The Solution to the High Cost of Individual Health Insurance

  • Affordable Health Insurance

Health Insurance for Early Retirees Ages 59 1/2 to 64

Finding affordable health insurance is the single biggest challenge for individuals age 59 and a half to age 64 looking to take early retirement. It should come as no surprise that the great majority of people choosing early retirement have spent a career working for a larger corporation where health insurance was provided. In preparing for their exit from corporate life they are shell-shocked to discover that continuing their group health insurance under COBRA will take a significant bite out of their monthly income. 

Can they afford to retire? Absolutely, but they will have to be a tad creative if they want to make this work.

Before we go any further, we need to step back and define what we mean by “health insurance.” When most people talk about health insurance they are really talking about “major medical” health insurance. This is the kind of insurance that will pay doctor, other medical professionals and hospitals directly when you have a medical event.  These plans always have an annual deductible, coinsurance and a maximum out of pocket liability.  Some plans also include a copay for certain event such as a doctor’s appointment or prescription drug.

Option 1: Manipulate Your Income to Qualify for an ACA Subsidy

As much as I would like to take credit for this strategy, it was one of my newer clients (age 63) who came up with it. After doing some research he discovered that if the annual income for he and his wife was less than $65000 he would qualify for a subsidy under the Affordable Care Act. After doing some math he timed his retirement for December of 2019. Immediately after retiring in December he took a large distribution since he would not have qualified for a subsidy anyway. By paying the taxes on the distribution in 2019 he was able to limit his taxable withdrawals to $60,000 and utilize withdrawals from his previously taxed distribution to make up the difference. The result was a subsidy of 100% of his health insurance premium, saving he and his wife $1900 monthly.

 

This strategy should be especially important to individuals with preexisting conditions where an ACA compliant health insurance policy is very important.

Option 2: Short-Term Major Medical Health Insurance

Short-term Major Medical Health Insurance is a great and affordable way to get affordable health insurance coverage. Premiums for a multi-year short term health insurance policy are typically 40% lower than a traditional major medical health insurance policy.  As the name implies this type of health insurance is designed to provide coverage for a limited amount of time. Prior to 2016 individuals could only buy a plan that lasted for six months after which they would have to purchase another six-month plan. The challenge was that if an insured developed a medical condition, they may not be able to buy another six-month term. Even if they could still get a policy issued, short-term major medical health insurance policies did not cover preexisting conditions. Thankfully, in 2018 legislation was passed that allowed health insurance companies to sell short term health insurance plans that could be provide coverage for up to one year with the ability to have these plans automatically renew for an additional two terms without a preexisting condition limitation. Essentially you are buying health insurance coverage for three-years. This is particularly useful for early retirees age 62 and older.

This approach is also good for those early retirees under age 62 because it is so affordable. When choosing a short-term health insurance policy, it is important to time its renewal for early December since, assuming legislation does not change, you will renew during ACA Open Enrollment. This is important should you develop a major medical issue that precludes the ability to renew your plan.

Option 3: Medical Cost Sharing

 

Before getting into Medical Cost Sharing it is important to note that it is not actually insurance. Unlike health insurance where your benefits are guaranteed by an insurance company, Medical Cost Sharing is all about community. The Medical Cost Sharing Community is a group of people with a common bond, who agree to help each other with medical bills.  Medical Cost Sharing has been around for years and has paid out over a billion dollars in medical bills. This option is especially good for those early retirees who need a plan for more than 3 years.

Med Cost Sharing

The best way to think about Medical Cost Sharing is to think of a fully self-funded health plan under ERISA. These plans are not actually insurance either, but they have been used successfully to pay the medical bills of employees of very large companies for decades. In Medical Cost Sharing the common bond may be faith-based, commitment to lead a healthy life, or other commonality. Each month members contribute a set amount to the community and when a member incurs medical expenses the community pays those bills.

Typically, the monthly contribution to the Medical Cost Sharing community will be 50% or less than a traditional health insurance plan. The best of these plans will not utilize healthcare networks, so that members can seek out the best care possible without an insurance company getting in between them and their provider.

In general, these plans do not cover preexisting conditions initially.  But unlike the short-term major medical they do begin covering preexisting conditions after the first twelve months. In the plan that I represent, there is complete coverage of preexisting conditions beginning in the fourth year of membership. For the early retiree in relatively good health and with more than 3 years to go until age 65, these plans provide long-term, consistent coverage.

If you are getting ready for early retirement, I strongly recommend that you talk with a highly qualified health insurance agent who can provide all the options that I just talked about. Avoid like the plague any agent who is captive to a single insurance company since they have no incentive to encourage you to use a product that they cannot sell.

If you have any questions feel free to send me an email at mel@myhealthcare360.org or schedule a time to talk by using my calendar at https://mels.youcanbook.me