By Justin D. Smith, CFA
Health insurance is expensive and complicated, but it is very important to your health and finances. Most people rely on employer-provided insurance until they qualify for government benefits, particularly Medicare, at age 65.
This creates a problem for people in their 50s and 60s who are leaving traditional jobs. Whether they’ve lost their job, are retiring early, or are just starting out, finding health insurance now falls on their shoulders.
Here are six popular ways of employer-provided health insurance for retirees:
If your employer-provided insurance coverage ends due to a qualifying event (such as layoff, resignation, or retirement), the 1985 Consolidated Omnibus Budget Reconciliation Act (COBRA) includes the ability to continue coverage for 18 months post-termination. This can provide an important short-term bridge as you look for long-term solutions. In general, you will be responsible for paying the full cost of the policy. This means that the monthly cost may go up significantly because your employer is no longer paying the premium. To estimate your COBRA payment amount, contact your HR/Benefits department for more information. You can also look at your W-2 Box 12 Code DD to find the total amount of money you and your employer pay for your work.
For those approaching age 65, COBRA can be an important part of retirement planning. If you retire between the ages of 63 1/2 and 65, you can count on COBRA to cover you until you qualify for Medicare at 65. However, be aware of the additional costs you may face. There is also a special way to get COBRA coverage for spouses for 36 months in some cases where the insured will receive Medicare eligibility before the younger spouse.
2. Importance of Spouses or Domestic Partners
If your loved one or housemate continues to have employer-provided benefits, that may be a good option for you as well. Be sure to review the cost to see if your spouse or employer will pay the same amount for non-employee benefits. You must be added to the plan at the time of enrollment or at the time of special enrollment if you have experienced a life-changing event, such as job loss or retirement.
3. Affordable Care Act policies
The 2010 Affordable Care Act (also known as the ACA or “ObamaCare”) created a regulatory framework and market for health insurance with the goal of making care more accessible and affordable. Each state and region has a unique offering, with HMO, PPO, and other plan types available, including plans that meet the national standard.
Policies are categorized as Bronze, Silver, Gold, or Platinum. These categories have nothing to do with quality of care or access to care; they only distribute as the money is distributed. With a Bronze policy, for example, the policy owner pays 40% of the total premium, with the insurer paying the remaining 60%. Silver, Gold, and Platinum policyholders pay approximately 30%, 20%, and 10% of their premiums, respectively. For more income and revenue sharing, rewards increase as you move from Bronze to Silver, Gold, or Platinum.
The most important aspect of the ACA policy is that consumers can get help. A Value Tax Credit can be taken upfront to reduce your monthly payments, or it can be reclaimed on your tax return. To qualify for the First Income Tax Credit, your household income must fall within the annual income bracket between 100% and 400% of the federal poverty level. To learn more about ACA policies, the First Aid Tax Credit, or to start applying, visit Healthcare.gov.
4. Part-time Work
In recent years, it has become more common to see employers offering health insurance to part-time employees. Starbucks and Home Depot are well-known examples of large companies that offer services to temporary workers. These companies have attracted many potential employees with this benefit. Small employers may also offer benefits to part-time workers, but extensive research may be required to find the right one. Some employers will also be willing to negotiate insurance as part of your temporary salary. Whichever option you choose, make sure you fully understand the insurance and its costs to make sure you are getting the most value in exchange for your work. Also, make sure the job meets your personal, professional, and financial needs beyond your health insurance needs.
Once you reach age 65, you can rely on Medicare for coverage, but that doesn’t mean you’re done with the plan. First, you need to prepare for your first registration window, which opens three months after your 65th birthday and continues for three months. You must apply for your first registration within this seven month window even if you still have some. Failure to do so may result in higher payments in perpetuity, penalties or not being able to receive other types of benefits in the future. Each year, you should review your annual enrollment requirements to ensure you are meeting your specific needs. Finally, be aware that your Medicare premiums may increase if your income reaches a certain threshold. These additions are called Income Related Monthly Adjustment Amounts (IRMAA). With proper tax planning, you can reduce these fees. For more information, visit Medicare.gov.
Private policies outside of ACA coverage may also be available. This may include risk plans or other types of access. Be sure to check the backups to make sure you’re getting the protection you need.
Whichever approach you take, it is often important to seek help from a health professional. I encourage my clients to work with a provider who specializes in the type of coverage they need (ACA, Medicare, etc.). The good news for buyers is that agent commissions are usually included in your fees even if you don’t use an agent, so there is no increase in your fees. To find an agent near you, visit NAHU.org.
About the Author: Justin D. Smith, CFA®, CFP®
Justin D. Smith, CFA®, CFP®, a financial advisor at Savant Wealth Management, specializes in helping successful executives and professionals in their 50s and 60s who have transitioned, or are considering the future, to prepare for their next chapter. Whether they want to stay in the industry, retire, or blur the lines to find the best in the world, Justin helps them explore their potential and guides them on their journey.
Savant Wealth Management (“Savant”) is an SEC-registered financial advisor based in Rockford, Illinois. Past performance may not be indicative of future results. Do not assume that any discussion or information contained in this document constitutes, or is a substitute for, Savant’s general advice.
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