option for you. However, COBRA can definitely be cost prohibitive. With group health insurance, your employer will cover at least 50% of your monthly premiums. With COBRA, you are responsible for the entirety of the costs plus a possible 2% administrative fee. So, whatever you are paying now for health insurance, you can expect it to at least DOUBLE!
Also, remember COBRA is not considered creditable coverage. So you should not delay Medicare in favor of keeping COBRA. If you do, you will be charged a late penalty. Sometimes people want to stay on COBRA for as long as possible for their dependents, but this actually isn’t necessary. You can make the switch to Medicare when you turn 65 and your dependents can keep their COBRA coverage, usually for a period of 36 months.
MARKETPLACE INSURANCE
Another option is, of course, marketplace insurance. That is, to say affordable care act plans purchased on healthcare.gov (the marketplace). COBRA is only for a set period of time, so unless you are very close to Medicare age, you will need another type of insurance to bridge the gap. Marketplace insurance covers all of the essential benefits as defined by the affordable care act. You can find more information on healthcare.gov.
You can enroll in marketplace insurance during the open enrollment period which is every year from Nov. 1-Dec. 15 (although many states offer an extended open enrollment period). You can use healthcare.gov to browse all of the plans available to you and filter based on your needs. We advise that you contact a broker who will help you to best select a plan based on your needs and price point.
You may also qualify for a special enrollment period. Usually the termination of any type of health insurance will trigger a special enrollment period. So, if you decide to retire early, you can use this time to enroll in a new plan. If you elect to enroll in COBRA, you can terminate the insurance at any time, however that will NOT trigger a special enrollment period. However, once you have reached the limit of your COBRA benefits (18 months), that will trigger a special enrollment period.
How Much Will it Cost?
Marketplace insurance provides comprehensive coverage, but when compared to employer sponsored group health insurance, it can be costly. Many qualify for a tax credit which will lower your monthly premium significantly. If you are retiring early, your income may make you eligible. However, if not, we suggest working with an accountant to lower your taxable income. A one hour session can cost as little as $30 and it could save you thousands of dollars. Check out our videos about marketplace insurance and how to save money on health insurance on our channel.
SHORT TERM HEALTH INSURANCE
A good money saving option is short term medical insurance. There is a lot of false information out there about short term medical insurance. However, they have evolved in recent years and may be a great option for you! We have a video dedicated if you’d like to learn more.
Positives:
- They are very inexpensive compared to traditional health insurance. In fact, a healthy single person can get a plan for less than $100/month
- They afford many of the same benefits as ACA plans including doctor’s visits and prescription drug coverage
- You can enroll at any time
- They’re not so short term. In many states, you can enroll in a plan for up to 36 months
- Nationwide PPO coverage
Negatives:
- If you have many or expensive pre-existing conditions, they may not be ideal for you
- Pre-existing conditions will not be covered in the first year of a plan and may never be covered if they are expensive or difficult to treat
- Pregnancy is not covered
- They are not ideal for people with young children; too many doctor’s appointments
- They are not offered in every state
Short term plans are also not considered creditable coverage so you should not defer Medicare in favor of a short term plan. If you do, you will be subject to a late penalty. However, they are a great option for many! Because they are offered off the marketplace, you will need to either go through an agent or broker. Please do not use an agent! You will not pay less by going directly to the carrier, but you will be limited in your ability to shop around.
STATE PROGRAMS
There are also many state specific programs that you may qualify for if your income is below a certain level. You can contact your local Medicaid office for more information.
As always, if you have any questions, please feel free to leave them in the comments below or give us a call here at iHealthBrokers at 888-918-0518 or schedule an appointment today.
Jesse Smedley is the Principal Broker for iHealthBrokers and the founder, president, and CEO of Smedley Insurance Group, Inc. and iHealthBrokers.com. Since the inception of SIG in 2007, Jesse has been dedicated to helping people save money on their health insurance by providing them with resources to educate themselves on all their health insurance options, both under age 65 and Medicare beneficiaries. He is featured in many publications as well as writes regularly for expert columns regarding health insurance and Medicare.
