Many people dream of early retirement. For others, early retirement may be forced upon them due to downsizing by their employer. In either case, the issue of how to fill the health insurance gap between early retirement and their eligibility for Medicare is a key issue to consider.
Many people are financially prepared to retire before age 65, but choose to delay retirement in order to remain on their employer’s medical insurance policy.
If you are currently enrolled in your employer sponsored medical insurance, retiring early can seem daunting. You will need to purchase a medical insurance policy on the open market to cover the gap between early retirement and age 65 when you are Medicare eligible. If you like your current Group health insurance and don’t want to give it up don’t be dismayed. You can elect to COBRA coverage and remain on your employer sponsored medical plan but pay the expense out-of-pocket. The cost of COBRA coverage can be extremely high so be sure to check on the cost before going this route.
COBRA is essentially a continuation of coverage of your existing group medical plan. COBRA requires that continuation coverage extend from the date of the qualifying event for a limited period of 18 or 36 months. The length of time depends on the type of qualifying event that gave rise to the COBRA rights. A plan, however, may provide longer periods of coverage beyond the maximum period required by law.
If you are entitled to COBRA coverage you have 60 days in which to apply for it (starting on the later date of when you received the election notice or when you lost your job). COBRA is expensive as you will likely pay the entire cost of your coverage with no employer subsidy as when you were working.
Health Insurance Marketplace
Another option is to purchase medical insurance on the open market to bridge the gap. Navigating the health insurance marketplace can be challenging especially if you have never purchased it on your own before. Normally, you can enroll in health insurance during the open enrollment period which goes from November to December in most states for coverage that begins on January 1st of the following year. However, you will most likely qualify for a special enrollment period when you retire. It’s a 60-day enrollment period that essentially allows you to enroll in health insurance whenever you decide to retire.
When shopping for health insurance it’s important to think about the type of health insurance you currently have. You must consider your current needs as well as any healthcare needs anticipated in the future. Another important consideration is your budget. Purchasing medical insurance on your own can be expensive! A good rule of thumb is to budget anywhere from $800-$1,200 per person, per month (exceptions may apply. This is just a starting point).
Another consideration is to get a part time job. Sometimes people will do this simply to get their medical insurance paid for. While this may sound silly it can be a great way to keep yourself busy, try out a new field and also get your health insurance paid for. With the rising cost of medical insurance many employers are not offering it to part time employees, but this is worth some consideration.
Covered California – This is the government agency offering subsidized Obamacare plans for the state. California chose to create their own exchange called “Covered California” to comply with the 2010 Affordable Care Act. The open enrollment period for Covered California is October 15th through January 31st of the following year. During this time frame you can apply for a new plan or switch to a different one within the system. You may only apply for Covered California in this window unless one of the following exceptions apply:
- You lose your job
- You get divorced
- A child is born
- You are part of a Federally recognized American Indian tribe or are an Alaskan native (if this is the case the open enrollment period doesn’t apply to you)
If you do decide to retire before Medicare eligibility the options of what to do about medical insurance can feel overwhelming.
If you want to retire early but are feeling overwhelmed, please feel free to give our office a call. We can walk you through your options to help you decide on the best coverage for your situation. We can also refer you to several wonderful professionals who can help you make the right choice for your needs and circumstances.