Finding Health Insurance Before Medicare

Eric Galler retired early, but he has a big job ahead of him: finding high-quality health insurance for less than a king’s ransom.

This year, Galler is paying $17,000 in premiums for a plan that covers himself, his wife and his 20-year-old son—and that’s with a $13,000 deductible. In the past two years, the premium has climbed more than 40%, and the deductible has roughly doubled. “Inflation has been through the roof,” says Galler, a former General Mills executive.

At 52 years old, Galler has 13 years to wait before he reaches Medicare eligibility at 65. So he’s hashing out his health coverage options. He’s closely watching the development of new association health plans, authorized by a U.S. Department of Labor rule finalized in June, that can offer coverage to sole proprietors and small businesses while skirting some of the ACA’s requirements for non-group health plans. And Galler has looked at health care sharing ministries, which are actually not insurance but simply groups of people who agree to share each other’s health costs.

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When Galler turns 55, he can also switch to his former employer’s retiree health plan and cut his premiums in half, he says—but that’s three costly years down the road. The challenge, he says, is “how do I get through those years?”

That’s a daunting challenge indeed—and many early retirees and self-employed people in their pre-Medicare years face a similar struggle. Although the Affordable Care Act has been a boon for this group, guaranteeing them access to coverage even if they have preexisting conditions, many of those who don’t qualify for subsidies on the ACA exchanges have faced skyrocketing premiums. And while opponents of the ACA are moving to expand marketplace-plan alternatives, including association health plans and short-term health plans, these options lack some of the consumer protections that are built into ACA plans.

The future of marketplace plans, meanwhile, looks less and less certain. Next year, the penalty for going without health insurance drops to zero, which may cause more healthy people to abandon marketplace plans and inflate premiums for those who remain. And the Trump administration said in June that it would no longer defend key provisions of the ACA that protect people with preexisting conditions.

People in their fifties and sixties who lack group health coverage are among the hardest hit by the upheaval. As they age and develop more serious health conditions, going uninsured or opting for bare-bones coverage is a big risk—but if they don’t qualify for marketplace subsidies, comprehensive coverage is often unaffordable. This is “the group that is really struggling the most,” says Ronnell Nolan, president and chief executive officer of Health Agents for America.

What’s an early retiree to do? Some may have access to COBRA coverage, allowing them to stay on their former employer’s plan for a limited period. But that tends to be an expensive option: You have to pay both the employer and employee share of the cost. Others have made life-altering decisions, such as going back to work full-time to get employer health coverage or moving to a country that offers free universal health care. But such drastic steps may not be necessary. Here’s how to protect your health—and your pocketbook—in early retirement.

1. Start With the Marketplace

Yes, marketplace premiums give many early retirees sticker shock, and the political brouhaha around the ACA creates considerable uncertainty about the pricing of 2019 plans. But don’t ignore the marketplace—it may offer some surprisingly affordable options.

In most states, marketplace open enrollment for 2019 coverage runs from November 1 through December 15. But you can still get 2018 coverage if you’ve had certain life events, such as losing health coverage.

Need some motivation to visit healthcare.gov, where you can find marketplace coverage? Consider this bit of good news from HealthSherpa, which helps consumers sign up for marketplace plans: After factoring in the premium tax credits and cost-sharing reduction subsidies that many marketplace enrollees receive, the median premium paid by consumers 50 and older enrolling through HealthSherpa has actually dropped 36% in the past three years, to about $60 per month.

Last year, nearly 9 million people who bought coverage through the marketplace received subsidies and were insulated from the sharp premium increases that have so often made headlines, according to the Kaiser Family Foundation. “Whatever happens to premiums, people who are eligible for premium tax credits will be largely protected,” says Karen Pollitz, senior fellow at the Kaiser Family Foundation. “When premiums go up, the tax credit goes up dollar for dollar.”

To be eligible for subsidies, your annual income must be below 400% of the federal poverty level. For 2018, a one-person household falls below that threshold if annual income is less than $48,560, and for a two-person household, the cut-off is $65,840.

If your income is just above the threshold, talk to a tax adviser about potential ways to qualify for the subsidies, Pollitz says. Perhaps making a larger IRA contribution or strategically timing retirement account withdrawals could help you qualify. To see how various levels of income might affect your premiums and subsidies, use the Kaiser Family Foundation’s calculator at kff.org/interactive/subsidy-calculator.

Recent political maneuvering adds some new wrinkles to marketplace-plan shopping. To understand why, first recall that marketplace plans fall into one of four metal categories—bronze, silver, gold and platinum—based on how costs are split between consumers and insurers. Late last year, the Trump administration said it would end federal government payments that compensate health insurers for offering cost-sharing reductions to lower-income enrollees. In response, insurers raised premiums on the silver plans that are used to calculate ACA subsidies—a move that became known as “silver loading.” When those premiums rose, consumers’ subsidies also rose. And because consumers can use premium subsidies to buy plans in any metal category, many are now able to buy higher-deductible bronze plans at very low or even zero premiums—or purchase lower-deductible gold plans for less than the cost of a silver plan.

If you check out your marketplace options and find that you’re not eligible for subsidies and the premiums seem unaffordable, don’t give up. Look for ACA-compliant plans that you can purchase off the exchange, either directly from the carrier or through a broker. In some states, insurers are offering silver plans outside the exchange without the “silver loading” surcharge. So a silver plan may cost “a lot less off the exchange if you’re not subsidy-eligible,” says Betsy Imholz, special projects director at Consumers Union.

