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On My Own—But Not

Kristine Hayes

WHEN I ANNOUNCED I’d be retiring at age 55, the most frequent question I received from friends was about how I’d pay for health insurance. They knew I wouldn’t be eligible to receive Medicare for a decade. They also knew paying for 10 years of premiums would likely leave a large crack in my nest egg.

Fortunately, I was able to take advantage of a health insurance benefit provided by my former employer. As an early retiree, I’m eligible to receive health care coverage for the rest of my life. It’s a benefit no longer offered to new employees.

I maximized the benefit by retiring on my 55th birthday—the first day I was eligible to receive it. For the next 10 years, my former employer will pay a sizable portion of my health insurance premiums. Once I become eligible to receive Medicare, my old employer will provide me with a monthly stipend to purchase whatever supplemental coverage I want.

In 2023, my former employer will pay a total of $8,790 toward the cost of my health care coverage. That’s equivalent to two months of my take-home pay at the time I retired. I have to pick up a portion of the premium cost. Starting in January, my share will be $173 a month.

In October, I received my open enrollment information. Since my husband and I relocated to  Arizona after I retired, I’m limited to one option for insurance coverage. But that option allows me to receive care from any provider within the U.S.

Out of curiosity, I wanted to see how the plan I have compares to those available through the health care exchange set up under the Affordable Care Act (ACA). I discovered there were no ACA plans with a $1,000 deductible, which is what my current plan has. Looking at plans with a $2,000 deductible, there were three options. The least expensive of those would cost me $1,354 a month. That plan came with an annual out-of-pocket maximum of $8,700. My current plan has a $3,000 maximum.

It wasn’t clear to me if the ACA plan would allow visits to the hospital and clinics located in the retirement community where I live. Having the ability to see providers—whose offices are less than two miles from my home—is a convenience I can’t put a price on.

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Derek R. Austin
Derek R. Austin
2 months ago

This isn’t going to be a popular tip, but you can just travel internationally for healthcare as needed. Example: LASIK is $8,000-$10,000 in the US. A week in Cancun at a luxury hotel including flights for 2 will cost you about $2,000. Lasik in Cancun cost me $800 (both eyes). You’d end up $5,000 ahead, and much more if you travel solo and skip the luxury hotel. Then you could try a cash pay doctor for the US.

tshort
tshort
2 months ago

My wife retired earlier this year at 55, and I’m still two years away from Medicare. Like most people retiring from the private sector now and in the future, neither of us has a pension or retirement medical coverage, so initially I was budgeting $25,000 per year to cover medical insurance and co-pays etc.

Then I started playing around with the ACA calculator and realized that was way more than it will cost us. In January we start our first full year of no earned income, which has a huge effect on the ACA subsidy we’ll be eligible for. As a result, our premium for Bronze plan with a high deductible will be – wait for it – zero. Nothing. Zip.

Of course, we’ll have to pay out of pocket for every non-preventative office visit, test, image, prescription etc. On the other hand, we won’t be spending $5,000-10,000 per year in premiums that a lower deductible plan would cost. Since we’re both in good health and have a pretty good handle on how many times we’ll need to see a doc during the year, we decided to roll the dice and go with the higher deductible plan. It’s sort of a way of self-insuring.

By savings $5000 per year in premiums, we basically can afford to max out our family out of pockets once every three years. This would only occur if one or both of us had something pretty serious happen. So fingers crossed.

Last edited 2 months ago by tshort
Kristine Hayes
Kristine Hayes
2 months ago
Reply to  tshort

I’ve never used the ACA for insurance but I know a few years ago people were finding it difficult to find physicians and hospitals that even accepted it. Do you know if this is still the case? I’ve always appreciated the fact that my health insurance allows me the freedom to see any physician and be able to go to any hospital. https://www.wsj.com/articles/obamacare-can-be-worse-than-medicaid-1530052891

Jonathan Clements
Admin
Jonathan Clements
2 months ago
Reply to  Kristine Hayes

I’ve had ACA plans starting in 2014 and I’ve never had a problem finding a doctor.

Kristine Hayes
Kristine Hayes
2 months ago

I’m glad to hear that. It sometimes seems difficult to sort out the truth from the fiction when it comes to government run programs.

Boomerst3
Boomerst3
2 months ago

Most retirees have no access to pensions and health subsidies from their employers. Big business saw to it that the 401k would supplant the pension, thus increasing their profitability at the expense of the employees. It was designed to be a supplement to pensions, but greedy business owners saw it as a way out. The same businesses that ship manufacturing over seas. The rich got richer. The average American retiree is out of luck.

