How to Find Health Insurance in Retirement

I retired at 44, two decades before I would become eligible for Medicare. Second only to the concern about whether I would have enough money to carry me through retirement was my concern about obtaining health insurance. My worries were justified. The first insurance broker I contacted told me that my husband and I were uninsurable. Here’s how to make sure your health care bills will be covered in retirement.

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Don’t pass up COBRA continuation of health coverage when you leave your job. It can be expensive, but buying back into your former employer’s plan is currently the only guarantee that you will be able to obtain comprehensive coverage. The recently enacted Affordable Care Act will not allow carriers to reject you on the basis of pre-existing conditions in the future. However, those provisions will not take effect until 2014. And it’s possible we may see some changes enacted to the current law before it is fully in effect, so it’s still important to hang on to your coverage. After you exhaust your COBRA period, you are guaranteed coverage under the 1986 Health Insurance Portability and Accountability Act (HIPAA). It’s not guaranteed to be cheap, but it assures you won’t be stranded without coverage.

Start shopping immediately for an individual policy. You may be able to find a lower cost policy outside of COBRA, but don’t cancel the policy you have until you have secured your replacement coverage. You are only guaranteed coverage if you already have it. And if a broker tells you that you are uninsurable, ask someone else. We wound up applying directly with a carrier, who approved us after a lengthy underwriting process that included a detailed health history.

[See 7 Signs You’re Not Ready for Retirement.]

Do your homework. You are guaranteed renewability as long as you keep the policy in effect, although your premiums will surely rise over the years. But you are not guaranteed to be able to switch to a new plan if you choose poorly, so be sure to study your options.

Consider an HSA-compatible high deductible health plan (HDHP). If you are in reasonably good health, this is likely to be the most economical plan choice. With a high-deductible plan, you will pay most of your health care costs out-of-pocket until you reach the annual deductible. However, you can fund a tax-deductible health savings account (HSA) to cover those costs, and grow the balance tax-free. You pay no tax on the money you withdraw for medical expenses. The premiums on high-deductible plans are lower than those with a low or no deductible. Combined with the tax savings on your HSA contribution, you’re likely to come out ahead most healthy years. And you’ll enjoy the peace of mind knowing that your coverage will take over if you should experience a major health issue.

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Don’t use the HSA if you can manage not to. If your budget allows for you to pay for medical expenses without touching your Health Savings Account, you’ll receive an added bonus if you don’t invade that account for years to come. The account grows tax-free, much like an IRA. And after you reach age 59 1/2, you can withdraw the funds for other purposes. You’ll pay tax on the amount you take out each year, but no penalty. And for all those medical expenses that you paid for on your own over the years, you can withdraw from the account to reimburse yourself and pay no tax on those withdrawals at all, a little-known way to juice up your retirement savings even more.

Don’t let your insurance coverage lapse. No matter what option you choose, don’t let your coverage lapse. Under current law, your options are much more limited if you’re shopping for insurance without a guarantee of coverage.

Sydney Lagier is a former certified public accountant. Since retiring in 2008 at the age of 44, she has been writing about the transition from productive member of society to gal of leisure at her blog, Retirement: A Full-Time Job.

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