What Are Your Health Insurance Options If You Retire Early?

Opting for an early retirement may seem enticing, but it’s crucial to carefully consider how you’ll manage healthcare expenses when departing the workforce before reaching the conventional retirement age of 65. Fortunately, numerous health insurance alternatives may be at your disposal, contingent upon your income, lifestyle, and specific healthcare requirements.

So, what is early retirement?

In essence, early retirement involves stepping away from work prior to the customary retirement age of 65. For individuals relying on employer-sponsored health insurance, this transition often necessitates seeking alternative coverage. Since Medicare eligibility typically begins at age 65, securing new insurance becomes imperative. However, obtaining private insurance sans employer assistance proves financially challenging for many.

Opting to forgo insurance could result in substantial out-of-pocket expenses for medical care, including visits to healthcare providers. Hence, it’s prudent to explore insurance options that offer cost-effective coverage until Medicare becomes available.

What are the available health insurance choices for individuals opting for early retirement?

Upon early retirement, it becomes imperative to secure health insurance that aligns with both your medical requirements and financial considerations. Here are ten options worth exploring:

COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law allowing certain individuals to continue their employer’s health insurance coverage post-employment. Eligible individuals can typically use their employer-based insurance for 18 months after leaving their job. In case of a qualifying life event, like a divorce or the death of the covered employee (spouse), coverage may be extended for an additional 18 months, with a maximum of 36 months. However, the cost of COBRA is substantially higher, with the retiree responsible for the entire monthly premium and a 2% administrative fee.

When retiring, employers must provide an “election notice” within 60 days from the last day of coverage. Declining coverage allows family members to remain eligible for COBRA continuation.

Employer-Sponsored Retiree Benefits

Some companies offering health benefits extend retiree health plans to certain employees. These plans may resemble those provided to active employees, and in some cases, employers may still contribute a percentage of the monthly premiums. Additionally, once eligible for Medicare, retirees can use their former employer’s plan as a supplemental policy.

Health Insurance Marketplace Plans

Early retirees might find affordable coverage through the Affordable Care Act (ACA) health insurance marketplace. This option remains viable even with preexisting medical conditions. ACA plans cover 10 essential health benefits, including preventive care, mental health services, and prescription drug coverage. Enrollment is possible during the annual open enrollment period on www.healthcare.gov or through state-specific marketplace websites. Special enrollment periods are available for those losing employer-based insurance outside the standard open enrollment period. Depending on income, individuals may qualify for a premium tax credit to assist with monthly ACA insurance premiums or offset yearly taxes.

Medicaid

In the event of a decline in your household income post-retirement, you may qualify for cost-effective or free health insurance through Medicaid. All Medicaid plans are obligated to cover essential benefits such as home health, nursing facilities, and outpatient hospital services. Additional benefits may vary among individual states that administer their Medicaid programs.

Medicaid eligibility is not age-dependent. While specific rules may differ across states, individuals generally qualify based on factors like disability status, family situation, household size, and income. Many states have expanded their Medicaid programs, allowing eligibility based solely on income. In states with expanded coverage, qualifying typically occurs if your household income is below 133% of the federal poverty level. Currently, 41 states and territories, including the District of Columbia, have adopted Medicaid expansion. For precise details on eligibility, costs, and benefits, consult your state’s Medicaid program.

Insurance through a Part-time Job

Addressing concerns about high insurance premiums, one option is securing health insurance through a part-time job post-retirement. Some companies extend health insurance benefits to part-time employees, although this is not mandatory. Specific criteria, such as completing a probationary work period and committing to a minimum number of hours (usually around 20 hours per week), may be required for eligibility. Even with employer-offered coverage, you might qualify for a more affordable health plan through the ACA marketplace if certain criteria, such as affordability and minimum value standards, are not met by the employer’s plan.

Private Health Insurance

Finding a private health insurance plan, also known as a commercial policy, tailored to your budget and medical requirements is a possibility. However, these plans can be relatively expensive, particularly without cost-sharing benefits from an employer. Moreover, potential access to premium tax credits (subsidies) as available with an ACA plan is not applicable.

Short-term Insurance Plans

Temporary medical coverage, lasting from less than three months to up to three years, is provided by short-term insurance plans, contingent on your state’s regulations. While these plans are often more affordable than ACA plans, they may offer fewer major medical benefits. They can be a suitable option if you face a brief gap between retirement and Medicare eligibility.

Spousal Insurance

If your spouse has an employer-sponsored health plan, you might be eligible for coverage under their plan upon retirement and the conclusion of your existing coverage. However, it’s essential to note that different companies have varying rules for eligibility and enrollment, making it advisable to understand the specifics of your spouse’s health insurance plan before retirement.

The Bottom Line