New Health Insurance Options for Early Retirees

One of the biggest challenges early retirees face is finding affordable health insurance until they qualify for Medicare at age 65—or finding any coverage if they have a preexisting condition.

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The new health law changes the rules. Starting in January 2014, insurers may no longer reject you for coverage or charge higher rates because of your health. The law also sets limits on how much insurers may charge older buyers (for example, premiums for a 64-year-old can be no more than three times as much as they are for a 21-year-old). Knowing you will qualify for health insurance, no matter what, may prompt you to consider retiring sooner than later.

Early retirees will still have most of the same coverage options they have always had—retiree health coverage from a former employer or coverage through a spouse—although employers are passing along an increasingly large share of the cost. And most early retirees can choose to keep their coverage under COBRA for up to 18 months after they leave their job. You’ll have to pay the full premium yourself, but if you’re close to your 65th birthday, or if you’re undergoing treatment and the new policies don’t cover your current doctors and providers, it might make sense to keep your current coverage under COBRA.

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Come January, you'll have another option: to buy insurance through your state's exchange. Plans on the exchanges won't necessarily be less expensive than today's individual policies (especially if you're healthy) because the plans must expand to cover ten "essential health benefits" and they can't charge extra for people with health issues. But if you meet certain income thresholds—and a lot of retirees will—you may qualify for tax credits to help cover the premiums.

Compare costs. Estimate what your income will be after you retire. You may get a subsidy if your income is less than 400% of the federal poverty level, which works out to about $46,000 for an individual. If your adjusted gross income is $28,725 and you pay $5,000 per year for premiums, for example, you could get a credit worth about $2,700, depending on your age and coverage costs in your area, according to Families USA.

The calculators for your state's exchange (you'll find links at www.healthcare.gov) will help you determine whether you qualify for a subsidy. (The calculators may not be available until open enrollment begins on October 1; until then, you can use the Kaiser Family Foundation's calculator.) Tax credits are available only if you buy from your state's exchange. Also, you generally can't get a subsidy if you have an offer of insurance from your employer, such as retiree health coverage.

Policies on the exchanges must fall into one of four categories based on coverage levels: bronze, silver, gold or platinum. The platinum policies will generally cost the most and have the highest level of coverage. Bronze and silver plans may have high deductibles and qualify for health savings accounts, which let you save tax-free for medical expenses. Look at the policies' premiums, out-of-pocket costs, coverage, and the network of doctors and providers (especially if you're a snowbird). Some insurers plan to offer more than one option within the same color level but to charge less for a version with a more restrictive network.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.