How can you go about securing healthcare coverage before Medicare? This question represents one of the biggest obstacles faced by those who want to retire early.
Clients and prospects often ask, “When can I retire?” This question does not have a one-size-fits-all answer. First, you need the financial wherewithal to do so. That brings up the question of if you have “enough.” When determining if you have enough, you must understand all aspects of your retirement. This includes healthcare costs as they represent a significant cost in retirement. Such costs become even more meaningful without sufficient insurance coverage.
Deciding to retire early or quit your career is a monumental decision. With employer-sponsored healthcare often serving as a primary source of coverage, the prospect of leaving the workforce early can raise questions and uncertainties about how to maintain adequate healthcare coverage.
When it comes to securing healthcare coverage before Medicare, you want to consider your healthcare options, develop a budget, and find ways to potentially lower your costs. Read on for more information about your options and strategies that can increase your chances of successfully navigating this complex issue.
Maintaining Coverage Until You’re Medicare-Eligible
If you are other than self-employed, you most likely have been covered under your employer’s group health insurance. Unfortunately, your coverage will likely end when you leave your job or retire as only 21% of large firms offer retiree health benefits. That leaves you responsible for the full cost of your premiums until you become Medicare-eligible at age 65. Deciding how to go about securing healthcare coverage before Medicare healthcare costs is one of the biggest financial issues you’ll have to sort out if you retire before you turn 65.
Approximately 70% of Americans retire before they become eligible for Medicare. Do you know the average retirement age in the US? Believe it or not, it’s 61. If you become one of them, you will want to estimate your healthcare needs in retirement and weigh the best available coverage options before Medicare kicks in. This becomes even more important if you previously had any of your dependents on your employer’s plan.
Understand Your Options
Before considering specific strategies for securing healthcare coverage before Medicare, you must understand the available healthcare options. Private health insurance plans, including those offered through the Affordable Care Act (ACA) marketplace, represent a good starting point for your research. You also want to consider the potential for COBRA continuation coverage from your former employer. Note that COBRA generally applies to all private-sector group health plans maintained by employers with at least 20 employees. Once you have this information, evaluate the costs, coverage levels, and eligibility criteria for each option. COBRA lasts for 18 months after an employee leaves a company. In some cases, it can be extended. Under COBRA, you typically lose your employer’s contribution to your premiums, which can make them quite expensive.
Consider Health Insurance Marketplaces
Health insurance marketplaces, established under the ACA, offer a range of health insurance plans for individuals and families. These plans vary in coverage levels and cost, with subsidies available based on income for those who qualify. Research available plans in your area and compare costs and coverage to find the best fit for your needs.
A Part-Time Job
Do you intend to stop working altogether or are you simply looking to reduce your hours? If you want to work less or have a job with less responsibility, you can look for a part-time job that offers healthcare benefits. You could at least use this strategy until you qualify for Medicare. Of course, with healthcare costs as high as they are, it may also be difficult to find such a position.
If you find you have too much free time on your hands, going back to work part-time can also help you keep busy. Part-time jobs are typically less demanding than full-time jobs and require less commitment.
A part-time job could also provide a great opportunity to delve into a field that you want to know more about, do something you’ve always loved, or turn a hobby into an income stream while getting health insurance coverage before Medicare.
Spousal Coverage
If you’re married, you can potentially obtain coverage through your spouse’s plan.
If you aren’t already on your spouse’s plan, you do not need to wait until open enrollment to retire and join. The loss of coverage by a spouse is one of the exceptions to changing benefits elections outside of the open enrollment period, meaning a retiree can join their spouse’s plan midyear.
If you are in a committed partnership and not married, it’s worth checking on the availability of domestic partner coverage. Although this is less common than before same-sex marriage was legalized, some employer plans still extend health insurance coverage to employees’ domestic partners if they can demonstrate a level of financial interdependence and a certain longevity of their relationship. This includes providing proof such as a shared lease agreement, joint home ownership, joint bank accounts, etc.
Moving abroad
Depending on which country you choose and its rules for establishing legal residency and accessing government-run health care, moving abroad can help you fill the insurance gap while also adding some adventure if the situation is right. You may be able to obtain dual citizenship in a European country, entitling you to health care there and a European Health Insurance Card.
Remember that Medicare coverage does not apply outside the United States. If you take this step and ever plan to return to the U.S., you still need to enroll in Medicare upon reaching age 65. If you don’t, you will face lifetime late enrollment penalties when you return to the United States.
Investigate Alternative Healthcare Options
Beyond traditional health insurance plans, consider alternative healthcare options such as healthcare sharing ministries, direct primary care practices, catastrophic health insurance plans, or short-term health insurance. These alternatives may offer more flexibility and lower costs for individuals without employer-sponsored coverage. More information on catastrophic health insurance plans, healthcare-sharing ministries, and short-term health insurance follows.
