If you recently left the workforce and you’re not yet eligible for Medicare, how might you purchase health insurance? That’s a question many older Americans are now asking.
And here’s what financial planners suggest.
If you're still working: Check with your employer before you leave, said Patricia Hausknost, a certified financial planner and instructor in UC Berkeley Extension's certificate program in personal financial planning. “If you work for a company that has a pension and other great benefits, you might be able to maintain your health care with group rates,” she said.
If your spouse has employer-provided health insurance: Maybe your spouse and you always had separate health insurance, which is generally less expensive for an individual than a family plan. “It may be advantageous for your working spouse to cover you under their health plan at work,” said Hausknost.
Justus Morgan, a certified financial planner with Financial Service Group, said switching to a spouse's coverage, if they are still working, works especially well for married couples with phased or staggered retirement dates.
You may be eligible for COBRA: If your former employer had 20 or more employees you are eligible to obtain coverage for 18 months (36 months if the working spouse becomes disabled, dies or if you divorce), said Hausknost. “COBRA is not inexpensive but at least you’ll have coverage,” she said.
Try the Marketplace. Enrolling in an Affordable Care Act (ACA) Marketplace health insurance plan may or may not be your best option in the short term. “ACA plans may be more or less expensive than COBRA, but you don’t have to worry about the maximum time limits under COBRA,” said Hausknost. “If COBRA is less, opt for that first, then obtain ACA coverage.”
One benefit of the ACA, aka Obamacare, is that an individual can go to the Marketplace and, in most states, find a plan that they can purchase individually, said Nadine Marie Burns, a certified financial planner with New Path Financial.
Another benefit of enrolling in a Marketplace health insurance plan, according to Burns, is that it may provide you with the ability – if there’s a high deductible - to contribute to a health savings account, or HSA.
And lastly, you might qualify for a premium tax credit. According to Marisa Bradbury, a certified financial planner with Sigma Investment Counselors, the income limits changed in 2021 with the new American Rescue Plan Act to include ACA exchange subsidies for a higher income level.
This Health Insurance Marketplace Calculator, which has been updated to reflect the expanded premium tax credits available, provides estimates of health insurance premiums and subsidies for people purchasing insurance on their own in health insurance exchanges or marketplaces created by the ACA.
One caveat to those who take advantage of the premium tax credit: Those who have a Marketplace health insurance plan and who receive the premium tax credit need to consider their modified adjusted gross income, according to Jae Oh, author of Maximize Your Medicare. For instance, a Roth IRA conversion creates taxable income that could lower the premium subsidy. (Read: Two Unintended Consequences of Roth IRA Conversions.)
Morgan also advises against starting Social Security early - even if it's not taxable to the retiree - since it's counted as income for the premium tax credit calculation
“You need to monitor taxable gains and income, but if you have enough in after-tax savings without having to increase income you can often get a very affordable plan,” said Marisa Bradbury, a certified financial planner with Sigma Investment Counselors.
Consider a part-time job. If you retires early, you might consider a part-time job that can help pay the cost of your healthcare plan, said Burns. “The American Rescue Plan that recently passed limits the out-of-pocket costs, so someone with a part-time position might even qualify for a subsidy and should investigate that option,” she said.
Plan on it being a big expense. There are options out there, but plan on health care insurance being a large budget item, maybe even the largest, for those who enter retirement, said Burns.
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