Health Insurance at Retirement: Here are the Options

February 24, 2020

If you’re close to retirement, don’t overlook the need to plan for health insurance. During retirement planning, people remember to budget for their monthly costs for housing and utilities, but often forget to factor in their healthcare needs. This is problematic because healthcare costs tend to increase during retirement years. 

Timing makes a big difference in planning for health insurance during retirement. For example,  you can continue to work until you qualify for Medicare at age 65. But if you retire before turning 65, you’ll need to consider other insurance options, such as COBRA, a group plan offered by your spouse’s employer, or individual coverage through a state-run health care exchange. 

When budgeting for retirement, carefully assess all aspects of your retirement health insurance options, including costs like monthly premiums, deductibles, copays and/or coinsurance to understand the entire picture of costs associated with health insurance.

Some large employers offer group health insurance for retirees, but this is rare. If you worked in an industry like finance, utilities, or state and local government, you are more likely to have access to retiree health benefits.

Make sure you understand your employer’s requirements for this benefit. For example, you may want to work a few more years to reach the full amount required to qualify for retiree health benefits.

COBRA and Individual Coverage

With COBRA, you stay on your previous employer’s same group plan, but you must pay the full monthly premium without an employer contribution. COBRA lasts for 18 or 36 months, depending on your circumstances. In general, COBRA is less expensive than purchasing individual coverage, but you should compare actual costs to be certain. 

COBRA could be a good choice for people who retire less than 18 months before they turn 65. 

Another option is to sign up for individual health coverage through a state-run health care exchange within 60 days prior to, or 60 days after, your retirement date. This coverage, also known as Obamacare, comes from a private insurer. The costs vary. 

If you need help enrolling in a plan, you can find a local navigator to help you prepare an application, establish eligibility, enroll in coverage through the exchange and potentially qualify for premium assistance, based on your income level.

To learn more about how private insurance and the exchanges work, you can find a local health insurance agent through the National Association of Health Underwriters. Online brokerages have live agents available to answer questions by phone. Because health insurance varies so much by geographic location, agents operate locally and understand the local market.

Medicare Coverage

There are four different parts to Medicare, which is available to people who are 65 or older, younger individuals with disabilities, and people with end-stage renal disease or Lou Gehrig’s disease. You may qualify for Medicare if you have received Social Security disability benefits for more than 24 months. 

Medicare Part A covers hospital and emergency care. On the other hand, Medicare Part B covers physician office visits and outpatient hospital stays, while Medicare Part D covers prescription drugs. 

In those three parts, most preventive care is covered. Keep in mind that traditional Medicare does not cover these things:

  • Long-term care (like nursing homes and assisted living)
  • Dental care
  • Eye exams related to prescribing glasses
  • Dentures
  • Hearing aids and exams for fitting them
  • Cosmetic surgery

Private insurers offer Medicare Advantage, also known as Medicare Part C, which usually covers some services that traditional Medicare doesn’t cover, like dental care.

Medicare Costs

Medicare Part A has no premium if you already receive retirement benefits from Social Security or the Railroad Retirement Board, or you or your spouse had Medicare-covered government employment. As of 2020, the standard premium for Medicare Part B is $144.60 per month. The costs for Medicare Part C and Medicare Part D vary greatly by plan and location. Tip: Estimated your Medicare costs by using free Medicare calculators found online.

Typically, the open enrollment period for Medicare is Oct. 15 to Dec. 7 for coverage to apply for the following year. To receive Medicare coverage, you must be a U.S. citizen or have been a legal U.S. resident for at least five years. In most cases, you must receive care within the United States, not abroad. 

Under federal law, insurers cannot refuse to cover you or charge you more because you have a preexisting condition, like cancer. That rule applies to Medicare, employer-sponsored group plans, COBRA coverage and plans offered through health care exchanges.

Review Health Insurance Annually

Remember that health insurance for retirees is not a one-time decision. It’s wise to review all your options each year to make sure you are choosing the best one for you. You might be better off switching to a different plan, depending on any changes in your life and your health, or any changes to the plan design.

Health insurance at retirement takes some planning and effort, but it’s worth it to gain some financial security as you get older.

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