You’ve diligently contributed to your 401k every pay cycle since you’ve joined your company. Better yet, your employer even has a matching program, so you’ve earned some free money. Now it’s time to start thinking about retiring so you can plan that long-awaited tour of Europe or that exotic Caribbean cruise, right?
Not so fast. Sure, you’ve saved up the resources to have a little fun — and relaxation time — when you transition into retirement. But what you may have not yet considered is how you’re going to fund your health care when you take that leap, especially if you’re not quite 65 years old and not eligible for Medicare. After all, once you stop working, your employer usually stops providing your medical and dental benefits. For example, a Kaiser Permanente survey found that only 25 percent of companies offered retiree insurance in 2014, down from 66 percent in 1988 and 34 percent in 2006.
It’s OK — don’t panic! You have plenty of options to keep your health care coverage through retirement. With a little bit of forethought, you can have your cake and eat it, too. You’ve earned it — especially at your wild retirement party.
So what are your options to ensure you have continued access to your health care providers, even after you’ve decided enough is enough as a desk jockey? Here are just a few ideas.
Consider the Early Retiree Reinsurance Plan
Remember when the Affordable Care Act (ACA) was the latest and greatest thing? You may know it better as Obamacare. Since it went into effect in March 2010, it’s helped a lot of unemployed or underprivileged Americans find healthcare coverage when they otherwise couldn’t receive it.
The good news is the act has benefits for retirees, too. One provision of the ACA was the Early Retiree Reinsurance Plan (ERRP), which was designed to help employers grant medical coverage to early retirees between the ages of 55 and 64 years old.
The downside? You can’t exactly sign up as an individual. But you can be your own advocate by encouraging your organization to participate in the plan. As part of the ACA, the ERRP promised employers up to $5 billion in subsidies to accommodate the financial needs of early retirees seeking health care.
By March 2011, one year after the ERRP went into effect, more than 5,000 large firms had already collected $535 million in federal-government funds to accommodate retirees. Companies that participated received reimbursements of up to 80 percent of medical costs for not just retirees, but also their spouses and dependents.
What can you do as an employee on your way out the door — and en route to the Bahamas? It doesn’t hurt to ask your employer to consider this reinsurance program. You won’t just be benefiting yourself — your colleagues will thank you for your advocacy when they decide to retire, too.
Go With COBRA
Haven’t yet convinced your company to participate in the ERRP? You’re still not out of options. As a retiree, you can more than likely continue your health coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA), which was passed in 1986 to allow former employees, including retirees, to maintain medical and dental benefits at a reduced rate through prior employers.
With COBRA, as a retiree you are eligible for this discounted coverage for up to 18 months, which could work out conveniently if you’re turning 65 and eligible for Medicare in the next year and a half.
Sure, you still have to pay monthly premiums. But with COBRA, your health insurance will be significantly less expensive than if you signed up for an individual health plan.
Just make sure your company is in safe financial shape before you choose this option. Since the benefits are still coming from your employer, if the company closes or files bankruptcy, you can say goodbye to your COBRA plan even before 18 months are up.
Opt for Direct Primary Care
If ERRP isn’t an option and COBRA would put a strain on your budget — after all, you’re saving up for your dream vacation — you can also find health insurance through Direct Primary Care (DPC). The DPC is a viable alternative to traditional fee-for-service practices and operates by charging patients a flat fee on a monthly, quarterly, semi-annual or annual basis for routine medical care.
If you’re in mostly good health, DPC may be the ideal plan because your costs will be predictable and relatively inexpensive for basic services like regular physical exams and laboratory work.
Buyer beware, however — while affordable, DPC has its limitations. For example, since the DPC model is designed to cover routine care, the American Academy of Family Physicians (AAFP) often recommends that members insured through DPC purchase a low-cost, high-deductible supplementary plan just in case of emergencies.
But When I AmOver 65 — Then What?
Even when you’re older than 65 and enrolled in Medicare, you may still face health challenges in retirement. For example, where are you going to live and how are you going to take care of yourself, especially if you’re alive and kicking into your 90s — or 100s?
It’s a grim thought, but eventually we’re all going to need invest a little more of our budget in elderly self-care — and sometimes, that may involve signing up for a quality retirement community. Sure, you may have adult children who have offered to let you move in for a while, but let’s face it — they can’t take care of you forever. You never know what kind of medical assistance you’ll require in the next few decades. And the idea of outliving your assets is scary.
The bottom line? You absolutely deserve that coveted vacation — and a lavish retirement party! But as a sound decision-maker for this long, it’s important now to balance your play with wise financial planning as you ease into retired life.
You can still have your cake and eat it, too — just make sure you don’t have to clean up too much of a mess when you’re done with your plate.