Health Care Options for Near-Retirees
For individuals approaching retirement, medical expenses can be one of the main concerns when organizing cash flows. Having the right coverage that won’t break the bank in insurance premiums is a must, as not having any coverage at all can lead some other issues.
If an early retirement is within your sight, below are a few options to consider which may suit you:
*Note: Depending on other factors, in-depth planning may be required when choosing the following options*
Individuals deciding on retirement at 65 should typically consider Medicare as their primary health insurance. Inexpensive compared to other options, both Part A and Part B are also widely accepted. There are some caveats, most of which depend on your individual coverage needs, which can be supplemented by Medigap policies. (This would require in-depth planning, beyond the scope of this blog.)
Above all, if retirement at 65 is on the table, it is crucial that you sign up for Medicare on time. If you are not already receiving Social Security or possibly delaying it, enrollment in Medicare is not automatic and will have to be done online (https://www.ssa.gov/benefits/medicare/) or through the phone (1-800-772-1213).
If retirement is planned within an 18-month timeframe before reaching age 65, using COBRA can serve as a bridge until one reaches age 65, where one can apply for Medicare. (There are longer coverage periods, which depends on Qualifying Events, such as Disability, Death or Divorce, that can range from 29-36 months.)
If the criteria for COBRA are met, continuation of current coverage should not be an issue. There is, however, the caveat of the cost of continued coverage under COBRA. Given that on average, 70%-80% of premiums are covered by employers, premiums under COBRA may increase dramatically.
Converting Group Plans to an Individual Plan
This is an alternative to COBRA, especially if one is ineligible, in order to continue the same coverage. However, this may not be offered by all group health plans. As with COBRA, it is very likely that premium costs will increase once the conversion is made.
Purchasing a Policy through the Public Healthcare Exchange
Going through the public exchange may be the next best choice if:
- The COBRA coverage period is about to expire, and you are not eligible for Medicare
- You are eligible for premium tax credit subsidies for health insurance
Per the first point, this can be a secondary bridge until one reaches the Medicare-eligible age. Costs for these types of plans can vary on a state-by-state basis as well as a multitude of other factors, such as age, tobacco use, individual vs. family coverage, and plan category.
Given that income is reduced during retirement, one may qualify for the Premium Assistance Tax Credit, which is designed to help pay for insurance premiums for plans purchased through the public exchange.
There are a few criteria that will have to met in order to qualify. Most importantly is the household income test, which requires that your income be between 100% - 400% of the Federal Poverty Line. For 2019, this number is $12,140 - $48,560 for an individual and $16,460 - $65,840 for a married couple. Tax planning may be necessary if one is approaching the 400% threshold as one will be disqualified for the tax credit if the threshold is breached.
It can be confusing and frustrating navigating through the realm of healthcare. Despite the available choices, it is generally recommended that Medicare should be the end-goal for healthcare coverage as it is the most cost-effective. As with any other financially-related topic, this should first be discussed and planned before jumping into one of these pathways. You are encouraged to reach out to a trusted financial planner for help navigating this process.
Weingarten Associates is an independent, fee-only Registered Investment Advisor in Lawrenceville, New Jersey serving Princeton, NJ as well as the Greater Mercer County/Bucks County region. We make a difference in the lives of our clients by providing them with exceptional financial planning, investment management, and tax advice.