Navigating your health insurance options can be one of the most daunting aspects of retirement. If you're 65 or older, you're likely eligible for Medicare, but you may want supplemental insurance to help with out-of-pocket costs. You may also have access to insurance through your former employer.
If you retire before age 65, you'll need to find a health insurance plan to cover you until you're eligible for Medicare. Regardless of your age, you have retirement health insurance options.
If You Retire Before Age 65
If you are retiring before age 65, the good news is you can't be denied coverage for preexisting conditions due to the Affordable Care Act (ACA), which was signed into law in March 2010. You can purchase ACA plans through your state's Health Insurance Marketplace, which may be HealthCare.gov or a state-specific site like Covered California. These plans are required to provide 10 essential benefits, including prescriptions, preventive care, and emergency services.
ACA plans can be expensive, but you may be able to keep your premium costs down by opting for a high-deductible option. Your deductible is the amount you pay for covered services before the plan starts paying benefits. A higher deductible typically means a lower monthly payment, but it also means higher out-of-pocket costs before your health care is covered. If you don't have the income or savings to cover out-of-pocket costs, it may be worthwhile to pay a higher premium.
The average premium for mid-tier ACA plans was $452 per month in 2021, according to the Kaiser Family Foundation. These numbers are based on a 40-year-old, and premiums increase based on age, so those in their 50s and 60s should anticipate higher premiums.
Group Retirement Health Benefits
The number of companies offering health care for retired employees has been declining. That said, your employer may offer an option to continue health insurance into retirement, especially if you work in the public sector.
As you're planning your retirement, reach out to your company's human resources department. Ask if you'll have continued access to health insurance after you retire and, if so, how much it will cost.
If your employer doesn't offer health insurance for retirees, ask if you have access to Consolidated Omnibus Budget Reconciliation Act (COBRA) benefits. If you're retiring before you're eligible for Medicare, compare the cost of retiree health insurance or COBRA to Marketplace insurance plans. You should also ask how the coverage changes when you're eligible for Medicare.
Explore Your Medicare Options
In most cases, as long as you've worked at least 10 years and paid Medicare taxes during those years, you're eligible for Medicare starting at age 65. If you're permanently disabled or have end-stage renal disease, you can qualify for Medicare before age 65.
Medicare has the following parts:
- Part A covers inpatient hospital care, limited care in a skilled nursing facility, hospice care, and some home health care.
- Part B covers other aspects of health care, including outpatient care, doctor care, and durable medical equipment. You pay a monthly premium for Part B.
- Part D covers prescriptions, and its benefits are accessed by purchasing Part D plans through private insurance companies.
On its own, Medicare has gaps, so many retirees opt for additional coverage. The two primary options if you don't have access to employer health coverage are:
- Medicare supplements: Also known as Medigap plans, these plans help cover the gaps in Medicare. They pay after Medicare, so your care providers would bill Medicare and then bill the supplement for the balance. There are several plan options, and they're standardized, so if you shop for a Plan A with one insurance company, it will have the same benefits as a Plan A with a different company.
- Medicare Advantage plans: Also known as Part C of Medicare, these plans are billed instead of Medicare and may include prescription coverage. If it includes prescription benefits, you don't need a separate Part D plan. They may also include other benefits like vision and dental coverage.
If you want to purchase a Medicare supplement, it's best to do so when you start Medicare Part B, as you have a special open enrollment period and can't be denied coverage. Some retirees delay enrolling in Part B if they have access to coverage through a working spouse. After your open enrollment period expires, you may have to answer health questions and go through medical underwriting. In other words, you could be offered a higher-priced plan or be denied coverage.
If you want to purchase a Medicare Advantage plan, you can enroll or change plans in the fall of each year. You can also switch Medicare Advantage plans from January 1 to March 31 each year. You can shop for both types of plans through your state's Health Insurance Marketplace.
Each year you're eligible for Medicare, you'll receive a handbook called "Medicare & You." This handbook reviews how Medicare works and provides in-depth information on any changes. You can also download the handbook or opt to be sent an electronic copy each year.
For 2022, Medicare open enrollment is from October 15 to December 7, 2021. This is when you can change or enroll in Medigap, Part D, and Medicare Advantage plans. You also have a special enrollment period when you turn 65.
Talk to an Agent
An experienced health insurance agent can help you navigate your retirement health insurance options. They can conduct a complete analysis of your options by asking you about your existing doctors and medications and then tell you which plans will provide the most cost-effective benefits based on your personal medical situation.
Another option is to find your state's State Health Insurance Assistance Program (SHIP), which will have volunteers who help you understand your options and assist you with enrollment.
Review Plan Choices Each Year
Whether over or under age 65, once you've secured health insurance in retirement, you should be proactive about evaluating it by conducting an annual review of your coverage options during open enrollment each fall.
Benefits and costs change, and it's possible a new plan may offer you better coverage at a lower price. You won’t know unless you look. Once again, you may want to talk with an experienced agent or contact your state's SHIP to ensure your plan change will benefit you.
Frequently Asked Questions (FAQs)
How much does health insurance cost for early retirees?
Your health insurance costs will depend on your age when you retire, what level of plan you choose, and whether you're eligible for premium subsidies. The Kaiser Family Foundation reported the average monthly cost for a 40-year-old on a mid-tier plan in 2021 was $452. That number would be higher for older people.
How do I pay for health care in retirement?
According to data from the Fidelity Retiree Health Care Cost Estimate, the average 65-year-old retired couple in 2021 would need roughly $300,000 (after tax) to cover all their health care expenses in retirement. That's a lot of money, and it doesn't factor in the possibility of retiring early. To cover these costs, start saving for retirement early and consistently, max out a health savings account if you have one, and be proactive to stay healthy and active.
How do I reduce my health care costs in retirement?
Apart from working to stay healthy, there are other ways you can manage your health care costs in retirement. Doing so requires carefully planning your income so you don't bring in too much to qualify for subsidies for a health plan. Putting money in a health savings account is a great way to stow away tax-free money for retirement health expenses. You might also consider getting a part-time job that includes health benefits.