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Health insurance options for early retirees


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Retiring early — it's an American dream. The difficulty in finding affordable health insurance is forcing many people to delay that dream.

People may choose to retire before age 65 — the point at which they become eligible to receive Medicare — under a variety of circumstances. Some have stable finances and their employers offer retiree health benefits. Others, with or without employer-sponsored health insurance, retire when they're forced out of the labor market due to poor health, or when they lose their jobs.

doctor visitEarly retirees often face limited health insurance options. What if your employer doesn't extend health benefits to retirees? What if you retire and you can't afford individual health insurance coverage because the premiums are based on your age and health status? What if you have retiree health insurance but your former employer goes out of business?

These are all scenarios to contemplate before you retire. Early retirees have the following health insurance choices:

  • Purchase an individual health insurance policy.
  • Buy coverage under COBRA.
  • Continue employer-sponsored health insurance, if offered to retirees by your employer.
  • Continue on your employer's health plan under the federal Early Retiree Reinsurance Program, if your employer signs up for it.

Individual health insurance

If you don't have access to a group health plan, you can get health insurance quotes for individual coverage. The premiums for individual policies are based on your age and your medical history in many states. (Some states mandate "community ratings" where age and health aren't pricing factors.) In many states, health insurers that consider you a bad risk can decline your application or sell you coverage that excludes your pre-existing health conditions. In some states, such as New Jersey and New York, you can buy guaranteed issue policies, for which you cannot be turned away.

Don't let high premiums tempt you to go without health insurance. A catastrophic illness could devastate you both physically and financially.

If a pre-existing condition is preventing you from buying individual health insurance, investigate Pre-existing Condition Insurance Plans, which are available under health care reform.

COBRA health insurance

Another option as an early retiree is to purchase health coverage under COBRA, the Consolidated Omnibus Budget Reconciliation Act. Under COBRA, if you work in a company with 20 or more employees and have group health insurance through that employer, you're eligible to continue your health benefits for 18 months after retirement. It won't be cheap: You’ll likely pay 102 percent of the group rate. Even so, it might be a cheaper than buying individual health insurance. (Read Know your COBRA rights.)

Continuing employer-sponsored health insurance

Some employers offer health insurance coverage as a benefit for early retirees. Be aware that employers differ widely when it comes to eligibility requirements (age and tenure rules), benefit levels (deductibles, co-payments or services covered) and premiums (whether the employer shares in any of the costs or you bear the entire financial burden).

Even if you're eligible for early retiree health benefits, your coverage is likely to be less generous than it was when you were working. Make sure you know exactly what services your retiree health plan covers and for how long. Will it cover you up to age 65? Does it have a prescription drug benefit? How much will your premiums increase?

Alternatively, you could join your spouse's employer-sponsored health plan if your spouse will continue to work. Perhaps that plan is more cost-effective and offers better coverage.

Early Retiree Reinsurance Program

The Early Retiree Reinsurance Program (ERRP), established under health care reform, enables early retirees under age 65 -- the age at which seniors become eligible for Medicare -- to continue to take advantage of their employer-sponsored health insurance. ERRP will reimburse employers for medical claims for retirees age 55 and older who can't get Medicare, along with their spouses, surviving spouses and dependents. Employers must sign up for the program.

Employer applications are now being accepted. As of the end of August 2010, nearly 2,000 employers and unions, representing a broad range of employers from all 50 states and the District of Columbia, were accepted into ERRP. Approved applicants who started submitting claims in September can expect to receive payments on those claims in October, according to the Department of Health and Human Services (HHS).

HHS says that the reimbursements will be available for 80 percent of medical claim costs for benefits between $15,000 and $90,000. ERRP participants will be able to submit claims dating back to June 1, 2010. Coverage benefits that qualify for ERRP include medical, surgical, hospital services, prescription drugs and mental health services, but only for expenses incurred after June 1, 2010.

ERRP is funded with $5 billion from the Affordable Care Act and is designed to be a bridge program to the new health insurance exchanges that are scheduled to be in place in 2014. Along with private employers, the program is also open to unions, state and local governments and nonprofit groups. Employers can use the funds to reduce their health insurance costs, provide "premium relief" to employees and their dependents, or a combination of the two, according to HHS.

Employers can obtain applications for the program and additional information at HHS's Office of Consumer Information and Insurance Oversight.

Federal and state assistance programs

If you can't afford COBRA or individual health insurance premiums, you might qualify for health insurance under Medicaid. That’s the joint federal and state program that pays for health care for low-income families with children, low-income seniors and disabled people.

Medicaid varies from state to state: Each state establishes its own eligibility standards and decides the type, amount, scope and duration of services. States might also require you to pay nominal deductibles, co-insurance or co-payments for certain services. Some states also have a "medically needy" program, in which Medicaid eligibility is extended to higher-income people who have high medical costs.

Examine exclusions and expenses

Whatever type of plan you consider, look carefully at the exclusions and your out-of-pockets expenses, like co-payments. Investigate the plan's prescription drug benefits and how much you'd have to pay out of pocket for medicine.

For some, the transition from work to retirement can bring unforeseen and upsetting changes. If you do your homework, your health insurance doesn't have to be one of them.

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