Understanding Retiree Benefits for Early Retirees

Retiree Benefits

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…:

  1. Retiring age 55+ with at least 10 full years of service,
  2. Retiring with 80+ points (points = age + years of service), or
  3. 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.

Other Options

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:

  1. 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.
  2. 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.

Case Studies

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!).

Final Thoughts

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

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34 Comments

  1. Great review of retiree health care options. One trend I’ve seen is a switch to “retiree exchanges”, which is basically a website where the employer gives a fixed dollar amount to shop for benefits, instead of giving them a specific plan for free. This is a way to shift more costs to the retiree, because the amount paid by the company stays static while the costs increase. The state exchanges are probably an early retiree’s best bet for coverage, particularly if your income is such that you’ll be eligible for subsidies.

  2. Nice overview, JW! We actually have retiree health insurance for the next 6 years until my husband is eligible for Medicare. I am 8 years younger than him though…so I will be shopping for health care when I am nearing my 57th birthday. The great thing is that we will have coverage until I hit 55 and my pension kicks in – allowing us to afford to retire early without dealing with “job lock.” I could work for 5 more years and have a great benefit package for life. But – we could be trading a lot of life for that too – and we just won’t do that. I hope the mess gets sorted out so that people can plan better in the future.

    1. Thanks for the clarification! Too bad you aren’t also covered by your husbands plan but good to hear you’ve got it all figured out. A lot is up in the air for the future of the individual exchanges so we’ll have to stay tuned!

  3. Yeah I’m f&@(d on pretty much every retiree benefit when I stop working. MegaCorp is a pretty sweet gig if you give them your entire life…. I might be lucky enough to get to keep the pension when I quit. Even then they might force me to take it as a lump sum when I ‘retire’.

  4. My company offers a fully covered medical plan, but it’s setup like yours where I’d need X# of pts to achieve it, or I’d need to hit 65 and still be working here. If it was case #2, I’d have enough saved by then I wouldn’t need their health coverage because I could afford whatever cadillac plan I could choose, lol. I also won’t hit the minimum years of working here or the minimum age, so I’m out of luck on all counts. 🙂

    We plan on having healthcare thru Mrs. SSC’s work for the first few years or however long she continues to do that teaching gig. After that, we plan on being able to cover healthcare ourselves and not necessarily expect any ACA subsidies to help out with those costs. One boost of her still working is that our costs will be at almost zero, meaning her job will almost cover everything, so we won’t be dipping into our savings for much more than travel and maybe an extra $5k or so per year. This should let those funds keep growing over that time giving us a better buffer. That’s the plan this week anyway. 🙂

    1. Bummer you too won’t have any options through your employer but that’s just the sign of the times! Sounds like you have a great plan in place and your fully funded lifestyle change is coming together well. Huge benefit that your wife found a gig she loves so much while helping pay most of your lifestyle costs!

  5. Increasingly, I see early retirees considering moving out of the country for health care, either to take advantage of medical tourism or to just enjoy the more reasonable costs of care that other countries enjoy. While to me it would be too big a huge move, it does seem a possibility if you aren’t weighed down by other considerations.

    1. You’re right, that’s another option that does come up for consideration for many folks. That would be a tough move for us too, especially as a long term living arrangement.

      Thanks for great additional consideration!

  6. It’s tough to bank on employer or state benefits. Obamacare is still alive, but regardless which way you lean politically, it’s wobbly at best financially. Insurance companies are pulling plans left and right as they lose money year over year. My point is not a political debate, instead, I am just pointing out how healthcare is quite simply outrageous and nearly impossible to plan on costs looking out more than just a few years. My wife is a nurse, and currently she gets benefits part time for our whole family. I suspect this will change and when it does it will be a large financial impact for us. I hope in the name of fairness, the political stars align to expand HSA plans to everyone regardless what type of insurance coverage they have currently. If I set aside money for me and my family’s healthcare shouldn’t I be rewarded with a simple tax break ? Flex Spending accounts are so minimal and barely worth the administrative headaches of scanning and providing Explanation of Benefits, I doubt I will keep participating after the kids are grown.

    1. I completely agree with you and understand your point. The exchanges were an improvement to the individual insurance marketplace before, but there is still much to be desired and a lot left to figure out before they’re fixed.

      I do like our H.S.A. and it has been a great option for our family, for the most part. Especially considering that we’re in pretty good health with little need for care historically, relative to many Americans. It should provide us a good cushion in retirement, but as I’m sure you’re well aware with your wife in the industry, healthcare dollars can get spent quickly!

