Healthcare in Retirement
Planning for retirement and approaching age 65 is full of complexities—including how your health care coverage will change and how you will pay for it. For some people who will have a gap between when they retire and when they are eligible for Medicare at 65, it can be a mad scramble to find affordable, quality health care coverage. Even after Medicare eligibility kicks in, there are still additional costs to cover. Because of this health care is one of the biggest expenses for retirees.
4 key health care options between early retirement and Medicare
If you are retiring before age 65 and you do not have access to retiree health care coverage from your employer, there are 4 main ways to obtain health care coverage to bridge the period between retirement and Medicare:
- COBRA coverage. The Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, allows you to continue your current health care coverage for a certain amount of time, but you may be required to pay the full cost of your health coverage plus an additional 2% charge. COBRA requires that continuation coverage extend from the date of the qualifying event for a limited period of 18 or 36 months.
- Spouse’s plan. If your spouse or domestic partner is employed and has health coverage, you may be able to get covered on their employer’s plan—and this may be your best and most cost-effective option. If your spouse or partner is already retired and has retiree medical coverage, you may be able to be added to that coverage as well.
- Public marketplace. The marketplace was established by the Affordable Care Act and provides plan options available to anyone who is not yet eligible for Medicare. You can no longer be denied coverage for any reason, including a pre-existing condition. This was often a significant issue for those contemplating early retirement because affordable health insurance coverage was hard to find and obtain, particularly for those with pre-existing medical conditions. Costs for these plans can vary widely, but some individuals may qualify for government-provided subsidies through premium tax credits that can make the coverage more affordable. https://www.healthcare.gov/get-coverage/
- Private insurance. To obtain coverage, you can also look to your local health insurance agent, trade, or professional associations, and other so-called “private exchanges” that offer plans from multiple carriers. You may have more plan options available to you through these outlets than the public marketplace, but note that government-funded premium tax credits cannot be applied to these plans. These plans can be found through insurance companies, agents, brokers, and online health insurance sellers.
The public marketplace is usually the best place to start if neither COBRA nor a spouse’s plan are applicable for pre-65 retirees who do not have access to an employer-sponsored retiree medical plan.
Getting ready for Medicare
Once you have figured out how to bridge the gap to Medicare, you will need to explore Medicare itself as you approach 65, the age when most people become eligible. There is a lot to learn. If you are like most people, you may be confused about how and when to transition from your interim coverage to Medicare—and when you need to do it. Remember, Medicare coverage is provided to each eligible individual who enrolls. You cannot cover your spouse under your Medicare coverage; they will have to enroll on their own when eligible.
Costs will vary based upon income. High-income retirees—in 2021, individuals with a modified adjusted gross income (MAGI) over $88,000 or married couples with a combined MAGI of more than $176,000—pay higher monthly premiums for both Medicare Part B and the Medicare Part D prescription drug plans, and in some cases, a lot more. There are 5 Medicare premium brackets for Parts B and D. In addition to the standard $148.50 monthly premium, surcharges for Part B may apply. The brackets are based on the income from your latest tax return, so your 2019 tax return filed in 2020 will be the basis for your Medicare premiums paid in 2021.
Prior to 65 retirees—Based on the income and household information you provide; your household may qualify for an estimated premium tax credit. A premium tax credit is the amount you can use to lower your monthly premium each month. When you view plans online, the premium will be reduced by this amount. Of course, the higher your income the lower the premium tax credit will be. Even under the provisions of the Affordable Care Act, coverage is likely to cost more than when they were active employees or when they become eligible for Medicare.
Remember to also sign up for Medicare Part D. Whether you are currently taking prescription medications or not, you need to know the ins and outs of Medicare Part D—the Medicare Prescription Drug Plan. Prescription drug coverage may be included as part of a Medicare Advantage plan. There are lots of options to compare. When you first enroll in Medicare, it is important to plan for your future needs. Take the time to investigate Medicare Part D prescription drug coverage.
There are lots of health care and financial decisions to make as you transition to retirement. In addition to needing a strategy to generate retirement income and claim Social Security, you may need to develop a strategy to help you bridge the gap until you are eligible for Medicare coverage at age 65. Once you are eligible to enroll in Medicare, be sure to get the health care part of the equation right. Take time to understand the basics of Medicare. You and your spouse or domestic partner may have different needs and may be better off choosing different Medicare plans. So do your homework, shop around, and compare prices. Remember, if you remain enrolled in the Medicare system, you can make changes every year as your situation and health care needs change from year to year. So don’t panic if you later determine the plan you choose wasn’t as good a fit as you first thought.
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Hope all is well,
Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.
This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Advisors and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.