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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.
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.
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.
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.