Building Your Bridge To Medicare Part 1
Planning for our clients’ health care coverage in retirement is a key piece of the financial plans we make at Keen Wealth. Today’s retirees are living longer than previous generations. That means higher health care costs across the board for everyone, especially as the baby boomers retire. You need to make sure you’ll be getting the health care coverage you and your spouse need without throwing your retirement budget off course.
In this two-part blog series, I’m going to discuss how to plan for your transition away from employer-subsidized health care to Medicare. Today, we’ll go through the options available to folks who choose to retire early, meaning before they’re eligible for Medicare at age 65.
Option 1: COBRA
Although the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is usually associated with gap health care coverage after a job loss, you can also use COBRA to keep your old health care coverage in retirement.
But there are two big catches.
First, you’ll probably have to pay your premiums without your employer’s subsidy. Some health insurance providers also charge you a fee. So that coverage you’re used to paying for with a small deduction from your paycheck can suddenly cost you hundreds if not thousands of dollars per month.
Second, you can’t stay on COBRA forever. Again, the amount of time varies depending on your former employer and your plan, but most COBRA plans only last for 18 months tops. However, COBRA might be the best option if you retire close to age 65 and just need to build a small bridge to Medicare, especially if you’re unmarried and don’t have the option of being on a working spouse’s plan.
Option 2: Your Spouse’s Health Care Plan
If your married, and if the primary insurance provider for your family is the only one retiring, then check out the still-working spouse’s health care options. Jumping into a plan your spouse’s employer provides might be the most cost-effective option. But you also need to consider the cost of this new plan, how it handles deductibles and co-pays, and if it covers your doctors, especially if either of you have ongoing health concerns that require specialists.
Option 3: The Public Marketplace
Anyone who isn’t yet eligible for Medicare can buy health insurance from the public marketplace established by the Affordable Care Act (aka “Obamacare”). No insurer can reject you for preexisting conditions, and your rates can’t change should your health change.
Timing is important when buying coverage from the marketplace. You can only buy a new plan or change your existing plan during the open enrollment period, which for 2019 will be November 1 – December 15, 2018. After that, you’re locked into your plan until the next open enrollment unless a major life event qualifies you for special enrollment. Some life events the government accepts include the death of a spouse, divorce, having or adopting a child, and moving to a new home in a new zip code or county.
Marketplace plans can also be expensive compared to what you’re used to paying for employer-subsidized coverages, and the cost of premiums and scope of coverage can change year to year. Options also vary from state to state, which should be a big consideration if you’re planning to move when you retire.
If you’re thinking about buying health care from the public marketplace, please talk to a health care professional who can help you navigate all these details and select a plan that will work for both your well-being and your budget.
Option 4: Private Insurance
Another option for buying your insurance out of pocket is to shop away from the government’s marketplace. You can talk to your local health care agent about plans from private exchanges that are available in your area. Depending on your line of work, there might be trade or professional associations that provide health care options for you and your spouse as well. Just be aware that any plan you buy that’s not offered through the marketplace won’t apply government-funded tax credits to your monthly premiums.
The bottom line is: if you retire before age 65 and you can’t get health care from a working spouse, you’re probably going to end up paying more for health care than you’re used to.
But the good news is that whatever you do choose will be temporary. Once you turn 65, a whole new set of health care options will be available to you via Medicare – some for as little as zero dollars per month. We’ll go over these options soon in Part 2.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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