The average 401(k) balance is $129,157, according to Vanguard’s 2021 analysis of over 5 million plans. But most people don’t have that much saved for retirement. The median 401(k) balance is significantly lower at $33,472, more reflective of how most Americans save for retirement.Oct 17, 2022

R Quinn
R Quinn
2 months ago
Reply to  Boomerst3

True to some extent, but how many people do you know who stay long enough with one employer to obtain value from a traditional pension? Only certain industries benefited from pensions which less than half of all workers ever had.

johny
johny
2 months ago

It is hard to believe that its been over 10 years since the ACA came into effect and with the passage of time, it seems to be more and more permanent. Remember what it was like before it?

Last edited 2 months ago by johny
Derek R. Austin
Derek R. Austin
2 months ago
Reply to  johny

It seemed pretty bad before too, “johny.” Ever heard of Europe? Lol. No one fears dying because they got fired.

R Quinn
R Quinn
2 months ago
Reply to  johny

Why shouldn’t it be permanent until we come up with a better complete solution. It did not however, make health care affordable.

R Quinn
R Quinn
2 months ago

As I may have mentioned before, keep in the back of your planning thoughts that the employer plan may well change. I know several friends who had similar benefits which were wiped out or substantially changed for the worse after they retired. It happened to me in 2021 and I’m the person who designed retiree benefits while working. What you describe is a good, but expensive plan for the employer. Raising your share of premiums, increasing the deductible, converting to an HRA with fixed contribution and freezing the Medicare stipend are all good possibilities.

Just keep a close eye on future open enrollment literature.

Kristine Hayes
Kristine Hayes
2 months ago
Reply to  R Quinn

I am definitely a bit skeptical about the future of this particular benefit. The good news is that my employer stopped offering it in 2004, no doubt because they realized the enormous (future) cost. If I live as long as my maternal grandmother, I could be looking at receiving 46 years of subsidized health insurance coverage.

I’m thankful that the college I was employed by has a substantial endowment. Their financial ratings are higher than many colleges of similar size. That said, the future of higher education seems questionable to me. I certainly think the way we prepare people for jobs 20 or 30 years from now will be substantially different from the way we prepare them today.

mytimetotravel
mytimetotravel
2 months ago
Reply to  Kristine Hayes

I ran into the same problem as Richard. I was able to take early retirement because I could stay on my employer’s plan. When I turned 65 I was required to sign up for Medicare, but I was able to supplement it with my former employer’s plan. Then they did away with retiree plans altogether, but provided a $3,000/year subsidy, which covered my insurance costs for Medigap, Part D, dental and vision. Now they have stopped that, and if I want any help at all I have to switch to a Medicare Advantage plan.

Kristine Hayes
Kristine Hayes
2 months ago
Reply to  mytimetotravel

I’ll be very curious to see if my former employer continues to provide this particular benefit. Assuming they stay financially solvent, I’m guessing they will continue to provide their current retirees with some type of medical benefit. It wouldn’t surprise me if it becomes less generous over time though.

An
An
2 months ago
Reply to  Kristine Hayes

Don’t be suprised as the existing pool of retirees covered by your medical benefit shrinks over the years, so too will the benefit. Fewer people will make the benefit more expensive for your former employer to maintain and each passing year will naturally lower their loyalty to a former employee.

Atony
Atony
2 months ago

The ACA also allows for health insurance premiums to increase 300% from age 30 to age 60. So if you retire early, be aware that your insurance rates will skyrocket. If you can adjust your taxable income by taking partial budget amounts from non-taxable accounts like ROTH, then you can get the ACA to pay part of the premiums through the Premium Tax Credit. That has reduced our health insurance costs (for 2) from $21K to under $2K per year.

Ormode
Ormode
2 months ago

I also received retiree health benefits. My plan was not as good – I paid $700 a month in premiums, and my employer paid the other $500. It did include some dental and vision.

Kristine Hayes
Kristine Hayes
2 months ago
Reply to  Ormode

I don’t get dental or vision benefits with my plan. I was, however, able to purchase an inexpensive dental policy through Costco.

David Lancaster
David Lancaster
2 months ago

Please be aware that ACA plans are based on your MAGI, not your adjusted gross income.

We have had an ACA bronze plan since my wife was let go during COVID (I was already retired). This year was the highest premium we have had at $16 per month for a bronze plan (basically the equivalent of a high deductible plan). Two years were at $0.

