WHEN PLANNING OUR early retirement, I realized that getting and paying for health insurance for my wife and me would be our biggest financial challenge.
Before 2010’s Affordable Care Act (ACA) took effect in 2014, we talked to an insurance agent who gathered our medical histories and submitted them to insurers for consideration. Despite two major surgeries, I was deemed insurable. My wife, due to a congenital condition that had never caused a problem but might, was not.
When I actually retired, it was six months before key provisions of the ACA kicked in. We continued my employer’s coverage through COBRA to cover the gap and then switched to coverage under the ACA. That means I’ve been insured through the health care exchange created by the ACA for the entire time of its existence. My wife was also on an ACA plan until she enrolled in Medicare two years ago.
Under the ACA, we’ve watched premiums escalate far faster than inflation. Our doctor of 25 years dropped us. And our choices for in-network hospital care got tighter and tighter.
Being relatively healthy, each year we chose a bronze-level plan with a high deductible and a health savings account (HSA) option. We fully funded the HSA but stopped using it for current expenses after the first year. We realized it was better to allow the account to grow tax-free to pay for medical expenses later in retirement. We’ve accumulated a tidy sum that way.
From January 2014 until my wife entered Medicare in December 2020, we paid $113,000 in ACA premiums. The compound annual increase in our premiums averaged more than 9%. More disconcerting: Our rising premiums bought less coverage. Our deductible rose from $4,000 apiece in 2014 to $7,000 each in 2020. We also went from having a wide network of hospitals available to us to an extremely narrow choice.
When Anthem pulled out of the ACA Ohio market in 2018, the only plan left in our rural county was an HMO that didn’t include our longtime family doctor. Remember the old lie “if you like your doctor, you can keep him”? He apologized for dumping us, but dump us he did. He said he felt uncomfortable that our restricted HMO network limited his ability to refer out to specialists, if necessary.
The next year, our local hospital dropped our HMO because the insurer was so difficult to deal with. Fortunately, a new plan entered the market that included our community hospital. Still, for more advanced care, the in-network hospital list was extremely limited. There were literally no hospitals included that I would consider true tertiary-level facilities. As a strict HMO, in the event we needed true tertiary or quaternary care, we’d have no coverage.
We then relocated to a metropolitan area where we had more plan choices, albeit at a higher cost. Once again, we were in a tight network, though one with good advanced-care hospital options.
Besides our premiums for those first seven years, we paid out-of-pocket costs of almost $30,000. In only one year did we exceed our deductibles. In that year, our insurance company paid about $5,800 toward an emergency appendectomy. Other than that, we have cost our insurance companies nothing.
We did not elect dental coverage, but our eyes and teeth aged along with us and we’ve incurred bills for glasses and crowns along the way. This added $27,000 in costs over the same seven-year period.
What did we get for our $113,000 in insurance premiums? Three important benefits:
Like so much federal legislation related to health care, including Medicare and Medicaid, ACA solved real problems, such as coverage for pre-existing conditions. In the beginning, insurance companies underpriced their product. The ACA was truly affordable then. But the years that followed eroded affordability as reality kicked in.
First, insurers began to retrench. Some plans left the market while others expanded. Efforts to keep the premiums affordable were accompanied by higher deductibles and tightened networks.
Today, ACA health care coverage is no longer “affordable,” and I’ve concluded that Congress cannot legislate affordability. My single-coverage premium in 2022 is higher than we paid to insure both of us in 2014. To be sure, I’m now nine years older—and premiums tend to climb sharply once you’re in your 60s.
The promise of covering the uninsured was equally pie-in-the-sky. Even with subsidies, 30 million Americans under age 65 remain uninsured, according to the federal government. Still, the percentage of Americans under 65 who are uninsured was 10.8% as of 2020’s second quarter, down from 18.2% in 2010.
If you’re considering early retirement without the continuation of employment-based health insurance, you need to budget carefully. Realize, however, that insurance coverage is about more than simply affording the premiums and deductibles. If you have a significant health issue, the network of doctors and hospitals available to you will be of prime importance. Coverage and choices vary by county. You may need to move if you live where coverage is limited. Start early and plan carefully.
Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured—along with five others—on the cover of Kiplinger’s Personal Finance for an article titled “Secrets of My Investment Success.” Check out his previous articles.
