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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.)
Great article Heidi, and best of luck with your career. I never used COBRA, but eye employer’s pension plan had a pre-65 plan that allowed us to purchase health insurance form the company at full price, but with a subsidy based on years of service. The subsidy covered about 50% of the cost. I would echo Jo Bo’s comment that transitions from one plan to another can be difficult and require vigilance. Let us know how you make out.
Thanks Rick!
This is precisely my biggest concern every time I think of maybe retiring. You make me want to sit down with the numbers. The numbers you post for COBRA are 1/3 what I’ve been thinking I have to pay. Also, I have a top tier health insurance plan through work; I could keep it with COBRA even if it’s my choice to stop working? Thank you for posting this!
Hey Michael! I think our coverage is excellent but I’m only paying single rates AND signed up for the HDP…by design those premiums are lower. I wonder if the planning and comparisons should maybe all consider premiums PLUS deductible to get a clearer picture… You got me thinking.
Heidi, keep in mind that once you reach Medicare age, if you go with regular Medicare, which I recommend, plan for those costs also. My wife and I pay over $10,000 a year in premiums for part B coverage. Medicare deducts part B costs from your monthly check, and if you buy ‘gap’ insurance to cover the 20% cost Medicare B doesn’t cover, you pay that directly to the insurance company. We use United Healthcare in Massachusetts, which requires UHC to provide more benefits than it offers elsewhere. When we were Florida residents 2 years ago, UHC didn’t offer those same benefits.
Interesting Boomer. I AM in Florida and so is my elderly mother… who I think has UHC. Small world.
My wife and I have been on a Marketplace plan since 2021, and costs have increased tremendously since then, particularly this year since the expiration of the additional “shortterm” subsidies that were added in 2022. You have to purchase it through an online Marketplace account, but DO NOT try to run what if scenarios there, as you may well accidentally sign up for a plan without intending to do so.
Instead, to get very accurate cost estimates and run as many different scenarios as you’d like, go to Health Insurance Marketplace Calculator | KFF https://share.google/nMsF1WwjbBUIybqMe
This is a wonderful, free tool that doesn’t require any personal data, and more importantly, it’s very accurate information on costs in your state and county.
Myron I cannot tell you how much I love this response. That advice and the link could save so many people hours of frustration.
I retired 11 years ago at age 59 in Texas. At that time, I was able to connect with an insurance specialist that was well versed in the options of the day and did not charge me anything. My original contact has also retired, but his replacement has graciously helped me navigate through changing ACA plans and eventually through Medicare options. It varies from state to state, but my sister in Pennsylvania found a specialist that helped her too.
You need to find the costs of ACA plans available in your area to compare to COBRA alternatives. These insurance specialists can quickly find the options in your area. It is difficult to be confident that your personal web searches have comprehensively found all your alternatives.
Good luck in this difficult time.
Thanks John.
Went through this recently. COBRA coverage was actually less $/mth than any ACA plan with even close to the same coverages and benefits. Also do forget the potential deductible reset to $0 with any new plan if you do not continue with the COBRA coverage. From the time I started COBRA until now the ACA plans have increase another $1k / month from my initial pricing all likely due to smaller ACA plan participation from these astronomical increases.
Heidi, your premium for medical coverage through COBRA is about the same that I paid in 2020, so given inflation, your cost seems to be very reasonable.
Good to know Mark! Thanks
Heidi, this is a very important topic for anyone leaving the cocoon of employment before Medicare eligibility. Thanks for your thorough explanation. Here is my story after I became self-employed at age 50.
The cost of using COBRA (X) was about equal to the cost of a Marketplace HSA eligible plan (Y) plus the maximum deductible (Z). In other words X was equal to Y+Z. I had been blessed with excellent health, so it was a good bet that I would never have to spend the entire deductible.
I went with the Marketplace plan while fully funding the HSA. As luck would have it, I never came close to hitting the deductible.
At age 63, even the premium for the high deductible plan was becoming very expensive. That is the year that Chris and I tied the knot, enabling me to get coverage via her group plan.
By the time I began Medicare, I had over $20K in my HSA, with most of the money invested and doing very well in Vanguard ETFs.
And, now that you’re on Medicare, your premium payments qualify as HSA eligible expenses down the road. Save the paper, and spend your money whenever you see fit – you’ve got documentation to justify withdrawals.
So many advantages of using an HSA.
I’ve been down this road with my wife. She was our source of healthcare. She retired early at the end of Covid. I was close to Medicare eligible, but not quite there. COBRA was our bridge. In our case, she was a school teacher with a very good medical plan. There was no way we could get that level of coverage at better than the COBRA price. When her 18 months expired, I had moved to Medicare and she spent another two years on a high deductible BCBS plan. Very expensive!
“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.”
The other option that we did years ago was sign up for an ACA policy on the 59th day. At the time we had money in inherited Roth accounts, and a taxable brokerage account. We utilized our traditional IRA funds (we were both over 59 1/2 yo) put to the maximum income to qualify for 100% subsidy, and any additional expenses were paid out of the Roth accounts.
The ACA law states that if an insurance company does not spend a minimum percentage of the income an paying claims (I think it’s somewhere between 80-90%- I don’t remember now as we have been on Medicare for years). If the company is under that target percentage they have to distribute the difference. This is done equally to those insured no matter if they paid premiums or not. The end result is we were paid to have insurance. One $5K emergency room visit in 5 years is all we paid out of pocket due to having a bronze plan.
So sorry to learn, Heidi, of these abrupt changes to your plans.
You have certainly done your homework with respect to COBRA. I chose COBRA coverage thinking it would be the easiest bridge to Medicare (I was 63.5). In retrospect, transferring to COBRA required rather a lot of paperwork and phone calls, billing was problematic, and costs were high. The difficulty may have been because I was an employee at a pseudo-state entity transferring to a state-provided COBRA plan. I might have been better served just searching the marketplace.
Interesting perspective Jo Bo. Hard to quantify the vigilance and hassle factor when just running the numbers for sure. I will keep this in mind. Thank you