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question

I’m hoping to retire when I turn 62 and can collect Social Security. What are my options for health insurance until I can get Medicare at age 65?

answer

There are five options, only three of which I’d be comfortable choosing for myself and my daughter. 

The best-case scenario, but probably the least likely, is getting offered an early retirement buyout from the company you are currently employed with, which would include no cost health insurance.

If that isn’t an option, electing COBRA may be the best choice. COBRA is a continuation of the coverage you had while you were employed.  In other words, you keep the same plan with the same company and have the same benefits (deductible, co-pays, etc.) you did while you were working.  There are a couple of caveats, however. First, you are responsible for the full cost of the insurance, which will be much more than you paid as an active employee. While you’re working, an employer generally pays most of the cost of your health coverage. Let’s use 75% for example. If the total cost to insure you was $800/month, your employer paid $600, while you contributed $200. When you go on COBRA, you are responsible for the entire $800. Another issue with COBRA is it only lasts 18 months, 9 if you work for a company with less than 20 employees. So, if you retired at 62, you would still need other insurance for an additional 18-27 months until Medicare starts.

Enrollment in COBRA can be a bit confusing, so let’s go over how the process works. Once your employer informs the insurance company that you’re no longer going to be on the policy, they also need to inform whomever administers COBRA benefits for them to start the enrollment process. If done immediately, the eligible former employee should get his or her election paperwork in about two weeks. This election form will allow you to choose who you want to cover and what you want to be covered for. Keep in mind that the former employee does not need to take COBRA just so a spouse or kids can be covered. If the former employee wanted to go on Medicare, the other family member(s) could go still take COBRA. Also, you could elect dental and vision only and opt out of medical.

The other option is getting an ACA plan, often referred to as Obamacare. Depending on your income and the cost of COBRA, this may be the better way to go. If you’re not aware, Obamacare premiums are determined by three factors; household size, estimated income for the current calendar year, and age. Generally, those making less than 400% of the Federal Poverty Level will get a premium subsidy, aka tax credit. The lower your income, the less you’ll pay. The ACA is very confusing and the Federal Marketplace, where you must get a plan to use your subsidy, difficult to navigate. There are many choices in plans. Taking the least expensive plan is often not the best choice and taking the most expensive is almost never a wise decision.

The Health Insurance Store will help those who are age 60 or older apply and enroll in a Marketplace plan to ensure it’s done correctly, as well as help identify the plan(s) that offer the best value. Unfortunately, there are just two companies offering ACA plans in Western PA. Only one is competitive and networks can be much smaller, especially for those living in Allegheny County. Paying extra to expand your network is quite costly.

As I stated before, there are two other options, both of which make me nervous. One is going with what is known as an Indemnity Plan. THEY ARE NOT MAJOR MEDICAL HEALTH INSURANCE! Employer and ACA plans are more regulated and limit what you can pay out of pocket in medical bills. With Indemnity Plans there’s no limit.

Indemnity Plan benefits pay on a schedule. For example, your plan may pay from $500 to $3000 per day in the hospital, $75 for an Emergency Room visit, $25 for an X-Ray, $500-$1,500 per Chemo Treatment, etc. If your Chemo cost $8,000 and your benefit was only $1,500, you would be responsible for the other $5,500. I was approached to sell these plans. I ultimately decided if I wasn’t comfortable insuring my family this way, they weren’t appropriate for my clients. My agency doesn’t sell them. I see too many scenarios where someone could wind up owing tens of thousands in medical bills. Commissions paid to agents for selling Indemnity plans are huge, often more than 30%. That alone is telling. They are often sold over the phone or the internet and are rarely disclosed properly.

Here’s the bottom line. If someone is trying to sell you an individual health plan from a company other than Highmark or UPMC, it’s NOT health insurance as you know it. I don’t advise buying one of these policies.

The last option is a “Faith Based” or a medical sharing plan which my agency also doesn’t offer. The concept is premiums paid by everyone on the plan are put into a community "pool” so to speak. If you utilize a covered service, money is taken from the pool to pay the provider. I honestly don’t know a lot about them, but I’m skeptical. My main concern, among others, is there was no money left in the pool and you needed major surgery or Cancer treatments, then what?

My advice is if you can afford COBRA or an ACA Plan, that’s the safest way to go   when trying to bridge the gap to Medicare.

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