Retiring Early? Nail Down Health Insurance

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By Lisa Gerstner From Kiplinger’s Personal Finance

If you’re 65 or older when you retire, you can rest easy knowing that you’ll be eligible for Medicare. But if you want to leave the workforce earlier than that, you’ll have to find a way to bridge a health insurance gap.

Here are some options:

Get on your spouse’s plan. If your spouse is still working and has access to employer-sponsored group coverage, check whether you can enroll in the plan too. If so, joining the employer plan may provide solid coverage at an affordable price.

You typically have 30 days from the time you leave your job to request special enrollment in your spouse’s plan. The employer may subsidize less of the premium for a spouse than for the employee. Some employers levy a surcharge, say, $100 a month, to add a spouse who has other coverage available through his or her own employment. But that shouldn’t be an issue if you’re retired.

Use COBRA. This federal law allows workers to continue their health coverage after leaving their job. If you work for a firm with at least 20 employees, it must allow you, your spouse and dependent children to stay on the company’s group health plan after your employment ends (unless you were terminated for gross misconduct). Usually, you can stay on the plan for up to 18 months.

Some states have “mini COBRA” laws that require small employers to provide extended coverage, too, but term lengths and events that allow you to qualify for it vary.

COBRA is a pricey prospect for most. Typically, you must pay the full premium—including the amount the employer covered when you were an employee—plus a 2 percent administrative fee.

If you have less than 18 months to go until you turn 65, COBRA coverage will take you all the way to Medicare eligibility, which can make it a relatively seamless choice if you can afford it. You typically have 60 days from the date you receive notice to elect COBRA or the date you would lose coverage (whichever is later) to enroll. Coverage is retroactive as long as you pay any back premiums that you owe.

Explore ACA plans. At www.healthcare.gov, you can apply for insurance through a marketplace established under the Affordable Care Act. These marketplace plans must cover essential benefits, including hospitalization, prescription drugs, and preventive and wellness services, and the plans can’t deny you coverage or charge you more if you have a preexisting condition.

Marketplace plans often have higher deductibles and out-of-pocket limits than employer plans. Because marketplace-plan premiums are age-related, if you are in your early sixties you can expect a marketplace premium to run at least $1,000 a month if you don’t qualify for a premium tax credit, says Karen Pollitz, senior fellow at the Kaiser Family Foundation. The good news is that more people currently qualify for the income-based subsidies thanks to provisions of a COVID-19 relief law that were recently extended through 2025.

You generally have 60 days from the time you lose job-based coverage to enroll in a marketplace plan. Otherwise, you can sign up during open enrollment; for 2023 plans, it’s from Nov. 1, 2022, to Jan. 15, 2023.

(Lisa Gerstner is a contributing editor at Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.)

©2022 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

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