March 7, 2008 — Most Americans get health insurance from an employer-sponsored group plan. That’s fine as long as you’re working.
However, once the paychecks stop coming, so do the medical benefits, in most cases. Among large employers—those with 200 or more workers—only 33% offered health benefits to retirees in 2007. In 1988, that figure was 66%.
If you work for a smaller company, forget about it. Only 5% offer retiree health insurance.
There is one place you’re certain to find coverage: from Medicare, the federal health insurance program. However, you won’t be able to sign up until age 65.
That leaves a huge Medi-gap for many people. If you retire before 65, you’ll need health insurance, but how can you get it? Here are four suggestions to help you bridge the coverage gap:
1. Work until you’re 63-1/2. COBRA, a federal law, applies to employers with 20 or more workers. If you leave such a company, you’re allowed to stay in the group health plan for up to 18 months.
Therefore, you can work until age 63-1/2, retire, and stay in the same health plan until 65. Then you can go on Medicare.
The catch? When you rely on COBRA for coverage, you pay the full cost of health insurance. Chances are you don’t realize how much your employer has been subsidizing your healthcare.
Say you’ve been paying $270 per month for family coverage, about the national average. If you leave the company and continue coverage via COBRA, you’ll probably be paying around $1,000 a month.
2. Rely upon your spouse. If you retire early while your spouse is still working, you may be able to get coverage through his or her employer. That may be less expensive than paying COBRA rates.
Before you retire early and make a COBRA commitment, find out whether your spouse’s company offers family coverage, whether you’ll be able to get that coverage, and how much it will cost.
3. Join an association. Many types of groups offer health insurance to members. They may be worth exploring, but you should ask if there are health screenings to pass and whether you’ll have real insurance for doctors’ and hospital bills.
Perhaps the most ambitious association effort to provide health insurance to members was just launched by AARP with Aetna.
“We expect to be offering our plans in more than 30 states by year end,” says Laurie Brubaker, chief operating officer for Aetna’s Consumer Business Segment, which is providing the policies. “Except for New York and New Jersey, we expect the AARP plan to be available in the most populous states.”
The AARP–Aetna policies receive high marks from Gloria Smith, who heads Catalyst Wealth Management in Chicago. “There are several plans available,” she says. “They seem reasonably priced, and the coverage seems good. My understanding is that their underwriting (health screening) standards are not as stringent as most insurers. One of my clients was accepted there and is paying $350 a month. That’s about $100 more than the standard rate, but she has had several health problems in the past.”