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How to help early retirees maintain health coverage



Check out this article on healthcare costs in Financial Advisor:

Through inheritance, sale of a business or just old-fashioned careful financial planning, some Americans are in a position where they're giving serious consideration to retiring “early.” I put early in quotations because, for practical purposes, this just means someone is retiring before Social Security benefits are traditionally taken and before most people are eligible for Medicare at age 65.

Medicare isn't perfect, but for most people, it's an important milestone because it often provides more comprehensive healthcare coverage at a lower cost than is available to most Americans who don't have access to employer-based coverage. Furthermore, most people can get excellent coverage through Medicare without being subject to medical underwriting, which could include questions about pre-existing conditions or requests for medical records.

However, most clients retiring before age 65 won’t be eligible for Medicare. So a key factor in decision-making will be how to handle health-care costs and coverage in the gap years.

Here’s how financial advisors can help.

Things To Consider:

The following factors will determine the right strategy for clients retiring early.

Health Status—Am I generally healthy and focused on prevention, or actively seeking care for a pre-existing acute or chronic condition?

Dependents—If I retire early and no longer have access to employer-based health insurance, what options will my dependents have?

Length Of Coverage—How many months or years will I need coverage before I'm eligible for Medicare at age 65?

Let’s look at two case studies to illustrate how advisors can assist clients in working through their options.

Retiring Without Dependents

Our first case study is a 55-year-old widower with no dependents. He has Type 1 diabetes and a stent placed in his heart a few years ago, so maintaining access to care is important.

The Affordable Care Act is a political lightning rod, but most Americans agree that one of the silver linings in the legislation is that there are more health insurance options than ever before for people with pre-existing conditions like our client.

If a client is retiring early, it’s likely their income is too high to qualify for a subsidy to help pay for coverage on the ACA marketplaces. But even though these consumers will pay full sticker price for their monthly premiums—and they can be high—with careful planning, these costs can be built into analyses when it comes to the early retirement decision.

Let’s say the client is retiring and moving to Naples, Florida this year. He’d be able to get a health plan for about $600 per month with a maximum financial exposure, including the deductible and out-of-pocket maximum, of $7,350.

Clients like this one might expect to pay between $72,000 and $120,000 on health care in the 10 years before they retire.  

One thing to look out for when evaluating health plans is that many options on the individual market won't cover doctors or hospitals outside the established network. In other words, if a client is diagnosed with cancer and wants to go to MD Anderson, it’s possible he won’t have any coverage at all.

These plans still provide access to care, but clients will have to pay attention to where they receive it if they want insurance to help pay for it.

Retiring With Dependents

A 63-year-old is planning to retire early but is concerned about coverage for his 60-year-old wife and their 24-year-old adult child. The client and his wife are pretty healthy, but the 24-year-old has been recently treated for substance abuse in the last 24 months.

This family would have all the options available to the person described in the above example, including plans on For this family, Dad and Mom are in Scottsdale, Arizona and their 24-year old adult child is in Nashville.

Mom and Dad could expect to pay upwards of $24,000 a year in premiums for a plan that included annual financial exposure, including deductibles and coinsurance, that capped out at around $13,000.

If their 24-year-old had an annual income less than $48,000, he would likely be eligible for tax credits to lower their premium. If their annual taxable income is more than $48,000, then they could expect to pay about $400 per month for a plan with a $5,000 deductible.

All in, this family could expect to pay $60,000 to $70,000 over the next 2 years, and then the expected health-care costs would drop to about $20,000 per year once Dad enrolled in Medicare.

For this family, one other option to consider would be COBRA. Anyone considering early retirement who has fewer than 18 months before turning 65 can consider continuing his or her employer-based coverage for up to 18 months.

In this scenario, the family would still be on the employer health plan, but instead of the employer paying part of the premium, the family would be on the proverbial hook for 100 percent of the premium, plus a 2 percent administrative fee. Depending on the coverage, this may or may not be a good option for one or more of the family members. To get it right, a spreadsheet of options will help.

Where To Start For Your Clients

If you have key clients considering early retirement, here are a few steps to take:

1. Create profiles on on your client's behalf. Make sure you evaluate not only premiums, but also prescription drug formularies and provider networks. Pay special attention to whether the plans being considered allow your client to seek out-of-network care if that's important to them.

2. Check out any options they may still have through their employer. If age 65 is fewer than 18 months away, compare COBRA to the options on

3. Talk to an insurance broker in your area to find out if there are any options available outside of These “noncompliant” plans usually require some kind of medical underwriting, but if your clients are healthy, they might be able to save some serious money on premiums without compromising access to care.

4. If your client is considering a second act in retirement and looking to continue some kind of employment, look at adjunct opportunities or other scaled back employment options that might come with affordable health-care benefits. 

All of these questions help inform the decision around early retirement. Even if health care ends up being a bigger cost than expected, your clients won't be caught by surprise.

Learn more about rolling healthcare advisory services into your practice here.


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