  7. Very timely topic! I have the same deal with my current corporate employer: healthcare eligibility but only after x years of service or a service years plus age rule. And eligibility is still useless if I still have to pay for healthcare and the cost is high. Case in point: I was looking into COBRA coverage for the transition period after ER, but that seems way too expensive. I’d have to pay the equivalent of my premium (pretty small) plus what the employer is chipping in right now (astronomical!). I might be better served with one of the health-share plans. Let’s see what’s Steve’s experience over the next year!

    1. Interesting situation! And sorry you don’t have many good options… Health share may work for you if you’re looking for a temporary solution for the exchanges to stabilize. Or depending on your income and the resulting ACA ” tax” perhaps a non compliant plan. Always tough to consider with young kids!

  8. Healthcare is a tough subject for early retirees. We’re on my wife’s employer’s plan right now. It’s good, but she is going to retire soon. There is so much uncertainty with Trump. I really hope it’s an improvement, but who knows… We’ll just have to keep an eye on it.

    1. That will certainly be a tricky transition when your wife retires! We will have similar situations at that point as we’ll likely be relying on the individual exchanges for many years. Hopefully it stabilizes by that point!

  9. I’m watching this closely, and leaning toward health sharing, but only AFTER we exhaust our COBRA coverage. Rob @ Doughroller (podcast) cites that COBRA is cheaper than individual since the weighted average cost is brought down by “younger” employees. Looks like I’ll be FIRE’d in June18, going COBRA for 18 months, and going private in early 2020. Hopefully, the market gets sorted out by then! I’m budgeting $2,000/month in our retirement cash flow spreadsheet for the expense.

    1. Hmm interesting comment by Rob. I think it’s tough to say what would be cheaper because it’s so case by case. For instance the type of COBRA plan (is it dependent on employer offerings?) and the state you’d be looking to buy from the individual exchanges (I presume GA?) I don’t know much specifically about the GA exchanges but some states have a much more stable set of offerings at competitive prices than others. Best of luck Fritz! I’ll be interested to hear what you do.

  10. This is going to be our biggest issue for early retirement. I have a pre-existing condition, so we aren’t comfortable with the health share plans. My husband does have medical benefits through his employer IF he stays until he’s 55. There’s the conundrum. We will be FI well before he’s 55. We’re taking a wait and see approach at this point (and socking away as much as we can!).

  11. I believe I listened to a podcast where the Mad Fientist hosted Adventuring Along – http://www.adventuringalong.com/. They discussed healthcare as early retirees as they traveled abroad. Specifically, I remember them talking about how having their child in a different country (Turkey in their case) was less expensive than having a child in the U.S. It might be something to look into if you are going to travel!

  12. Health care is one of the reasons I’m looking at part time work or consulting in FI. We’ll see, I’ve got a long while so hopefully ACA in whatever it becomes will be ironed out.
    My dad has health insurance through his former company and after his medical issue, whew, thank goodness. He said the bill listed the original cost, and then what he’ll owe was about 10% after insurance covered their part.
    The tricky thing for the ‘not boomer’ generations is not having years & years at 1 company. I’ve been in the industry for over 10 years and had a company be closed, or worked temp contracts end, etc. It would be ideal to have 5+ years at a good place to work for, but my industry and it seems like the business world in general doesn’t support that. It’s crummy to be penalized on not enough years at a place when mergers make jobs disappear. Oh well.

    1. Great point, it is much harder to be a long time employee for one company these days. I’m an exception and I’ve still only worked for my Company for ten years. Working a part time gig or something just for health insurance is very feasible and something I’d consider as well… Kind of a shame this was what we resort to because of our broken healthcare system!

  13. Nice post Green Swan. There is so much certainty with health care right now that it can be overwhelming to think about. I think our plan in early retirement is to work part time and get coverage through that, OR use geographic arbitrage to a country that either has cheap or free good quality health care.

  14. This is still a big mystery for us. My employer has similar benefits as yours. Our “best” option is hitting 75 points (comparable to your 80 points), but if I go out early, I’d never hit it. I am also working on my 11th year of employment, but I’d have to be at least 53 years old to that our “option #1” – not sure I’ll make that one.

    In sum, our post, early retirement health coverage is still like staring into the abyss. Thanks for sharing this knowledge! I’ll bookmark it for when we get closer to our goals!

  15. I really hope the health care environment improves greatly over the next 10 years. There has to be a better way. I really don’t want to stay at work just for the healthcare which is a situation i could imagine playing out.

  16. Sounds complicated compared to Belgium. We started a healthcare plan now: we are accepted (me with some exclusions) and can activate whenever we want. Nevertheless, I keep my eyes open for alternatives.

  17. Awesome review for retiree health care options – with so many people looking to be come FI and retire early, this will really help to make them aware of its priority. Find an option to make sure you’re covered in retirement, so you can stay in retirement :).

    Thanks for sharing !

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