Hi everyone! The big question on most early retirees’ minds is what will to do for healthcare?! For me personally, I don’t have a good answer for this yet. But I’ve started to go down the path of understanding my retiree benefits. When the day finally comes, I need to know what options I’ll have for health insurance.
As you may recall, I got a little opinionated last week on job lock as it relates to healthcare coverage and why it isn’t relevant to early retirees. The punchline…healthcare isn’t free. While early retirees may qualify for subsidies on the individual exchanges, this likely won’t be retained in its current form forever so don’t bank on them.
Sticking with the topic of healthcare in retirement, today I will be looking at some common options for early retirees in accessing healthcare coverage.
Employer / Union Sponsored Coverage
Employer and union sponsored retiree health benefits have traditionally been a source for supplemental coverage for retirees. However, the Kaiser Family Foundation (KFF) has found that retiree health insurance is fading fast. Not only have the trends of employer sponsored health insurance been declining over the last decade, but the firms that do still provide a benefit have been changing the structure of the plans to reduce their liability/costs, shift premiums and costs to the retirees and spouses, and cap the coverage limits.
Per the 2015 KFF study on Employer Health Benefits, only 23% of large firms (200+ employees) offer any retiree health benefit coverage for 2015 retirees. This is down from 34% in 2006, and 66% in 1988. However, State and Local government employees have it better as 73% of which offer retiree health benefits. Are you one of the lucky ones with retiree health benefit options? Will they last to when you ultimately plan to retire?
While this is impacting the Baby Boomer generation currently as they near retirement, for those of us who are Gen Xers and Millennials (myself included), my guess is this won’t be available to us at all. While the number of companies that offer this coverage is declining, there also remain certain qualifications that employees must meet.
A minimum number of years of service is one such qualification, but another is also a minimum age. This can almost rule out the possibility of retiree health coverage for early retirees. As a matter of fact, the KFF study reported that of those large companies who offer retiree health benefits, only 66% offer it to early retirees (roughly 16% of all large firms – 66% of the 23% that offer coverage).
The definition of early retiree by your employer is key. You can bet that it is not an open-ended definition in your retiree benefits book.
My Retiree Benefits
So, out of curiosity, I went ahead and dug up my employers’ retiree benefit book and took a gander…at all 276 pages…no joke. That’s how you know you work for a big organization when the retiree benefits book is 276 pages!! At that point I already had a defeatist outlook, but guess what it takes to qualify for its retiree plans…:
- Retiring age 55+ with at least 10 full years of service,
- Retiring with 80+ points (points = age + years of service), or
- Retiring at age 65 with one full year of service
So that’s great…I have already hit the full 10 years of service mark so that isn’t a problem (working on my 11th as I type this…), but I’m not 55 years old and I won’t be by the time I retire…so that rules out option 1.
By the time I retire (let’s ballpark it at age 38), that will be 7 more years of service. But a total of 17 years of service + my age of 38 doesn’t get me close to 80 points…sadly only 55 points. That rules out option 2.
Retiring at 65…nope, option 3 is a non-starter.
But what about my wife…? I was shocked when I realized her large employers’ benefit book was only 12 pages. That was a relief! A relief that it only took two minutes to rule retiree benefits out as an option…no retiree benefits are offered for health at all.
Even if we did qualify for employer sponsored health benefits, would it be worthwhile? Some companies used to pay for healthcare through retirement, but not so much today and likely less tomorrow. So even if retiree health insurance through our employer was available, we’d have to pay the cost anyway (employers are paying for less and less of this “benefit”). Would that be better than prices for health insurance on the individual marketplace?
Individual Exchanges (“Obamacare”)
While employer / union sponsored health benefits are likely not an option for most early retirees, that doesn’t mean you’re out of luck. That’s were the individual exchanges as part of Obamacare come into play.
While the majority of the individual exchanges are collapsing for a multitude of reasons, I expect they eventually get fixed and supported for the upcoming 2018 benefit cycle and going forward (in some form or fashion). The current uncertainty around them isn’t great for those retiring soon, but I expect this option to eventually be more stable.
At what cost? Likely not as cheap as they are currently. After all, the subsidies are very expensive and hard for the government to support. And as early retirees looking for health coverage…I don’t want to hear about healthcare costs causing job lock.
The individual exchanges will continue to be the most likely landing spot for early retirees looking for health coverage.
There are two other notable options for healthcare coverage for early retirees. While these options aren’t for everyone and they serve a small segment of the population, they could be a good fit for you depending on your life / family circumstances. I’ll touch on them briefly here:
- Health Share Plans – Quite simply, these are healthcare sharing organizations where members all share the aggregate healthcare costs of the group. These plans typically target generally healthy members and they are considered ACA compliant, meaning you won’t have to pay the ACA “tax” for not having health coverage.
- Non-ACA Compliant Plans – ACA compliant plans are required to charge the same premium regardless of health history which results in reduced premiums for many folks with pre-existing conditions. However, on the flipside this resulted in increased premiums for those with good health history. Don’t get me wrong, I am for offering insurance to those with pre-existing conditions, but this just the truth of the matter. And as a result, there has been a surge in the sale of so called catastrophic health plans which are non-ACA compliant. While this means the ACA “tax” will be levied on these individuals, many with good health have found refuge here with lower total payments (premium + the ACA tax) than the alternative of buying compliant plans on the exchanges.
Before I leave you today, I want to hit you with a couple case studies that I’ve come across recently. If you’re an early retiree and want to share your healthcare situation, please do so in the comments below!
Vicki from Making Smarter Decisions recently wrote an article where she mentioned they will have access to retiree health benefits for the six year gap from retirement to when they become eligible for Medicare. How awesome! Always good to have that option available.
Another example is Steve from Think Save Retire who announced their recent decision on healthcare coverage…or should I say health share?! Yes, that’s right…they’ve taken a less traditional option for healthcare coverage and gone with a healthcare sharing organization. Sounds like the perfect option for these early retirees (retired at 35!).
Healthcare coverage for early retirees has changed significantly in recent decades, especially in recent years with the roll-out of ACA, and I’d expect additional changes to come about during the Trump administration. I’ll stay tuned…
Unfortunately, the era of employer sponsored retiree benefits for healthcare has been coming to an end for a while now. Lucy and I won’t be qualifying for our employers’ retiree benefits and, like most folks, will likely resort to buying coverage on the individual exchanges until we can bridge to Medicare coverage at age 65.
As early retirees, we all need to weigh the pros and cons of our retiree health benefit options and the costs associated with each to find the one that fits our unique situations. While there is flux in the individual exchanges today, you can expect this to eventually get sorted out. Although I wouldn’t expect subsidies to be around in their current form.
While I don’t believe healthcare is a form of job lock for early retirees, it is expensive and we’ll need to prepare our retirement lifestyle accordingly.
Did I miss any other good options for folks to consider? Have thoughts on the early retire health insurance options, please share in the comments.
Part 1 in my health series: Healthcare Does Not Cause Job Lock
Part 2 in my Health Series: My Vegan Proclamation
Thanks for taking a look!
The Green Swan