Explore Catastrophic Health Insurance Plans
Catastrophic health insurance plans are designed to provide coverage for major medical expenses, such as hospital stays or surgeries. They also offer lower premiums than traditional health insurance plans. While these plans typically have high deductibles, they can provide an affordable way to protect yourself from worst-case scenarios. Although such plans typically represent an option for those under 30, those age 30 or older can buy them with a hardship exemption or affordability exemption (based on Marketplace or job-based insurance being unaffordable). If you qualify to buy a Catastrophic plan, you will see them displayed when you evaluate your available options in the Marketplace. You also have to determine if a catastrophic plan aligns with your healthcare needs and risk tolerance.
Investigate Healthcare-Sharing Ministries
Healthcare sharing ministries (HCSMs) are organizations where members pool resources to cover each other’s medical expenses. While not traditional health insurance, these ministries often offer affordable alternatives for individuals seeking healthcare coverage outside of employer-sponsored plans or Medicare. Research different healthcare-sharing ministries to determine if they align with your values and healthcare needs as members of HCSMs share a common set of ethical or religious beliefs. “Qualified” members share their medical expenses.
Short-Term Health Insurance
Short-term health insurance is an option offered in most states. It represents a cheaper alternative to buying your own individual or family health insurance policy. It can help bridge a short gap between retiring and enrolling in Medicare, typically a few months. Such insurance is often affordable. However, these plans offer meaningfully less comprehensive coverage than a marketplace insurance plan. For example, short-term health insurance does not cover the ten essential benefits required under the ACA. You can also be denied or charged more for short-term health insurance depending on any pre-existing conditions.
Develop a Budget for Healthcare Expenses
From a financial planning perspective, you want to create a comprehensive budget that includes your estimated healthcare expenses. Your annual healthcare costs include premiums, deductibles, copayments, and out-of-pocket expenses for services such as prescriptions, doctor visits, and preventive care. Factor these expenses into your overall retirement budget to ensure you’re adequately prepared.
Consider Health Savings Accounts
If you select a high-deductible healthcare plan, take advantage of the opportunity to fund a health savings account (HSA). In 2024, singles can contribute $4,150 and families can contribute $8,300. Those 55 and older can contribute an additional $1,000 to their HSA. While we recommend using an HSA as a retirement savings vehicle, we understand that not everyone can. HSAs allow you to contribute pre-tax dollars to cover qualified medical expenses. Maximizing your contributions to an HSA can help you lower the effective cost of your healthcare expenses.
Remember that once you become Medicare eligible and enroll you can no longer contribute to an HSA. However, you can use your HSA funds to pay certain Medicare premiums and out-of-pocket medical expenses. As long as you have qualified, unreimbursed, medical expenses there are no limits on how much you can request in terms of tax-free HSA reimbursements. You can potentially use this account any time you need money.
Plan for Long-Term Care
Don’t forget about long-term care costs, which can be particularly relevant to women facing new beginnings. As you transition into retirement, it’s essential to plan for potential long-term care needs. Long-term care insurance can help cover the costs of nursing home care, assisted living facilities, and in-home care services, providing financial protection and peace of mind for you and your loved ones.
Negotiate Healthcare Costs
Don’t hesitate to negotiate with healthcare providers and facilities to lower your out-of-pocket expenses. Ask about cash discounts, payment plans, or hardship assistance programs that may be available. Additionally, explore generic medication options and inquire about lower-cost treatment alternatives to help minimize healthcare expenses.
Stay Healthy and Preventive
When it comes to securing healthcare coverage before Medicare, you want to keep in mind steps you can take to help minimize your costs. Maintaining a healthy lifestyle and prioritizing preventive care can help reduce your overall healthcare costs. Invest in preventive services such as vaccinations, screenings, and annual check-ups to catch potential health issues early and avoid costly medical interventions down the road. Incorporate regular exercise, a balanced diet, and stress management techniques into your daily routine to support overall well-being.
In addition, if you know you’re about to leave the workforce — whether you’ve decided to take early retirement, or you believe a layoff is imminent — ask your doctors and your dentist whether there are any procedures they would recommend you take care of while you’re still covered by your employer’s health plan. Doing so can potentially provide significant savings.
Closing Thoughts – Securing Healthcare Coverage Before Medicare
Securing healthcare coverage before Medicare requires careful planning and consideration of various financial strategies. By understanding your healthcare options, budgeting for expenses, maximizing tax-advantaged accounts, exploring catastrophic health insurance plans and healthcare sharing ministries, negotiating costs, and prioritizing preventive care, you can navigate the healthcare landscape with confidence. If you would like to discuss your options with us, please schedule a free call. You may also consult with a healthcare specialist to develop a personalized plan that meets your individual needs and circumstances.
If you would like help securing healthcare coverage before Medicare eligibility, please contact us. We would be happy to help.
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For firm disclosures, see here: https://apprisewealth.com/disclosures/
Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.
