Retiring before the age of 65 is an American dream come true. You work hard your entire life, saving every extra nickel for the chance to retire sooner rather than later, and enjoy travel, volunteering or hitting the golf course more frequently.
When you retire early, the health insurance plan your employer provides as a company benefit ends on your last day of employment. Since you are not yet 65 and eligible for Medicare, you need to purchase a healthcare plan on your own. If you’ve never had to buy health insurance on your own, it can be a confusing process. Here are some healthcare plan options to consider:
Stay on your former employer’s plan.
Following retirement you may keep the health insurance plan you had with your employer because of the Consolidated Omnibus Budget Reconciliation Act (COBRA), which went into effect in 1985.You may keep COBRA coverage for up to 18 months after leaving your employer, allowing you to transition from your employer’s healthcare plan over time. There is no cost-sharing from your former employer so the cost of the health insurance plan is completely your responsibility. However, if you have already met your deductible for the year, this might be an option to consider, especially if you anticipate needing additional medical services or prescription drugs until the next open enrollment period. Even though your health insurance coverage is terminated, and then reinstated as a COBRA plan, your coverage stays exactly the same, and will act as if you never lost coverage. You get full credit for deductibles that have already been met. There is processing time to get your health in reinstated, and if you need medical services before your COBRA coverage is in effect, you will be required to pay for your services out of pocket, and then file a claim for reimbursement. Note: If your former employer makes a change to its healthcare coverage for employees, your coverage will also change.
Enroll in a health insurance plan on the exchange.
If you need a more affordable health insurance option, you can shop on your state exchange or the federal marketplace. Many retirees qualify for a financial subsidy to help pay for their health insurance costs because their income level drops upon retirement. It’s important to note when calculating your Obamacare health insurance subsidy that you must calculate your total gross income for the year. So, if you retire in November from your job, you have to report your income for the year, not your retirement income going forward. If you qualify for a subsidy and wish to purchase a health insurance plan from your state exchange or the federal marketplace upon retirement, you qualify for the special open enrollment period, which means you have 60 days from your day of retirement to enroll in a healthcare plan.
Shop the private marketplace.
If you don’t qualify for a subsidy because your income is above the financial subsidy threshold, you should check out the private marketplace. Health insurance companies filed many plans through the exchanges, but not all of them, so the exchanges do not offer every option. Health insurance plans on the private marketplace can be found directly through a health insurance carrier or by search all plan options at HealthCare.com. You could find a healthcare plan more suited to your needs.
Apply for short term health insurance.
Those that retire several months shy of their 65th birthday might want to consider short term health insurance, which is an affordable alternative to an Obamacare plan. Short term health insurance does not qualify as health insurance that meets Obamacare’s essential benefit standards, so you might be subject to a tax penalty if you have short term health insurance for more than three months. However, for those who just need coverage for a few months, short term can fill the health insurance gap. The cost of short term insurance is traditionally one-third the cost of a major medical health insurance plan, making it a great low cost benefit.
Go without health insurance – for a price.
No one can force you to buy a health insurance plan, but you will pay for it. With the dawn of the Affordable Care Act, which you might better know as Obamacare, all Americans are required to carry health insurance coverage or suffer a fine, which is paid at income tax time. In 2015, the penalty for not having a healthcare plan is $325 per adult, $162.50 per dependent child OR 2% of your total income. For many families, that equates to over $1,500 in fees each year. In 2016 the penalty will increase to $695 per adult or 2.5% of total household income.
As you settle into your retired lifestyle, take comfort in knowing that you have choices when it comes to protecting your healthcare financial future – and you have a little bit of time. The most important thing to do is take your time, shop all of your options, and make an information decision about your health insurance plan.