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Follow These Health Insurance Tips If You’re Retiring Early

If you plan to retire early, know that you'll need some kind of healthcare before Medicare can kick in at 65.

September 5, 2017 - By Colleen McGuire - read

Retiring before the age of 65 is an American dream come true. You’ve worked hard your entire life, and the chance to retire sooner rather than later lets you enjoy travel, volunteering or hitting the golf course more frequently.

If you’re retiring early, the health insurance plan your employer provides as a company benefit ends on your last day of employment. Since your Medicare eligibility doesn’t start until age 65, you need to purchase a healthcare plan on your own. Here are some health insurance options that make it easy to retire early:

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Stay on Your Former Employer’s Health Insurance 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 entire cost of your health insurance plan becomes your responsibility. However, if you’ve already met your deductible for the year, this becomes a compelling option to consider, especially if you anticipate needing additional medical services or prescription drugs before the next Open Enrollment Period.

Under this option your current health insurance coverage is terminated, and then reinstated as a COBRA plan. However, your coverage stays exactly the same and will appear as if nthoing changed. You get full credit for deductibles that have already been met.

There is processing time to get your health insurance 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. If your former employer makes a change to its healthcare coverage for employees, your coverage will also change.

Enroll in a Health Insurance Plan Online

If you need a more affordable health insurance option, you can shop on private websites to get a major medical Affordable Care Act plan. Once you lose your employer-sponsored health insurance, you have 60 days to join a plan without penalty, no matter what time of the year it is. This is known as a Special Enrollment Period.

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 take into account your total income for the year.

If you don’t qualify for a subsidy because your income is above the financial subsidy threshold, you may be able to find less expensive health insurance. Health insurance companies typically offer identical but discounted plans to people who don’t qualify for subsidies.

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Apply for Short-Term Health Insurance

If you retire less than a year shy of your 65th birthday, you might want to consider short-term health insurance. Short-term health insurance does not have to provide each of Obamacare’s essential health benefits. However, if you just need coverage for a few months until they age into Medicare, 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 financial lifesaver.

Go without Health Insurance – for a Price

No one can force you to buy a health insurance plan, but you will pay for it. If you try to get services out-of-pocket, you won’t have access to discounted health insurance rates. You can try to negotiate similar rates on your own, but this will take some of your newfound time.

As you settle into your retired lifestyle, take comfort in knowing that you have choices when it comes to protecting your financial future – and you have a little bit of flexibility. The most important step for your health insurance decision is to consider all your options.

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