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In this fine article, I can’t help reacting negatively to the one political element, the word “lie”:
Republican opponents to the Affordable Care Act said things such as, “Death Panels!” and “You’ll lose your doctor!”
Pres. Obama said, “You won’t lose your doctor.”
Republican officials in many states blocked and otherwise undermined the ACA.
But my family kept our doctors just fine. Premiums took a one-year reset (refunding some $1,300) before resuming their upward climb at the same rate as pre-ACA.
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Did many doctors and insurance providers jump ship? They did.
Was this an inherent “bug” or “feature” of the ACA? No, it wasn’t.
Mostly to the extent that Republican entities have done what they could, and can, to undermine it, to sink it, to “repeal and replace” it—
—with out the slightest hint of an iota of a suggestion of a possible replacement—many things continued to go South in American healthcare. But at least we now have no preexisting-condition limitations and no lifetime maximums for the most-unfortunate physical-health sufferers among us.
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Most Americans (as well as most people of the modern world) require healthcare services at one time or another. Fie on those who work so hard to make healthcare access so-costly and so-hard to come by.
Pardon my vehemence here: That one, casually used word, “lie,” was a sad reminder of the high cost—in dollars and in lives—of deliberate impediments to—and obfuscations about—American access to healthcare.
Great essay, but for that one word.
Regards,
(($; -)}™
Gozo
ACA is really location dependent. In an area with a Kaiser or similar staff model HMO in the plan, you get the same quality as everyone else there. ACA plans are narrower but there still is coverage. Of course, if you have a rare cancer or something then you will be fighting with the insurance company for the best treatment, but you would be doing that anyway with most employer plans, other than perhaps the most gold plated.
This article and replies make me very thankful that my former employer provides supplement and prescription coverage at no cost to me. Of course, I worked 22 years to get it, and did not retire until age 66. I do pay for my wife’s supplement and Part D plan, so I am aware of my savings.
FWIW, I think Medicare is a great program and senior’s typically get far from it than they paid. For the first time this year I am paying IRMAA premium due to large Roth conversions. I have no problem with that.
Pray your employer continues that. Many employers, including mine, are dropping that coverage for existing retirees. I thought my 50 years of service was a guarantee- new people come in – I was wrong.
What i often don’t understand is the pre-existing condition issue. There are laws that provide for continuation of coverage if one had insurance but changed. Are we saying here that individuals had no coverage while they had a medical condition that was later determined pre-existing when then obtaining coverage?
This seems to be a good summary of the situation pre- and post-ACA. https://www.verywellhealth.com/pre-existing-conditions-exclusions-1738633
Note that pre-existing conditions are still a problem for people with Medicare who want to change Medigap plans (with some state-specific exceptions).
The use of medical underwriting is often framed as the insurance company wanting to protect its bottom line. In fact, all policyholders are protected. It’s really no different than what any insurance does.
Who would write any insurance for anyone who is likely to have a claim? Even Medicare tries to protect itself from late enrollment by applying a permanent premium penalty.
Of course, when it comes to health care we have a different point of view. Nobody should be denied coverage or care. But that does not change the fact that in the absence underwriting costs are higher for everyone.
Right, that’s why the ACA as constructed had an individual mandate requiring (nearly) everyone to obtain coverage or pay a penalty. That way you would cut down on the free rider problem of folks (especially young people) only signing up for coverage (and paying premiums) when they knew they would need to use their insurance. Perhaps unsurprisingly the mandate proved to be politically unpopular — folks don’t like the government telling them what to do — eventhough it was designed to keep premium costs down for everyone. After a lot of legal and political challenges to it, Congress removed the penalty, though the mandate still technically exists.
I appreciate all of the detailed info! We were impacted by a “pre-existing condition” that limited our options pre-ACA. For us, premiums from 2014-2020 totaled about $129K for my family of 4 (fewer on plan in later years), then $35K for out of pocket medical expenses (emergency appendectomy, dentists, vision, etc.) during this period. I would love to have more transparency on actual prices/costs of things. Healthcare is one service that we use where we have very little info going in about how much it will cost, and then we have to decipher the Explanation of Benefits later. Who knows what the actual $ exchange is between the insurer and the medical provider, right?
