How to Navigate Healthcare in Early Retirement: An Introductory Guide for Under-65 Retirees

Retiring before age 65 brings about a unique set of challenges, particularly regarding healthcare coverage. Without access to Medicare, early retirees must navigate various healthcare options to ensure adequate coverage for medical expenses. If you’re considering early retirement and have the financial resources to do so, then you’re probably not eligible for Medicaid, which is aimed at helping families experiencing financial hardship.

This guide provides an overview of the available healthcare options for early retirees, including their benefits, drawbacks, and frequently asked questions. Please note that this guide is only an overview and a starting point, and we strongly advise clients to seek guidance from a health insurance professional to review their unique situation and requirements.

We also include a real-life example of a person retiring at age 55 after many years in corporate roles and with critical healthcare concerns.

1. Employer-Sponsored Health Insurance

FAQs:

• Can I keep my employer-sponsored health insurance after retiring? In many cases, yes. Through COBRA (Consolidated Omnibus Budget Reconciliation Act), you can continue your employer-sponsored coverage for up to 18 months, although you’ll be responsible for the total premium cost.
• How do I know if I’m eligible for COBRA coverage? You’re generally eligible if your employer has 20 or more employees and you were enrolled in the group health plan at the time of retirement. Talk to your employer’s HR department for details.

Benefits:

• Continue coverage from your former employer’s group health plan.
• Familiarity with the plan’s coverage and network of providers.
• Potential employer contribution towards premiums.

Drawbacks:

• Premiums may be higher than when employed, as the employer may no longer subsidize the costs.
• Limited to the employer’s choice of plans and networks.
• Coverage ends if you lose eligibility due to reaching a certain age or no longer meeting the hours worked requirement.

2. Health Insurance Marketplace healthcare.gov
(also known as the Affordable Care Act or “Obamacare”)

FAQs:

• When can I enroll in a Marketplace plan? Open enrollment typically occurs annually in Nov/Dec. However, you may qualify for a “special enrollment period” if you experience certain qualifying life events such as losing job-based coverage, moving, or getting married/divorced.
• How do I determine if I qualify for premium tax credits? Eligibility for premium tax credits is based on household income (Modified AGI, or MAGI) and family size. You can use the Health Insurance Marketplace to estimate your eligibility and apply for subsidies.

Benefits:

• Access to various health insurance plans, including coverage for pre-existing conditions.
• Eligibility for premium tax credits and cost-sharing reductions based on income.
• Guaranteed coverage regardless of health status.

Drawbacks:

• Premiums can be high, especially for those with higher incomes who don’t qualify for subsidies.
• Limited provider networks in some plans.
• Open enrollment periods may restrict your ability to sign up outside of specific time frames.

3. Spouse’s Employer-Sponsored Plan:

FAQs:

• Can I enroll in my spouse’s employer-sponsored plan if I retire early? Yes, if your spouse’s employer allows for dependent coverage, you can typically enroll during the employer’s open enrollment period or within 30 days of experiencing a qualifying life event – which may include loss of health insurance through your employer.
• What happens if my spouse loses their job? Losing job-based coverage qualifies you for a special enrollment period to enroll in a Marketplace plan or extend the employer’s plan under COBRA for up to 18 months.

Benefits:

• Coverage under your spouse’s employer-sponsored health insurance.
• Potential for employer contributions towards premiums.
• Flexibility to choose from different plans offered by your spouse’s employer.

Drawbacks:

• The options available through your spouse’s employer may be limited.
• Dependent eligibility rules may apply, and coverage could end upon divorce or the spouse’s job loss.
• Costs may increase if your spouse’s employer does not fully subsidize dependent coverage.

4. Medical cost-sharing plans (e.g., Christian Care Ministry’s Medi-share program)

Medi-Share is a Christian healthcare sharing program where members pool funds to help cover each other’s medical expenses. It is not traditional insurance but operates as a cost-sharing community. Members contribute a fixed monthly amount, which goes into a shared pool used to pay eligible medical expenses for other members, depending on the program’s guidelines.

