what is the best health insurance for retirees

I talk to a lot of people under age 65 who want to retire, and their first question is: what is the best health
insurance for an early retiree?

These individuals are afraid that they cannot afford health insurance at age 55 or older. Most of these individuals come to me because their financial advisor has referred them.

If you are younger than 65 and looking to retire early your biggest obstacle is health insurance. This is especially true if you worked 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.


What Can You Do if You Have a Peexisting Condition?

Before I talk about any other health insurance options. I need to discuss preexisting conditions. While many of you will be healthy, some of you will be dealing with a medical condition. It is important to note that not all medical conditions will result in an inability to enroll in any of the options that I talk about in this article.

Medical conditions like controlled high blood pressure, hypothyroidism, allergies, and acne are not serious enough to bar you from more affordable insurance options. On the other hand, someone who had internal cancer two years ago cannot consider many options.  

If you do have a preexisting medical condition you will need to choose COBRA if available. Read my article on COBRA by CLICKING HERE. You will also want to look at an ACA compliant health insurance policy. It will be important to consider the cost of COBRA as well as the coverage provided. Next you will want to compare that to health insurance plans offered on the Health Insurance Marketplace.

Qualify for an ACA Premium Subsidy

You may think that you make too much money for a subsidy but check out this strategy. 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 and paid the required taxes. This was a perfect strategy since he would not have qualified for a subsidy in 2019 anyway. This allowed him to subsidize his taxable income with tax-free withdrawals from savings in 2020. Now, he was able to limit his taxable withdrawals to $60,000. The result was a subsidy that covered 100% of his $1900 a month health insurance premium.

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

Read my article on the Affordable Care Act at https://myhealthcare360.org/the-affordable-care-act-obamacare-what-you-need-to-know/

Consider a Short-Term Health Insurance Policy

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 provided coverage for six months. After the six months they would have to purchase another six-month plan. The challenge with this was that if you developed a medical condition, the health insurance company would not sell you another six-month policy. Even if you could get a policy issued, short-term major medical health insurance policies do not cover preexisting conditions. Also keep in mind that these policies generally do not provide meaningful prescription drug coverage.  

Thankfully, in 2018 legislation allowed health insurance companies to sell short term health insurance plans that could be provide coverage for as long as 364 days. In addition, companies were also allowed to automatically renew these new plans for two additional twelve-month terms without a preexisting condition limitation. This allowed you to buy health insurance coverage for three-years. This is particularly useful for early retirees age 62 and older.

Take Advantage of the Annual Health Insurance Open Enrollment

If you are an early retiree under age 62 these plans can still be a great option. When choosing a short-term health insurance policy, it is important to time its renewal for early December. Early December is important because the annual Open Enrollment for the Affordable Care Act is always November 1 through December 15. That means that if you develop a serious medical condition you can always an ACA compliant health insurance policy on the Marketplace.

Let me give you an example of why renewing in December is so important.

Imagine that you purchased a new three-year short-term health insurance policy that renews in September of 2023. In August of 2023 you get diagnosed with cancer. The insurance company that issued your short-term policy will refuse to cover you after September 2023. Because it is not Open Enrollment you cannot buy an ACA compliant health insurance plan. You will now be uninsured until January 1, 2024. That may mean postponing your treatment for three months.  

On the other hand, if your plan renewed at the end of December 2023 you would not have had a break in coverage. Worst case scenario would be a very small break in coverage. Your short-term health insurance would have covered all your costs through the end of December. Then your new ACA compliant health insurance policy would begin covering all your expenses on January 1, 2024.

Medical Cost Sharing Plans

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.

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 although there may be elements of insurance. These plans 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.

Work an Independent Health Insurance Agent

If you are getting ready for early retirement, I strongly recommend that you talk with a highly qualified, independent health insurance agent. An independent agent will be able to offer health insurance plans from numerous insurance companies. In addition, this agent may also be able to help you enroll in a strong Medical Cost Sharing Health Plan.

You will want to avoid any insurance agent who represents one company. This health insurance agent is known as a “captive agent”. Many of these agents will claim that they will only enroll in a plan that is right for your needs. Unfortunately, these agents cannot get paid if they do not sell a plan offered through the one company that they represent.   

The independent health insurance that you choose should also be certified to enroll you in a plan offered on the health insurance marketplace. I have many early retiree clients who were able to manipulate their income and qualify for a premium subsidy. Beware of the agent who claims that he can help you with healthcare.gov but isn’t legally certified to enroll you.

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