My head is spinning and will no doubt continue to spin until I spend some money and hire someone to tell me what my wife and I (turning 66 this year but both still working) need to do once we retire. Presumably within the next year. We get healthcare through my firm but since I’m self-employed we pay about $20,000 per year for the two of us. It had been as high as $35,000 a year with my previous firm (older population) and family coverage. Plus significant deductibles ($4000 and $10,000 as I recall for the family plan). And this is in Massachusetts, which is supposed to have such a great system. I don’t foresee paying less in retirement frankly. And honestly, this whole debate about what health care “costs” if one retires early is absurd. It costs at least what I am paying now to insure a retired person. The only question is who pays. Most of the comments here as far as I can see it are aimed at explaining how to get quality healthcare subsidized by someone else. At least one commenter correctly noted that his $22 a month premium is really more like $1000 paid by someone else. Retiring early can have a lot of lifestyle benefits. But really, why should someone else subsidize anyone to retire early?
I this really an early retirement issue? Were you really retired? It seems you were still working, and making good money, but as a consultant. Your problem was not related to early retirement, but to working other than as a full-time employee with company-subsidized medical insurance. There are far too many people out there with the same problem who certainly would not consider themselves retired.
When I retired from the mega-corp I worked as a part-time contractor for three and a half years. When Medicare asks me when I retired (I wonder why…) I say 2000, but I’m thinking I should really say 2004. On the one hand, I was drawing a pension from the mega-corp, but on the other hand I was still working (even at the same job, initially).
I worked part time as a consultant for about 24 months (across 3 tax years) out of the seven years discussed. I was paid but that was not my primary motivation: it was interesting work that led to great learning. My income came primarily from my investments. So, yes, I consider it an early retirement issue. I did not plan to work to support us during that time period, not did I need to.
Thanks for highlighting the challenges in our broken healthcare system in the US. My wife and I have retired and receive both Medicare (with IRMA tax added) as well as state-subsidized supplemental health care coverage. We pay more for healthcare in retirement than we’d like to, but are fortunate to be able to afford coverage and are relatively healthy in our early 70s.
I have traveled and received health care in Western Europe and in Japan over the years. Receiving services and the associated paperwork were simple compared to what we all experience in the US. Because 1/3 of our health care expenses are consumed by administrative expenses and health care plan administrators command high 6 and 7 figure salaries, we pay for expensive healthcare but do not receive high quality services overall. The ACA was a big step in the right direction, but we have a long way to go before healthcare is universal and affordable.
IRMAA is not a tax. It is an income based premium. Just curious why you view it as a tax.
Perhaps because like a tax, (unlike most insurance) it isn’t a voluntary premium.
The reason there are still so many uninsured Americans is because certain states have refused to expand Medicaid.
That’s definitely a big reason. Twelve states (mostly in the South) still haven’t expanded Medicaid under the ACA. Over 2 million uninsured people who live in those states are in the “coverage gap” (they can’t qualify for Medicaid or for ACA Marketplace coverage) because their states haven’t expanded. Moreover, of the 27.4 million people who remained uninsured in 2020, more than 6 in 10 are, in fact, eligible for Medicaid or the Children’s Health Insurance Program, or for subsidized private coverage through the ACA Marketplace. They either don’t know it or haven’t signed up, which shows why effective outreach is important. There would be many fewer uninsured if those eligible took up Medicaid and ACA coverage.
This was a very helpful article with real-world costs. At 57, I have plenty saved for retirement, and health care is the main obstacle keeping me from doing so.
As you note, ACA is better than what existed before, but it is far from perfect. There is no real cost control. You didn’t benefit from subsidies but since you could pay the premiums and costs, I guess it was affordable in a sense. Only in America.
I think IRMMA is a tax and not a health care expense. Most folks don’t pay and those who are below the threshold probably have limited awareness or sympathy.
You don’t have to pay IRMAA if you don’t enroll in Medicare B, so it is best thought of as a health care expense.
Yes. I am thankful the insurance was available. I could afford it and it allowed me to retire when I wanted. That is the bottom line.
Do I have the math correct? 2014 to 2020 = 7 years of coverage for 2 people. $113,000 paid in premiums and $30,000 paid for services = $143,000 = $20,428 per year = $1,702 per month ($851 per person). Frightening!
Take a look at your paystub and add the amounts you and your employer pay towards your health insurance each pay period. My employer pays the full cost of my insurance, about $650 a month. I’ve been figuring at least that much for health insurance when I retire.