Medi-Share is faith-based, meaning members agree to certain Christian values, including lifestyle choices like avoiding smoking or excessive drinking. Medical bills that align with those principles may be eligible for sharing, while others may not be covered.

Medi-Share can be a cost-effective alternative for some, but it’s important to note that since it is not insurance, it doesn’t guarantee payment of claims like traditional health insurance does.

Benefits:

• It could offer lower-cost coverage than the health insurance marketplace.
• Various options of annual household portion (AHP) vs monthly share amount (compare to out-of-pocket max vs. monthly premium for health insurance)
• May offer cost sharing of eligible claims without annual or lifetime limits
• Medical bill sharing provides an opportunity to create a community with other members. You feel good about the people and families your money is helping when you are well and grateful for their help when you are not.

Drawbacks:

• Limitations on individuals with pre-existing conditions
• It is not typical health insurance, but it works by members sharing medical costs.
• It takes extra time and effort.

Real-life example #1: Healthy family

Chosen path: Medi-Share

Goodwin Investment Advisory’s president and founder, Tim Goodwin, uses this service. His experience is below.

“It’s a lot more work than typical health insurance, in my experience. After a provider visit, I get billed by them directly. First, I ensured that they filed the bill correctly with Medi-share and only billed me for a discounted amount net of co-pays. Then, I pay the provider directly. This extra effort on my part has been worth my time in spades. My out of pocket has an annual stop-loss, my AHP, which works like a normal deductible, and I get discounted prices for medical services (so long as I’m in the network or pay cash upfront). Overall, my family’s total medical expenses (Medi-share premiums plus out-of-pocket discounted medical visits and services) continue to be significantly less than paying for major medical insurance, even with the highest deductible. I know that doesn’t work like that for everyone, but it’s certainly saved us money since 2011.”

Real-life example #2: Early retirement due to health issue

Chosen path: Employer → COBRA → Marketplace (“Obamacare”)

One of our client couples (you can read about Bill and Judy’s story here; note their names were changed for confidentiality) had a situation where the wife was diagnosed with Stage 4 (metastatic) breast cancer in 2018 when her husband was 53 years old. They decided that the husband should retire early from his corporate job, despite the downside of losing employer-sponsored health insurance.

For the first year and a half after retirement they continued on the employer-sponsored health insurance via COBRA. The benefit was continuity of care: known healthcare providers and known ways of handling claims, etc. The disadvantage was the pretty high cost. However, during a time of many changes (moving across the country and building a new house), stability in her cancer treatment was very important to them.

After COBRA ended (18 months is generally the maximum), they transitioned to a plan through the healthcare.gov marketplace. They used a local health insurance broker to advise them on the different options and to make a recommendation based on other clients’ experiences. A pleasant surprise was that the cost of the marketplace (“Obamacare”) plan was lower than the COBRA plan, and it had a similar level of benefits through a major health insurance company. This included coverage for all the medical providers they had already used through the previous plan.

They will transition to Medicare in a few years, but until then, they plan to continue on the marketplace plan.

Side note: this couple looked into Medi-Share, but that would not cover the pre-existing condition (cancer), and therefore it was not an option for them.

Please contact us if you would like to hear more about these two real-life examples from Tim and “Bill.”

Navigating healthcare options as an early retiree requires careful consideration of your individual circumstances, including health needs, financial resources, and eligibility for various programs. By understanding the available options, weighing their benefits and drawbacks, and seeking guidance from qualified professionals, you can make informed decisions to ensure you have the coverage you need during this transitional period.

We highly recommend that you speak with a professional or reputable health insurance broker about your options and evaluate each option’s detailed pros and cons.

Disclosure:
This guide is not intended to be exhaustive or to cover all options and their pros and cons; it is simply intended as a starting point. Each person’s situation is unique, and what works in the two cases described above (Tim and “Bill”) may not be advisable in your situation. Please contact us if you have any questions about this.