Our premiums are so low because our house is paid off, we are not significant partakers of the US materialist economy (other than traveling using credit card points), and we have significant money in a taxable bond account that when tapped leads to minimal effect on our MAGI. Also, we are healthy so rarely utilize the medical services for other than routine annual care. This year we incurred $5K in medical bills (paid with HSA dollars) due to an emergency but overall are well ahead of the game financially due to the generous subsidies.

Ormode
Ormode
2 months ago

There seems to be a different version of MAGI for each government benefit – be sure to carefully research exactly how MAGI for the benefit you wish to use is calculated.

Kristine Hayes
Kristine Hayes
2 months ago

It sounds like the ACA plans work well in your situation.

August West
August West
2 months ago

I hope you appreciate how fortunate you are to have that lucrative benefit from your past employer. Did you work in the public sector?

Kristine Hayes
Kristine Hayes
2 months ago
Reply to  August West

I am quite appreciative of the benefit. I doubt something similar is offered by many employers these days. This particular benefit was offered by a private employer–a small, liberal arts college.

Charlie Sweigart
Charlie Sweigart
2 months ago

My early retirement (age 61) was a real bummer to deal with ACA. $12,000 yr premium; $7,000 deductible for each of us but pregnancy was covered condition. Rip off. Of course, Medicare premium at $138/mo was ridiculously low too. Government messes up everything it touches, IMO

tshort
tshort
2 months ago

Depends on what state you’re in and what you’re MAGI is, which is earned income plus other unqualified dividend income. Either you have a pretty big MAGI or your state subsidy level is pretty low.

Starting in 2023 we’ll have no earned income and the ACA subsidy will completely pay for ACA Bronze coverage for my wife and me. I think it’s fantastic.

1000commutes
1000commutes
2 months ago

We live in NJ where the only ACA plan that provides any care out of network or out of state is $48,000 for the two of us — we are not subsidy eligible. My husband goes on Medicare this month and with supplement and IRMA his costs drop 70% and his care options significantly increase.

Jon Daley
Jon Daley
2 months ago
Reply to  1000commutes

Yikes.

Kristine Hayes
Kristine Hayes
2 months ago

I wasn’t particularly impressed by the ACA plans when I looked at them. I suppose how ‘good’ they are depends on many factors, including age and income level.

Jon Daley
Jon Daley
2 months ago
Reply to  Kristine Hayes

Yeah, I was a self-employed small business owner when ACA was enacted and there was lots of news about your the ACA was going to be good for small business owners.

It turns out they weren’t talking about me. By “small business” they meant a business with 10 to 100 employees, and mostly with unhealthy employees.

The first plans available to me at the time had really high deductibles (remember before the ACA when high deductible meant $1000? Then they started calling those “Cadillac” plans.

I didn’t have insurance for a number of years but used a cost-sharing plan because it was 10x cheaper than the ACA.

I’m always surprised when I run into relatively low earners (under $40k) who have $5k deductibles. Doesn’t seem like that can possibly go well.

DrLefty
DrLefty
2 months ago
Reply to  Kristine Hayes

On the other end of the life cycle, my two young adult daughters were able to stay on our coverage until age 26 thanks to the ACA provision, and once they were aged out, were able to get reasonable coverage through Covered California (the ACA marketplace here). This was a godsend during 2020 when they were both out of work for months due to COVID. My older daughter now gets benefits through her employer, but my younger one has been recovering from a car accident and is between jobs. Her health insurance premiums, including dental and vision, are under $300/month.

Kristine Hayes
Kristine Hayes
2 months ago
Reply to  DrLefty

It sounds like your daughters have really benefited from the ACA. I was only able to stay on my parents insurance until I was 22. After that, I was on my own.

I purchased a plan through the college I attended while I was in graduate school. I don’t remember what type of benefits it offered, but I know it was very inexpensive and I never had a need to use it.

After that, I always had coverage through my employers (three different jobs over a thirty year period).

In general, I think dental and vision insurance benefits are a bit overrated. The plans always seem like they provide very limited coverage.

Martymac
Martymac
2 months ago

For me the ACA has been a good thing. Advanced credit premiums that they allow has made our $1500 per month gold plan, now only $500 per month. 400% of the NPL (national poverty level) allows some one with AGI above $70k per year to get good insurance at affordable cost.

Kristine Hayes
Kristine Hayes
2 months ago
Reply to  Martymac

It sounds like the ACA program works well in your situation.

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