2. Approach Bare-Bones Plans With Caution

The Trump administration has taken a number of steps to promote plans that skirt the ACA’s requirements. Some of these plans may be considerably cheaper than marketplace options, particularly if you don’t qualify for subsidies on the exchange. But in some cases, they can deny sick people coverage, refuse to cover preexisting conditions or exclude coverage of essentials, such as prescription drugs. Such restrictions are prohibited in marketplace plans.

Short-term health plans, designed for people who have a temporary gap in coverage, currently offer coverage for up to three months—and the administration has proposed extending that term to 12 months. The plans are relatively cheap. A typical 55-to-64-year-old can pick up a short-term plan for about $250 a month, says Sean Malia, senior director of carrier relations at online insurance broker eHealth, compared with about $800 a month for a marketplace plan.

But unlike other individual health plans, short-term plans are not renewable. When your policy ends, you have to apply for a new one—and if you’re sick, you may be denied. These plans can also charge you higher premiums based on your health, gender or age; refuse to cover preexisting conditions; exclude coverage of prescription drugs, preventive care and other basic benefits; and impose caps on coverage.

Because of such restrictions, the plans “tend to be bad deals for people who are older,” says Ning Liang, co-founder of HealthSherpa. “You’ll pay each month, and when you actually need the insurance, it’s not going to be there for you.”

Yet some early retirees have found these plans are the only affordable option for bridging a short coverage gap. Late last year, Paula Smith, a 64-year-old retiree in Baton Rouge, La., was shopping for a plan to cover herself and her husband, Coy. An ACA-compliant plan would cost them about $1,500 a month, with a $4,500 deductible—an expense that seemed “just ridiculous,” Paula says. Because Coy was turning 65 and switching to Medicare in February of this year, they opted to get an ACA plan to cover only Paula, for about $960 per month, plus a $291-per-month short-term plan that would cover Coy for the month before he enrolled in Medicare. They found the short-term policy acceptable “because it was such a short period of time,” Paula says. “If I had known we’d have to have it for even three to six months, I’d have been more concerned.”

The new association health plans authorized by the Labor Department in June, meanwhile, will also allow self-employed individuals and small employers to buy less-regulated plans. These plans must follow some ACA rules—they can’t refuse to cover sick people, for example. But they can offer skimpy benefits. They don’t have to cover prescription drugs, and they may put a cap on hospital coverage.

And while marketplace-plan premiums can be up to three times higher for older people than for younger people, association health plans can make larger age-related premium adjustments. “So people over 50 might not find better rates” through these plans, Pollitz says. The plans can also vary premiums based on gender or occupation.

What’s more, association health plans have a checkered history, insurance experts say. The plans have been plagued by scams and financial instability, leaving enrollees stuck with unpaid medical bills.

3. Consider the Direct Route

Some patients are taking matters into their own hands, seeking to sidestep insurance altogether.

One approach: contracting directly with physicians for health care services. In this “direct primary care” model, doctors charge a flat monthly fee that covers at least a portion of primary-care services, such as regular checkups and preventive care. Although fee structures vary from one practice to the next, a typical monthly fee might be $65 or $70, says Dr. Phil Eskew, a direct primary care physician and lawyer in Wyoming who tracks the industry. Patients may also pay a small per-visit fee, such as $10.

Direct primary care doctors often contract directly for lab services and radiology and offer those services to patients at a significant discount, says Dr. John Cullen, a family physician in Valdez, Alaska, and president-elect of the American Academy of Family Physicians. In many cases, they can also get medications from wholesalers and sell them to patients at cost.

Direct primary care differs from concierge care—another retainer-fee-based model—in that the monthly fees tend to be lower and the physicians typically don’t bill insurance at all.

Patients are generally encouraged to pair direct primary care with a high-deductible health plan that can cover them if they are hospitalized or face other hefty health costs. But there’s a catch: In many cases, “even the high-deductible health plans are astronomical,” Nolan says. But for those who can find an affordable high-deductible plan, “the overall cost should be less, especially if you’re preventing higher-cost medical services” with direct primary care, Cullen says.

Note that health savings accounts, which allow high-deductible plan enrollees to pay certain medical expenses with tax-free money, currently can’t be used to cover direct primary care fees. Several bills introduced in Congress, however, would make HSAs more compatible with direct primary care.

There are roughly 850 direct primary care practices nationwide, and about 200 new ones open each year, Eskew says. You can find a direct primary care practice in your area using the map at dpcfrontier.com. Since various direct primary care practices in your area may operate differently, make sure you understand exactly what services are offered and what’s included in the monthly fee before you sign up.

Direct primary care is one option that Ed Ditto, 49, a retired commodity trader in Chattanooga, Tenn., is considering to rein in his expenses. As the husband of a breast-cancer survivor, he knows the value of good health coverage. But his current marketplace plan has a sticker price of about $1,200 a month, and because his annual income fluctuates, he’s not yet certain whether he’ll qualify for subsidies this year. His premium has climbed about 10% annually in recent years, says Ditto, who blogs at EarlyRetirementDude.com.

In addition to direct primary care, Ditto is also reluctantly considering plans that offer fewer consumer protections. He doesn’t think non-ACA-compliant policies offer adequate coverage, but if premiums continue to climb and the choice comes down to a non-compliant policy or foregoing coverage altogether, he’d go with the non-compliant policy, he says. “There’s so much uncertainty,” Ditto says. “We’re considering all our options.”