Health Insurance Options for the Early Retiree

COBRA and Cal-COBRA
The two laws basically allow you to keep your employer sponsored medical plan for up to 36 months after you retire.

When you retire, you will have the option of continuing on your employer's health plan for at least 18 months, thanks to a federal law called the Consolidated Omnibus Budget Reconciliation Act (COBRA). It says that when you leave your job, your employer must let you keep your coverage for up to 18 months.  Cal-Cobra, a state law here in California, allows employees to remain on an employer’s plan for an additional 18 months, or 36 months total.

A retiree may choose Cal-COBRA for one or all of the family members who were enrolled at the time of the qualifying event. In other words, the retiree can elect coverage for the spouse or one or more Dependent children without being covered under the Cal-COBRA continuation coverage themself.

COBRA is no longer necessary
COBRA became law before the affordable care act.  Now that the ACA is law, COBRA is not necessary.  Any early retiree or terminated employee can now purchase medical insurance, they cant be denied coverage, and insurance companies must cover pre-existing conditions.  So why stay chained to an old employers medical plan??  Remaining on an employers plan is usually too expensive for the early retiree. The vast majority of retirees will leave their group health plan and find coverage on the individual market or through Covered California.

CoveredCalifornia
CoveredCA is an online health insurance marketplace that helps people pay a portion of their monthly premiums for health insurance based on family size and income.  Retired married couples that have less than $100,000 in annual income will be eligible for help, or premium assistance, through CoveredCA.  Single retirees making less than $75,000 will be eligible for help as well.  Premium assistance from CoveredCA can be SUBSTANTIAL.  Most early retirees are drawing very small amounts of taxable income and thus qualify for LARGE amounts of premium assistance.  Many will have the option of purchasing coverage, Blue Shield PPO, for as little as $2 per month!! With the potential reduce monthly costs on medical insurance, I will sometimes recommend my clients take those savings and make contributions to a Health Savings Account.

Health Savings Accounts or HSA
Early retirees, who are healthy and have relatively few medical expenses, have a great opportunity to save money on taxes before they turn 65!  Early retirees should definitely consider an HSA because:

• HSAs will allow you to pay for your upcoming medicare premiums with tax deductible contributions.
• HSA contributions never “expire,” they always belong to the member and roll-over from year to year
• HSAs DO NOT have a “use-it or lose-it” rule.
• HSA funds can be invested and their growth is tax deferred.

For example: if you retire at age 63 and make the maximum allowable HSA contributions for 2 years, you can reimburse yourself for 4 years of medicare premiums without paying any income taxes on those distributions. 

I know that sounds complicated but just know this, the vast majority of retirees will still pay income taxes and HSA’s are a great way to shelter some of your fund from the IRS.  And once you turn 65 you can no longer contribute to HSA’s, so take advantage of this opportunity while you still can!

Medicare
If you are retired, it will make sense for you to enroll in Medicare when you turn 65.  The actually Medicare enrollment process starts long before that though, its a 3 step process and can happen in a week, or for others, it may take 6 months or more. I advise my clients to create a “my social security” account ASAP as this is the first and most challenging step in the Medicare enrollment process.  Once an account is created, a full review of Medicare options and enrollment can take place, usually 3 months before your 65th birthday.  To read more about medicare, click here: https://www.joinisg.com/blog/medicare-101


Summary
Finances and healthcare are the two biggest concerns for people entering retirement.  You have spent decades preparing financially for your golden years.  Start planning for your healthcare in retirement as soon as possible.  The sooner you get educated, the sooner you will decide what is right for you and ultimately attain the peace of mind you are looking for.