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Finding Health Coverage Before Medicare: A Primer
Susan B. Garland
It's bad enough that your retirement savings are evaporating.
But if you lost your job, retired early, or are turning to self-employment, you'll need to budget for health coverage.
And the tab could be hefty.
Even retirees whose former employers continue to offer coverage until
As health-care costs continue to rise, companies are reducing coverage or requiring retirees to pay more.
Many employers are limiting costs by giving each retiree a fixed contribution to pay for medical care, says Ed Pudlowski,
a principal with
"The employer will tie the payment to age and service -- if you retire at age 55 after 10 years you get X number of dollars," Pudlowski says. The money goes into a special account, which is used to reimburse retirees for out-of-pocket medical expenses.
These retirees are the lucky ones.
Most retirees don't get any benefits from their former employers. Only 31 percent of large firms that offer health benefits to their employees also offer retiree coverage, down from 66 percent in 1988, according to the
You do have options if you need to find insurance on your own. Start your search at the Web site of the
If your former employer provided benefits, you may be eligible to continue coverage under a federal law called COBRA. The law requires companies with 20 or more employees to allow former workers to buy benefits for up to 18 months. Many states require smaller employers to offer continuation coverage under "mini COBRA" laws.
But COBRA can be costly because the employer no longer subsidizes the premium. The average annual tab in 2007 under COBRA was
The economic-stimulus law offers some relief, providing a 65 percent COBRA subsidy for up to nine months. The federal subsidy applies to workers who were involuntarily terminated between
Once your COBRA benefits expire, don't wait more than 63 days to sign up for a policy in the individual market. Under the federal Health Insurance Portability and Accountability Act (HIPAA), private insurers must offer some type of coverage after your company benefits expire, even if you have a medical condition. The law does not cap premiums, however. Each state has its own rules, so contact your state insurance department.
If you wait longer than 63 days and have a medical condition, you may not be able to find coverage at all. "Someone will lose a job, run out of COBRA benefits and start shopping for insurance months later," says Larry Harrison, an insurance agent in Las Vegas. "By then, the window is closed."
HIPAA was a godsend for Alix Vandivier, 53, a retired college administrator in Las Vegas. Two years ago, she was diagnosed with multiple myeloma and eventually left her job. Six months before her COBRA benefits expired, Vandivier began looking for insurance. Four companies turned her down. She learned about HIPAA when she called the state government, which referred her to Harrison.
Harrison found Vandivier a policy that costs
COBRA and HIPAA benefits are the best options for someone with a serious medical condition. But a relatively healthy person could find a cheaper policy in the individual market. "Corporate health insurance offers one-size-fits-all benefits," says Sam Gibbs, senior vice-president of eHealthInsurance, based in Mountain View, California. "You can search for a plan with just the benefits you need."
Gibbs says if both spouses are covered by the same employer plan, consider COBRA only for the sicker spouse. The healthier spouse can shop for an individual policy. Individuals within a few months of
Several insurers are targeting the early-retiree market. In
The costs and benefits among policies can vary widely. For instance, a 60-year-old man in Phoenix would pay
A 60-year-old man buying an Aetna plan compatible with a health savings account with a
CONSIDER A HEALTH SAVINGS ACCOUNT
Despite the high deductible, the 0 percent co-payments could make an HSA-compatible policy an attractive choice whether your health bills are high or not. Scott Krienke, senior vice-president of product lines at
"When new retirees try to recreate their employer plans, they realize how expensive they are," Krienke says. "With a high-deductible plan, the premium goes down significantly and you can pay for services with tax-efficient dollars."
With an HSA, you make tax-deductible contributions to the account held at a bank or insurance company. For 2009, the contribution limit was
You will need to buy an HSA-qualified policy, which has a minimum deductible of
Patricia and Richard Jacoby decided to go with an HSA after their COBRA premiums soared. The couple moved to their second home in Port Charlotte, Florida, in
When their monthly COBRA premiums rose to
Because they are in good health, Patricia and Richard Jacoby could find insurance at reasonable rates.
Not surprisingly, pre-
If an insurer rejects you, you might be able to get coverage from a state high-risk pool.
Thirty-four states provide coverage to individuals who are otherwise uninsurable, according to the
Generally, there are no exclusions, but premiums are relatively high compared with other plans. They're capped at about 150 percent of the average comparable private coverage.
If a state has no risk pool or an individual can't afford the premium, you may be out of luck.
Karyn Schwartz, senior policy analyst for the
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Health - Finding Health Coverage Before Medicare: A Primer