Early Retiree Health Insurance Options

Early retirement is truly rewarding. After all, you've worked hard your whole adult life to achieve financial security. And now, you're ready to enjoy the years ahead - all on your own time.

But with early retirement comes the reality that you no longer have health insurance through your employer. Plus, you're not yet eligible for Medicare. So now what?

This dilemma happens all too often. But the good news is you can plan your retirement on your terms, thanks to a variety of health insurance options including short-term health insurance plans, otherwise known as temporary health insurance plans.

Choices to close the coverage gap

There are a number of options available for early retirees who are still a few years short of qualifying for Medicare.

1. COBRA coverage

In 1985, Congress passed the Consolidated Omnibus Budget Reconciliation Act, more commonly referred to as COBRA, which allows you to extend your current health care plan for a set amount of time.

Most businesses pick up a large portion of the coverage cost for their current employees. But once you retire, you may be required to pay the full cost of the health plan, along with a 2% administrative fee.

2. Coverage through your partner or spouse

If your spouse or partner is employed, you may be able to obtain coverage through their employer’s plan as long as your spouse or partner is already covered.

Your spouse may also be a potential source of health coverage even if he or she is already retired. As long as they have retiree medical coverage, it’s possible you’ll be eligible for coverage under that plan as well.

3. Private insurance

Another option is to purchase private insurance from an agent who’s local to you, or through professional organizations. You might be able to find some private exchanges that allow you to choose any number of qualified health plans from multiple carriers.

4. Short-term health insurance

Early retirees can choose short-term health insurance plans to get medical benefits for accidents and illnesses.

These plans are temporary insurance policies that offer major medical type of benefits. Short-term medical plans serve as options outisde of ACA plans because they don't cover the ten essential minimum benefits and pre-existing conditions.

Short-term plans can also give you coverage from one month to one year, with the option to renew the plan for up to three years, if needed (depending on the state).

5. Health insurance marketplace plan

The Health Insurance Marketplace is another way to shop for ACA plans, also known as Obamacare plans, which can fit your needs if you're not yet eligible for Medicare. One perk of the Health Insurance Marketplace is that you can’t be denied coverage for having a pre-existing health condition.

Costs for marketplace plans vary greatly, depending on your location and the level of coverage you need. Tax credits to help offset the plan's cost and make it more affordable are also available for those who qualify.

What are the pros and cons of ACA plans?

Any ACA plan must include these 10 essential health benefits:

• Ambulatory patient services (no hospital admittance)
• Emergency services
• Hospitalization (for surgical procedures and overnight stays)
• Pregnancy, maternity, and newborn care (before and after birth)
• Mental health and substance use disorder (includes behavioral health treatment)
• Prescription drugs
• Rehabilitative and habilitative services (includes devices)
• Laboratory services
• Preventive and wellness services
• Pediatric services (includes oral and vision)

On the other hand, ACA plans can be every expensive if you do not qualify for a subsidy. In addition, many plans have narrow networks, so you should always double check that your preferred providers are included in the ACA plan you’re considering.

What are the pros and cons of short-term health insurance?

For starters, you'll have health insurance protection in the unexpected event of an accident or major illness. As with any choice, there are pros and cons to opting for a short-term health plan.

Let's start with the pros:

• Flexible plan duration: Your coverage period can range from 30 to 364 days, with policy renewal of up to three years, depending on your state’s rules.
• No long-term commitment: You can choose how long you want to be covered (anywhere from 30 to 364 days). The coverage automatically ends after that date. Plus, you can cancel your plan anytime.
• Enroll anytime: You can enroll in a temporary health insurance plan any time of year.
• No waiting period: You can get coverage as soon as the day after you apply.
• Keep your doctor: Many temporary health insurance plans have an open network, which means you can see any doctor or hospital you’d like. But it's wise to double check your plan policy to make sure you're not going out of network.

And the cons:

• No coverage for pre-existing conditions. Short-term health insurance policies are underwritten for risk, which means you can potentially be denied coverage if you have a pre-existing health condition such as diabetes or cancer.
• Limits on the number of covered doctor visits.
• Limits on prescription drug coverage.
• No coverage for maternity.

With these pros and cons in mind, here are five examples where choosing short-term health insurance may make sense:

• You lost a job that provided insurance through your employer COBRA is too expensive.
• You started a job that has a waiting period before you’re eligible for company benefits, including health insurance.
• The ACA open enrollment period has passed and you are not eligible for a special enrollment period.
• You want affordable, temporary insurance to see you through a transition (e.g. moving from employed to self-employed) until you are more settled
• You retired early and don’t yet qualify for Medicare.

Non-insurance alternatives

There are some non-insurance alternatives that early retirees use such as:

Health-sharing ministries

A health-sharing ministry is not health insurance. It is a collective where members - typically those that share the same religious beliefs - make monthly payments to cover expenses of other members. In other words, it's a way to help pay for unexpected medical expenses by sharing the costs with others in your plan.

Here’s how it works: Each member pays a specified monthly fee. Once their medical bills exceed a specific cost, the additional expenses are shared by the group members in the ministry using the funds paid into the pool via monthly fees.

It's important to pay attention to the details, just as you would with any health plan. For example, some plans may have an eligibility time frame that lasts through your first year of membership, while others might not cover any pre-existing conditions. Read the fine print. It is especially important that you understand that unlike insurance, there are no governmental guarantees in place to ensure incurred medical expenses are paid.

Direct primary care

Direct primary care is another alternative for those with gaps in their coverage.

Here’s how it works: Each patient pays a monthly membership fee, which covers basic primary care services with convenient access to their doctors. The fee amount ranges and depends on the scope of services covered.

Often referred to as concierge medicine, direct primary care doctors can offer specific benefits to their patients that a typical insurance-based doctor can't, including same-day visits, 24-hour availability, low waiting room times, and even house calls.

But there are also potential pitfalls to using direct primary care. Doctors tend to limit the amount of patients they see because they're often dedicated to spending more time with patients. And out-of-pocket expenses for patients can be higher under this model, which tends to attract only those who can afford this type of concierge care. Remember this is not an insurance plan and generally does not cover anything beyond primary care.

Choosing the right plan

Though we just covered a variety of options, you don't have to go it alone as an early retiree.

Why spend your free time doing hours of research? Compare plans or talk to an insurance agent to make an informed choice.