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One of my biggest concerns about actually pulling the plug and retiring early is the expense of bridging health care expenses until I turn 65 and qualify for Medicare. [For those of you too polite to ask, that is just over nine years.] Mind you I have not sat down to forecast any real numbers to this worry… but as I see it, it’s the one big cost that is coming my way and currently is ‘invisible’ (or so automated as to FEEL invisible) and rising uncontrollably. From all of the sources I have read or listened to, I am certainly not alone in this; healthcare costs is reported as the number one concern for retirees in the US.
And She’s Out
Well in an unfortunate turn of events, I have been informed that my position is being eliminated and there is a very real chance that I will get laid off. They have given my team enough advanced notice to allow us to get things in order and scramble to see if we can find any other open internal positions but it’s very slim pickings. Meanwhile I know from past rounds, that if I get laid off, there will be some kind of severance package that includes COBRA.
Consolidated Omnibus Budget Reconciliation Act (COBRA)
COBRA is a federal law that lets you temporarily keep your employer-sponsored health insurance after a job change or other qualifying life event. Coverage is offered through your former employer’s plan, and you have 60 days to choose it after you lose coverage. Depending on the type of qualifying event, there is a maximum period of continuing coverage that can be offered. For termination of employment, the max is 18 months.
When compared to other insurance options, COBRA insurance:
Even if you sign up for COBRA within those magical 60 days, you do NOT have to keep it for the entire 18 months. Maybe you wrap up the current calendar year and then find a better option thru healthcare.gov for the coming year [or get a new job with benefits]… just cancel it.
Tips/Tricks
The 60 day window post-separation to sign up means that if you have other coverage within 60 days and no health issues in between, you can save yourself from paying that premium at all. If it turned out that you did have an issue… you just sign up on day 59!
Did You Know
In the context of COBRA, termination of employment does NOT just mean layoffs. If you quit your position, the company still has to offer you COBRA coverage for the 18 months. Certainly you will bear 100% of the costs but if you are dealing with pre-existing conditions or expensive prescription requirements, this might provide at least a year and a half of grace to put your new plans in place.
What about Vision and Dental?
In the case of my company, vision and dental are separate with different carriers so each one will have its own 60 day COBRA sign up period.
Costs
Example
So now let’s put some rounded, completely fictional numbers to this worry that has been keeping me up at night:
MEDICAL paycheck monthly 18 months employee $41 $90 $1,617 employer $269 $583 $10,485 administration $13 $242 COBRA $686 $12,344 DENTAL paycheck monthly 18 months employee $3 $6 $113 employer $13 $29 $522 administration $1 $13 COBRA $36 $648
Hm… what do you think? Is it more or less than you thought? For me, doing this investigation and being able to walk into that final meeting armed with this knowledge and understanding will allow me to take back some of my own power in this terrible situation.
In some cases COBRA can be extended to 36 months for a spouse or dependent . One example of a qualifying event would be if the policyholder became eligible for Medicare- a younger spouse could have COBRA extended.
Heidi! Very timely post. Missus and me are in the same boat. We work for large companies with great health plans. We are 10 years out from qualifying for Medicare, but here we are contemplating early retirement. One of the things I have tossed around is this and it maybe something else you might keep in your tool box. We plan to retire at aged 57 and take COBRA because even with us paying full rates, it’s gold standard health insurance and the full premiums would be comparable to a market place plan. At aged 57, we do get a small subsidy of about $4k per year towards health costs. Once COBRA at the current employer runs out, I might just take a role for 6-12 mos somewhere else, hop on their insurance, then do COBRA again for another 18 months. Then the missus can take a turn. This is hoping we can get hired, she’s an RN, so that’s in our favor. I could potentially take a job working retail at Home Depot or one of the chains and play the COBRA carousel. Just another path to consider. Of course it makes sense to compare ACA vs COBRA to see what make the most sense, but that’s another option that most do not consider. Good luck and let us know how things go.
Good topic for those who want to retire just a little bit early. If your planned retirement is more than 18 months before you turn 65, or you have another situation where the COBRA bridge might not help you, you may face a gap period in insurance coverage. You could elect to take the risk if the time gap is small and you are in good health. But from what I recall, if you want or need continuous coverage, the private sector options are mostly very costly for one-off customers. It pays to do your homework on this issue in advance, even if you are healthy and don’t need specialized medical care often.
(Medicare itself isn’t really free, either. What makes it seem cheap is that the costs involved are usually deducted from your Social Security each month, so you get used to the lower Social Security net payment, and don’t notice it as much.)