Health Insurance Options for Retirees Under 65
Key Points – Health Insurance Options for Retirees Under 65
- Education Is Essential When It Comes to Health Insurance Options for Retirees Under 65
- COBRA’s Rise in Popularity for Those Nearing Medicare Eligibility
- Looking Into Tax Planning Strategies with Affordable Care Act Coverage
- Utilizing HSAs and HRAs
- Choosing to Wait Until 65 and Becoming Medicare Eligible
- 5 Minutes to Read
When people younger than 65 are pondering if they have the means to retire early, there’s usually one obstacle that’s bigger than the rest. That’s health insurance coverage. It’s no doubt a valid concern. So, we want to review some health insurance options for retirees under 65 to help give you some clarity with your chances of retiring early.
Hiring an Independent Health Insurance Agent
For starters, our mission at Modern Wealth Management will always be to provide financial education to retirees and pre-retirees, and we’re fortunate to have made connections with other professionals in the industry to help us with that. Those professionals include independent health insurance agents.
As a matter of fact, we’ve had the likes of Taylor Garner with American Republic Insurance Services and Medicare Expert Tom Allen as guests on The Guided Retirement Show™. At least very least, it never hurts to reach out to independent health insurance agents to inquire about an evaluation and health insurance cost.
Considering COBRA Might Be a Better Option Than You Think
Whether you’re meeting with someone at Modern Wealth Management or elsewhere, you might be surprised to know that what used to be one of the least popular health insurance options for retirees under 65 is now one of the most popular. We’re talking about Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage.
For workers and their families members who do lose health benefits (in this case following early retirement) COBRA allows them to temporarily continue group health benefits provided by their group health plan. Other scenarios in which COBRA comes into play include job loss, decreased work hours, death, divorce, or switching jobs.
COBRA has traditionally been something that people have wanted to avoid because of how expensive it’s been. However, it’s now cheaper than many marketplace health insurance options, including for retirees under 65. Keep in mind, though, that COBRA can only be an option for retirees who work for a corporation that provided health care benefits.
COBRA still isn’t a cheap option by any means, and it can’t be considered as a long-term solution regardless. COBRA continuation coverage only goes into effect for 18 months following your retirement. So, if you’re 63.5 and approaching Medicare eligibility at 65—more on that shortly—COBRA is worth considering.
Can You Benefit from the Affordable Care Act?
With tax season in full swing, it’s also important to remember that tax planning strategies can potentially help high net worth individuals qualify for low-cost Affordable Care Act coverage. The small group of high net worth people we’re talking about tend to have a lot saved inside taxable assets. That, in turn, can get them very low, minimal healthcare expenses through the ACA since they have better chances having a low tax-recording year.
For example, people who sell their businesses have likely already gone through enough tax pain. If they’re cash heavy, they potentially have this opportunity to keep their healthcare costs low. You can probably see that there’s some irony in this situation. While it’s great for the high net worth people to qualify for this low-cost coverage, it’s obviously intended for the people who don’t have those assets.
We have had people who have asked us if they can qualify for this low-cost ACA coverage, so if you think you might fall into this realm, make sure and talk to your advisor.
The Goals of the ACA
As a review, we also want to outline the three main goals of the ACA when it was enacted in 2010.
- This is self-explanatory given the name of the act, but making healthcare insurance more affordable comes first. Through ACA coverage, people are allotted subsidies—or premium tax credits. Those subsidies typically decrease healthcare costs for people with incomes between 100% and 400% of the federal poverty level (FPL). However, the 400% subsidy level cliff was temporarily raised for 2021 and still is for 2022. As your income increases in that 100% to 400% (or temporarily higher) range, you phase out of the credit. So, ask yourself, how much credit are you comfortable with?
- The ACA was enacted to expand the Medicaid program and compensate those below 138% of the FPL. Keep in mind, though, that only select states have gone through with Medicaid program expansion.
- And third, ACA coverage encourages new medical care delivery methods that can decrease healthcare costs.
ACA or Roth Conversions?
Speaking of goals, though, long-term income is a clear-cut goal for everyone in retirement. If you don’t think ACA coverage is the best health insurance option as a retiree under 65, it may be time to do some Roth conversions to recognize capital gains and get that long-term income.
Roth conversions could be much more appealing long-term. The important thing to remember is there is no universal answer when choosing between them or ACA coverage. This is why it’s helpful to seek guidance from our team of professionals to determine which is best for you.
Raising Funds in HSAs or HRAs
Another popular way to combat the big hurdle of health insurance for retirees under 65 is to raise funds in Health Savings Accounts or Health Reimbursement Arrangements. HSAs and HRAs are unique strategies that many people don’t think about when it comes to health insurance options for retirees under 65. It becomes somewhat of an accumulation strategy, but you need to keep in mind that not everyone has those available because that’s an employer decision.
If they work for an employer, that’s not going to necessarily be an option. But for those that do have that, it’s a great way to combat those higher premium costs.
Keeping Your Receipts of Healthcare Expenses
If you’re utilizing HSAs or HRAs, make sure to keep all your receipts from healthcare expenses. Let’s just say throughout your 50s that you kept an audit of all your healthcare expenses and didn’t use HSAs to cover them until turning 62. You can take the collective amount of that and withdraw it from your HSA tax free to credit back all those past expenses.
Insurance cost in general has often been cited a reason for why people don’t retire until they’re 65. Don’t fall into the trap of letting insurance costs dictate when you want to retire. Accumulating funds prior to retirement via comprehensive financial planning or setting up an HSA can help mitigate that issue.
Wait Until You Turn 65 and Become Eligible for Medicare
Now that we’ve touched on some of the health insurance options for retirees under 65, we still want to review the most popular health insurance option for those who don’t retire early. Of course, we’re talking about waiting until 65 and becoming eligible for Medicare.
We understand how confusing Medicare can be. It’s not enjoyable to figure out. However, its costs pale in comparison to the options in the marketplace for those under 65 and COBRA. To learn all the nuances of Medicare, check out what all Tom Allen has shared on the following episodes of The Guided Retirement Show™.
- Understanding Medicare Options, Costs, and Coverage
- Understanding Medicare Options, Costs, and Coverage Pt. 2
- Medicare Supplement Plans, A Closer Look
Ask Us Your Questions About Health Insurance Options for Retirees Under 65
There’s absolutely no shame in having a plethora of questions about health insurance. It’s best to ask those questions to financial professionals to attain clarity and confidence leading up to and through retirement.
To get your questions about how to health insurance options for retirees under 65 answered, you can schedule a complimentary consultation or a 20-minute ask anything session with one of our CERTIFIED FINANCIAL PLANNER™ professionals. We are happy to meet with you in person, by phone, or virtually.
We also understand that you want to have all your ducks in a row before reaching out to a financial professional with your health insurance questions or questions about retirement in general. Well, we’re also providing you the opportunity to start building your plan from the comfort of your own home with our financial planning tool. Get started today by clicking the button below.
We hope this information has been helpful to you. At the very least, we hope it has you thinking about a few things that you haven’t previously thought about regarding health insurance options for retirees under 65. As Dean Barber always says, stay healthy and stay safe.
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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.