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Health Insurance Options for Early Retirees

Joe Udo

One of my biggest worries about early retirement is health care. The cost of health care keeps increasing every year, and it is outpacing inflation by a wide margin. Sometimes I wonder if my investments can keep up with rising health care costs. This is a big problem for early retirees because we won't qualify for Medicare until age 65. If you retire before then, medical insurance can be very expensive and difficult to find. Here are some options for those of us who dream of early retirement:

[See 10 Important Ages for Retirement Planning.]

COBRA. If you leave a job with a group health insurance plan, the Consolidated Omnibus Budget Reconciliation Act allows you to continue using the same health care plan for a limited amount of time if you are willing to pay the whole cost. This means you will have to pay any amount your employer used to cover plus administrative expenses. The good thing about COBRA is that you benefit from the group rate and continued coverage. However, the cost can be a bit shocking to employees who formerly paid only a part of the cost. COBRA coverage generally lasts for up to 18 months, so if you are 63 and a half, this might be the way to go until you qualify for Medicare.

Retiree health insurance. Some companies offer retiree health insurance to long-tenured employees. To qualify, your age plus your years of service might need to pass a certain threshold, such as 70. If you are hoping to retire with such a plan, get all the information from your company retirement program. Some programs may subsidize a portion of your health insurance premium until Medicare kicks in.

[See How Long Should I Work Before Retirement?]

Part-time job. A part-time job might provide the health insurance you need until you are old enough to qualify for Medicare. Costco, Starbucks, and Trader Joe's are some of the companies that provide health care benefits to their part-time employees. However, there might be a qualifying period before part-timers can sign up for the health care plan, which could vary from a few months to a year or more.

Spouse's insurance. If you have a working spouse whose employer offers a family health care plan, this is another way to fill in the health insurance gap. The premium is generally much less than buying insurance privately.

Private insurance. This is a very costly option because you do not receive any group discounts. The insurance provider can also decline your application if you have pre-existing conditions. Your state may have a group plan that you can join if you've been turned down by a private insurer. Your state may also subsidize a portion of the health care premium if your income is below a certain level. However, low income plans might have many requirements and a long wait time to join.

[See How to Finance Life Until 100.]

On demand health care. This might be a good option if you are young and relatively healthy. On demand health care clinics offer an affordable option for everyday health problems. For example, each visit at ZoomCare costs $99, which may be a good short-term solution if you don't have a chronic illness. But this may not be a good option for older people because long-term illnesses may crop up.

Finding affordable health care is a huge problem for early retirees, and there is no easy way to avoid the high price. Perhaps we will have more options when the health insurance exchanges become operational. Until then, we just have to take care of our health as much as possible and minimize our health care costs through better living.

Joe Udo is planning an exit strategy from his corporate job by reducing expenses and increasing passive income. He blogs about his journey to early retirement at Retire by 40.

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