Individuals can retire early either by their choice or they might be forced into it. In both circumstances, they will need to find a way to manage and pay for their healthcare expenses. There is no official age for early retirement but it is considered any time before 65 years of age because that is the age when individuals become eligible for Medicare. However, if individuals retire before the age of 65, either by choice or not, they are likely on their own as far as paying medical bills is concerned. Luckily, individuals do have a few options such as ACA-plans, COBRA, HSA, and short-term plans, etc.
Age at which People Retire Early
According to a recent Gallup poll, the average retirement age of the current retirees is reported to be 61 years of age, which is way before Medicare eligibility. A recent analysis suggested that more than 26% of retirees retired between the age of 55 and 61 and another quarter of respondents reported that they retire before the age of 56. People who have not yet retired expect to retire at an age of 66, as per the Gallup poll. It was reported by another study that 48% of people expect to retire after age 65 but many of them failed to work till this age.
Unexpected Early Retirement
Not all can successfully plan for their early retirement, as financial readiness is not the sole reason for early retirement and many people have to retire before they are ready. It was discovered by the Center for Retirement Research that 37% of retirees stop working earlier mainly due to health, family, employment, or financial circumstances. However, people are advised to prepare as much as possible for the future in case they have to unexpectedly leave the workforce.
Health Insurance Options for Individuals Retiring Early
Regardless of their early retirement age, individuals have few ways to enroll in healthcare plans before they become eligible for Medicare. There are some options available from which individuals can find an option depending upon their situation. Find below some of the health insurance options for individuals retiring early:
If individuals retire early and have employer-sponsored health plans, then they are allowed to continue with their plan for a specific time-frame under the Consolidated Omnibus Reconciliation Act. Under COBRA certain employers are required to continue health coverage who are leaving jobs due to qualifying life events including retirement. Individuals have a limited amount of time to enroll in COBRA after they decide to retire early. The coverage under COBRA lasts a maximum of up to 18 months, which may or may not be long enough. It depends upon the individual to individual and how soon before Medicare one retires. If people enroll for COBRA, then they will keep their current coverage and will have the same network and benefits. However, people will require to pay their share of the premium as well as their employer share of premium along with 2% of the administrative cost to remain covered.
Early retirees if qualify for ACA subsidies such as premium tax credits and cost-sharing reductions, then they should opt for an individual health plan. A major medical plan purchased through a state or federal exchange will prove an affordable option to them. If they are having any pre-existing conditions or they require ongoing medical treatment, then also they will find an individual plan as the best option. Individual plans adhere to the Affordable Care Act requirements for minimum essential coverage and include all ten essential health benefits. Thus, people can enroll in an ACA plan during the annual open enrollment period or a special enrollment period after opting for early retirement. ACA plans are guaranteed issue, so people applying for it cannot be denied coverage and will receive ten essential health benefits, mandated by the ACA. However, people who don’t qualify for subsidies will find this plan expensive.
Short-term Health Plan
Early retirees who don’t find COBRA and ACA-plans suitable for them can consider enrolling in a short-term health plan. Short-term plans include a range of healthcare benefits related to injuries and sudden illness. However, these plans do not include all the essential health benefits included in the ACA or employer-sponsored plans. Short-term health plans generally have lower premiums because these plans have more limited benefits. The best thing about the short-term plan is that people can enroll in these plans at any time of the year and if their application is approved, their coverage starts immediately. The short-term plan lasts from 30 days to 364 days, depending on the state to state. Premiums of short-term plans are economical and the plans are available year-round. The short-term plan’s coverage is not guaranteed issue and applicants can be denied coverage based on their health condition.
To prepare for planned or unplanned early retirement one thing which people can do is open a Health Saving Account, and start saving as much money as possible in this account. The earlier people open this account, the more amount they will be able to save. Besides, SAs have three major tax benefits like, contributions made into this account are not subjected to federal income taxes, earnings from interest and investments of HSA are tax-free, and money from this account that is used to pay medical expenses are also tax-free. Once individual open this account, it remains forever active and the fund accumulated roll over from year to year. People can use the save money to pay for the qualified medical expenses and also to pay for their health insurance deductible and coinsurance, prescription drugs, dental, and vision care, and more. People can use the amount saved in the account at present as well as after retirement, depending upon their condition.