Retiring early? Know your healthcare options

Most people won’t be eligible for Medicare before age 65, but many will retire before then 

Early retirement can be planned, but it’s often unexpected. Over three in 10 pre-retirees say they plan to retire before 65. But many retire sooner than they intended. So, even if you plan on retiring at or after age 65, you’ll want to understand your health insurance options. 

^{Source: 2019 EBRI Retirement Confidence Survey}

This chart shows 32% of pre-retirees plan to retire before age 65, but 71% of retirees actually retire before age 65.

Potential reasons people may unexpectedly retire early include:

• Job loss
• Unhappy with their current job
• Poor health – them or a loved one
• Spouse retires
• Financially ready to retire earlier than expected

If at all possible, have health insurance

Since most people get their health care insurance from their employers, retiring before 65 – whether planned or not – can mean a coverage gap. Finding health insurance during that gap may be expensive, but not having coverage could be even more costly and lead to poor health and well-being.

• Hospitals frequently charge two to four times the amount health insurers/public programs pay for hospital services.²  
  • Fixing a broken leg can cost as much as $7,500
  • A three-day hospital stay costs an average of $30,000
  • Comprehensive cancer care can cost hundreds of thousands of dollars.
• Uninsured adults are more likely to face negative consequences from medical bills, such as: ²
  • Depleting their savings
  • Having difficulty paying for necessities
  • Borrowing money
  • Having medical bills sent to collection
• Many uninsured individuals avoid seeking medical care, contributing to overall lower health and well-being³

When you consider all the negative consequences of not having insurance, it’s easy to see why it’s so important to maintain health care insurance and incorporate expected medical costs into your retirement plans.

We recommend exploring four main options for health insurance. They’re ordered from what generally are the cheapest to the most expensive options, but not everyone will have access to each option and the coverage and costs will vary. For example, someone who qualifies for ACA Marketplace subsidies may find an ACA plan cheaper and/or may have better coverage than what is offered through their former employer’s retiree benefits.

Health insurance options, pros and cons

Less Common Options

• Medicaid – Not typically an option to plan for because of income and asset restrictions to qualify
• Medicare – May be an option for certain individuals younger than 65 with a disability, end-stage renal disease or Lou Gehrig's Disease (ALS)
• Military – Those who served in the military may be eligible for TRICARE or VA Health Care

Generally Less Attractive Options

• Moving abroad – Other countries may offer health coverage options, but moving isn’t desirable for many people
• Off-exchange plans (private plans) – Usually more expensive than an ACA plan
• Faith-based health sharing plans – Not actually insurance and the plans have limitations, so generally not a desirable alternative to health insurance

While Edward Jones doesn’t provide advice as to which health insurance plan is most appropriate, there are many things to consider as you’re weighing your options, including:

Coverage

• Provider/facility network – Most plans have websites you can use to look up whether your desired providers and facilities are in-network
• Prescription coverage for specific medications – Check the plan’s website for medication coverage and pricing details
• Benefits coverage – Ensure the plan covers any specific type of service you expect to rely on (for example, bariatric, transgender or mental health needs.)

Cost

• It’s important to compare the entire spectrum of costs for different plans, including:
  • Premiums – The minimum you’ll pay from premiums
  • Deductibles, copays and coinsurance – These expenses help you understand how quickly and how much the insurance will help cover your health care costs (you may have to cover the deductible out of pocket before the insurance begins covering costs)
  • Out-of-pocket maximum – The maximum you’re expected to pay out of pocket for covered services

Access to a Health Savings Account (HSA)

• There are many benefits to having an HSA, but one of the requirements for contributing to one is being covered by a High Deductible Health Plan (HDHP).
• If contributing to an HSA is beneficial for you, and especially if you’re generally in good health and you don’t expect to depend heavily on your health care insurance, an HDHP might be a favorable option.

Read or download our Five things to know about HSAs report to learn more about the benefits of an HSA, including:

• Contributions are tax-exempt
• Contributions can be saved and used in future years
• Earnings grow tax-free
• Distributions used for qualified medical expenses won’t increase your taxable income

Whether you hope to retire in five years or 15, now is the time to start planning for health insurance. Start by determining how long you’ll need coverage and how much that coverage might cost you.

How long?

If you’re planning to retire early, ensure you’re accounting for the cost of health care in the years before you’re eligible for Medicare (age 65 for most individuals). Your financial advisor can help build health care costs – both those before 65 and Medicare costs once you become eligible – into your plan for retirement.

Even if you’re planning on working until at least age 65, you may still want your financial advisor to run scenarios in which you retire earlier than expected. The median age for retirement is 62³, so planning for at least three years of unexpected health care expenses before Medicare eligibility is a good way to stress test your plan.

How much?

If you’re close to retirement, you may be able to estimate your costs more precisely. You’ll want to estimate your premiums as well as expected out-of-pocket costs.

• Contact your employer’s HR department: If you’re employed, ask your HR department for information on their retiree benefits and COBRA coverage. 
• Contact your spouse’s HR department: If you’re married or have a partner, look into benefits that may be available from their employer.
• Check into ACA Marketplace plans: You can get a personalized estimate of available ACA Marketplace plans at healthcare.gov.

If you’re further away from retirement, you may just want to use estimates. Be sure to adjust for inflation.

• Employer Coverage: If you expect to continue employer coverage, start with an estimate of $9,400 for a single plan (2021 – accounts for premiums plus a deductible).⁴
• ACA Marketplace Coverage: If you think you may need to rely on an ACA Marketplace plan, the cost will depend on a variety of factors including your location, age, smoking status and income. Below are national estimates of single, annual premiums plus a deductible for 2021. (Assumes the person is a non-smoker whose income is high enough they don’t qualify for any subsidies.⁵) If your income qualifies you for premium and/or cost-sharing subsidies, the cost could be significantly lower.

Incorporating these costs will help ensure you can keep health insurance and afford necessary health care in your early retirement years.