Yes, you have the math correct. And, understand that a Silver or Gold plan would have been much more. Plan ahead if you want to retire early.
I was on ACA / Obamacare for two years – 2017, 2018 – when I took early retirement and before I was eligible for Medicare. I had a very positive experience, although I had no significant health issues during those two years.
I also signed up for a bronze plan. My premium the first year was about $27 per month. The next year, my premium dropped to $22. (That is a misnomer. My premium was somewhat over $1,000 per month. Taxpayers paid the rest.)
When I did my taxes the following year, if I earned even $1 over a threshold, about $63,000 as I recall, I then had to pay the full premium with my taxes. I worked had to make sure my income did not exceed the threshold.
I did some part time consulting work which, in combination with investment income, caused my income to exceed the limit for a subsidy in every year but one. In retrospect, the consulting work may have cost me more than I made! The other consideration is, if you ignore the ACA subsidy, early retirement could be a time when it is beneficial to convert traditional IRA money to a Roth. Depending on your circumstances, those conversions could make you ineligible for an ACA subsidy.
If your income was over the amount to qualify for a subsidy, why did you purchase an ACA policy as opposed to looking for one that wasn’t part of the exchange? Did you cross shop to see how they compared?
I also helped a friend sign up for ACA. She is a very hard worker. Her income is so low, her premium is zero.
She is definitely better off. She went from absolutely no insurance to insurance, at no cost to her. If / when she has a major health issue, at least she has some coverage.
Both of my daughters (late 20s & early 30s) were on ACA until they got jobs that provided health coverage. I was really grateful they had that, especially when both were unemployed for months during the COVID shutdown in 2020. My older daughter had a pricey plan that cost around $400/month for everything, and my younger daughter didn’t have to pay at all in 2020.
Maybe I am ignorant about these insurance issues, but why hasn’t the author switched over to Medicare/Medicare Advantage by age 65? It isn’t free, but certainly more “affordable” than obamacare. Or still not 65?
You can’t use the ACA if you are eligible for Medicare. Medicare isn’t always more affordable than Obamacare when you consider Part B, Part D and Medigap premiums not to mention IRMAA premiums. Even without IRMAA, a couple will easily pay over $800 a month when on Medicare.
Correct. I am not yet 65.
Howard, very interesting article. We are lucky that my previous employer still offers an early retiree medical plan. We had three choices. The middle plan was an HDHP with a $3400 family deductible. We pay full price minus a subsidy based on the number of years of service. After the subsidy we pay about $15,000 per year in premiums. We also built up our HSA to use in retirement. We thought about health provider availability when we moved to the South Jersey shore area. It’s better tan we expected, and they have affiliations with major health systems in Philadelphia. But we will have keep our eyes on it!
I’m curious about your income level. The ACA was designed to provide affordable insurance to middle income people. It is the only reason that I was able to retire at 59 a couple of years ago. Without it, I would have had to work six more years. My wife and I have kept our income down during the first two years of our retirement for precisely this reason and we pay $215 per month for the two of us, which is less than we paid for group health insurance when I was working. We’re pretty healthy, although a heart procedure that was billed at $300K cost me $6K last year. Also, we haven’t had to change any of our doctors and we live in NY, which means we have access to world-class hospitals.
I was over the income limit to receive a subsidy in every year but one. I did receive a partial subsidy of $8000 one year. The $113000 in premiums is net of the subsidy.
In health care as with most things, everything is connected. Eliminate underwriting and costs go up. Allow annual open enrollment and costs go up. Eliminate networks, costs go up. Create subsidies and some individuals benefit, but the underlying problem is ignored.
“Affordable” is used by politicians as a buzzword, but have you ever seen it defined? Ask 100 people and you will get 100 answered. For most Americans the answer is paying nothing for health care. Here is a good example https://quinnscommentary.net/2022/04/06/not-a-penny-lowering-health-care-costs/
Ask retirees if Medicare is affordable. Many think they are being ripped off … after all they paid taxes all those years.
Americans have a unique way of looking at health care and paying for it.
In Massachusetts we created our own health insurance exchange before the Federal ACA and it is more affordable . We also have some of the best healthcare in the country.
Mass has one of the lowest premiums on exchanges, but also limited choice and a couple of options with restricted networks. The state also retained the coverage mandate with a $ penalty. There are always reasons for lower costs.