Farrell: Early retirees face obstacles getting health coverage

  • Article by: CHRIS FARRELL
  • Updated: April 20, 2013 - 9:13 PM

Q: My wife and I are in our mid-50s, have no debt, have healthy retirement savings, and would like to retire soon. But our biggest concern about retirement is the cost of health insurance until we’ll eligible for Medicare at age 65. What are the best, most cost-effective options for getting health care coverage at our age if we decide to retire?

Scott

A: There are no easy answers when it comes to buying health insurance without the benefit of an employer-sponsored plan. The individual health insurance market is confusing, difficult to comparison shop, and expensive. There’s also the added uncertainty surrounding changes in federal law associated with the Obama administration’s Affordable Care Act. What will affect you the most is the new Minnesota state marketplace for individuals to shop for health insurance. Minnesota’s exchange is in the process of being designed.

The good news is that the exchange should make it much easier for people to shop and find a health insurance policy that meets their needs. Even if premiums are higher, buyers of individual policies should receive more bene­fits to offset the costs, including guaranteed coverage, limits on out-of-pocket bills, and better medical coverage. I would delay leaving your jobs until the exchange is running and the initial, inevitable kinks are worked out.

My guess is that you and other people under age 65 who are entering the individual health insurance market will end up with better options than now. I’m cautiously optimistic, but it will take time to get the market working well.

What if you or someone reading this column can’t wait? Be prepared to shop around and learn about deductibles, co-pays and other nuances of health insurance policies. You’ll become your own HR department.

Cobra is a critical “bridge” option, an expensive lifeline for anyone going off on their own. Cobra is costly. But under Cobra, you can keep your group health plan at work for 18 months after leaving (and under certain limited conditions even longer). You’ll pay the full premium out of your own pocket, plus a 2 percent administrative charge. The big advantage of Cobra is that it keeps you covered while pursuing other alternatives.

Individual policies are expensive, typically two to 2 ½ times a comparable employer-sponsored plan. Sticker shock is why most people look into a high-deductible plan, preferably a health savings account (HSA) that offers tax-favored savings.

The calculation is straightforward: The higher the deductible the lower the premium. Of course, you have to look beneath the raw numbers and delve into policy features. Coverage ranges from bare-bones to reasonably comprehensive. With a health savings account you get a tax-advantaged savings plan tied to the high-deductible policy. HSA contributions are made with pretax dollars. Unused money is rolled over into the following year. Withdrawals are tax-free so long as the money goes toward qualified medical expenses.

Other sources to investigate include professional associations and trade groups. They often offer group health plans to members. A number of brand-name companies offer health coverage to part-time employees.

Good luck. But I would still recommend waiting to see how the new Minnesota health insurance exchange does next year.

Chris Farrell is economics editor for “Marketplace Money.” His e-mail is cfarrell@mpr.org.

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