The Health Insurance Hurdle

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Back in the good old days, large employers used to offer health insurance to their retirees. Maybe you had to work a certain number of years or work to a certain age to qualify, but this retirement benefit made things pretty easy. You retired, you stayed on your employer’s health insurance until age 65, and then you hopped on Medicare. Easy peasy.

Unfortunately, as of 2012, only 25% of large employers still offered health insurance to retirees, and with the number of retirees growing and health care costs continuing to rise, I would expect that number to continue to decline. This leaves people hoping to retire before age 63.5 (most people can retire and stay on their employer’s health insurance for up to 18 months by signing up for COBRA) with a bit of a problem. How can you possibly retire early and have health insurance? This hurdle has kept many people working longer than they wanted in recent years, and for good reason. Buying a health insurance policy in your 50s or 60s can be very expensive, and if you have a condition such as diabetes or heart disease, or had a bout with an illness such as cancer, it could be downright impossible. As of January 1, 2014, the rules of the game changed.

(Now I’m about to wade into one of the most politically charged, hot-button issues for a minute, and regardless of how you feel about the Patient Protection and Affordable Care Act, I need you to stay with me. This post is about retiring early and having health insurance, NOT about a law that has done some good and some bad.)

You see, as part of the Patient Protection and Affordable Care Act, insurance companies cannot discriminate against early retirees who have pre-existing conditions such as diabetes, heart disease, or cancer. The newly created public insurance exchanges are also run like large company or group plans, so even though most early retirees are on the older end of the insurance pool of people, the inclusion of younger and statistically healthier people should theoretically lower the cost for an early retiree seeking health insurance. If the cost of buying a health insurance policy to bridge you from retirement to Medicare just became cheaper (some would argue about this), and your ability to buy a health insurance policy to bridge you from retirement to Medicare just became more possible (you can’t argue about this), then the health insurance hurdle to retiring early just got a lot lower!

If you are fortunate enough to work for a company that offers health insurance to retirees, you are very lucky. If you’re like most people and your employer does not offer health insurance to retirees, you need a game plan. Retiring without insurance is not a good option. One big medical problem might not kill you, but it could kill you and your family financially. 

Before you run through the halls naked or start singing that song in a staff meeting about your employer taking your job and… (putting it elsewhere), you need to have the health insurance hurdle figured out. Maybe you can jump on your younger and still-working spouse’s plan, maybe you’re pretty healthy and can find a good deal on a private policy, or maybe you’ll have to keep your fingers crossed and hop on healthcare.gov, but you’ve at least got more options today than you did last year. Either way, if you want to successfully retire early, you need to take the time on the front end to figure out how you can best have health insurance between your retirement date (plus 18 months on your old employer’s health insurance through COBRA) and age 65 when Medicare kicks in, and you need to factor in the cost of that health insurance before you just sail away.

-Tom