Monday, February 11, 2008

Health Care and Early Retirement

In 2008, there will be almost 3 million Baby Boomers that will be eligible for Social Security benefits according to USA Today. The problem is that Medicare eligibility is still three years away for these Americans. Those workers who wish to retire early or who lose their jobs will have the most difficult and most expensive challenges to find insurance that will bridge the gap from employment to Medicare. It's very unfortunate that health insurance for individuals in their 60's is very costly in the most radical sense. Figuring out how to afford private health insurance for this demographic group is the single biggest concern for many of them. Those aging Boomers who fall into this category and have poor health may find it almost impossible to be covered.

According to AARP, about 16% of people aged 50 to 64 do not have insurance. Some can't afford it, and some can't get it. The article reports that these folks hope that nothing medically happens until they can get Medicare. Millions of retirees this year will be looking for private insurance until Medicare will be available for them. Employers who currently provide health insurance for retirees are cutting back on benefits. Many companies are also requiring that these people pick up a larger share of the cost of coverage. The Kaiser Foundation reported that only a third of large employers even offer retiree health insurance--vastly reduced from the 66% of companies who offered it twenty years ago.

There are some options that will help soften the blow. One approach would be to purchase a High Deductible Health Plan (HDHP) and combine it with a personal Health Savings Account (HSA). The higher the deductible, the lower the premium. Consider that the biggest expense, even for retirees will be primarily for doctor visits, ancillary care, and prescription medications. The primary reason anyone needs health insurance is to cover the cost of catastrophic medical care, such as emergency room visits and hospitalization. Health insurance has been abused by most Americans, and has been turned into an easy way out to handle the sniffles or other minor illnesses. That is one reason insurance has become so expensive. The HSA is a great way to offset those types of expenses that are experienced on a day-to-day basis. And, it's a great savings and investment vehicle even if you only have it for a short time.

A second option would be to make sure that coverage may be available under a spouse's plan that still is employed. The recommendation from AARP, though, is to make sure that family coverage is available, and that the spouse's open enrollment season is not the only period it might be available. Some employer's plans will not permit adding anyone until that time. In that case, a retiree would have to probably wait until the spouse can add relatives on to their plan. So working slightly longer to be able to qualify would be worth consideration. Even though this opportunity is a more expensive, it still will likely be cheaper than individual private insurance.

Another consideration would be to stick with the COBRA plan that the employer has available, even though it would only last up to 18 months after retirement. By law, COBRA plans are guaranteed. According to the legislation, an insurer covering the employer is not legally able to refuse coverage even if a retiree has a severe medical condition. The downside is that COBRA is very expensive and requires that a retiree must pay for the whole premium and costs for administration of the plan. Usually, the former employer picks up about 70% of this cost in most cases. One way to look at COBRA is consider it as group coverage at a group rate.

There is also a possibility that retirees can qualify to purchase health insurance through membership in associations or professional organizations they belong to which offer this type of benefit. Although many of the plans are not too robust, they offer a decent stop gap until age 65 when Medicare can be picked up. And some insurance companies are now offering early retirement policies that will assist retirees as supplemental insurance. One key is to stay healthy during these years in order to afford premiums that are more expensive than those purchased by younger adults. Insurance companies will rate the policy based on medical history and other factors.

Those Americans who opt for early retirement have some major decisions to make, especially for health care. The best way to afford what you need is to make wise choices related to both physical and financial health, but start early. Don't wait til you are clearing out the office desk to figure out what needs to happen next.

Until next time. Let me know what you think.

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