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For people retiring before age 65, obtaining health insurance is often a major concern.
The near automatic choice for many people is COBRA which allows them to keep their current coverage for a period of time. Generally 18 months if you lose your job or employer coverage. Other situations extend coverage longer or until Medicare eligibility and a few states also extend the 18 months for insured plans. Not all employers use insured plans and thus are not state regulated. (FYI COBRA stands for Consolidated Omnibus Budget Reconciliation Act)
COBRA is not always the best choice.
The better choice depends on your medical needs, doctors, prescriptions, income, and how long you need coverage.
In many cases, ACA plans cost substantially less because COBRA requires you to pay the entire employer premium plus a small administrative fee. Many workers have no idea of the full cost of employer coverage and some think it is what they pay in premiums. In fact, workers typically pay 25-30% of the full cost so COBRA premiums can be a shock.
COBRA is often better when:
ACA marketplace plans are often better when:
Cost is the biggest concern
You qualify for premium subsidies
You are relatively healthy
You need long-term coverage
You can switch doctors/networks if needed
However, ACA premiums rise with age so years to Medicare matter.
You also do not necessarily have to decide immediately upon leaving the job. COBRA election periods are usually retroactive for a limited time, which sometimes allows people to wait and see if they actually need expensive care before paying.
Important: If you voluntarily enroll in COBRA and later decide to drop it early, you usually do not get another Special Enrollment Period just because you changed your mind.
Compare ACA vs COBRA carefully before electing COBRA, because once enrolled, switching midyear to an ACA plan is limited.
You generally can switch to an ACA plan:
I considered ADA coverage for my first year of retirement, at age 63. Instead, I opted for COBRA, for multiple reasons. Topping the list was familarity and continuity. Then too, the cost savings would likely have been modest and the employment contract I had retired under allowed for a one-time $6,000 longevity bonus, pending proof of having paid at least six months of health care premiums in retirement. (The COBRA premiums were $14,400 per year, as of five years ago. Because I itemize, they were partly deductible.)
Another reason I opted for COBRA was that I disliked providing personal data to yet another provider. Lastly, and this may have been poorly reasoned, I worried something would go wrong in the ADA application process, that I might be denied coverage, or that I would be without coverage however briefly. In retrospect, applying for COBRA was itself a challenge, as I did so through a state-managed system and not my employer; rather a lot of paperwork and phone calls left unanswered.
Curious. How did a state system manage your employers COBRA.
The quasi-state employer I worked for provides a state-negotiated health insurance. The state itself administers the plan, COBRA and also a retiree Advantage plan.
Can’t argue there. The other thing is if the cost sre relatively close, I’d likely opt for COBRA sinceI’malreadyfamiliarwith this plan. Most don’t know enrollment isn’t automatic and you must opt in to remain in COBRA.
This is some good advice for some of our HD friends who are contemplating early retirement. We were in this situation when Spouse retired 2.5 years ago. I was old enough for Medicare and went on that. I researched what to do for Spouse and decided COBRA. Our old health insurance plan was generous and the cost was about the same as ACA that was less generous. Also, we only had 6 mos until Spouse would go on Medicare. So I am glad my thoughts on what to do incorporated some of the points you mentioned. Chris
This is a very helpful post for those nearing retirement.
After becoming self-employed at age 50, I purchased my own insurance until Chris and I married, at my age 63, allowing me to be enrolled on her group policy. That option was much better than using COBRA. The cost of insurance was reasonable for the first ten or so years, but look out when you get into your 60s.
When Chris retired at 64.5, COBRA was the better choice. You have to do your homework to decide.