Health Insurance During Early Retirement

Finding affordable retiree health coverage can be challenging before age 65.

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For early retirees, one of your biggest challenges is finding health insurance. If you retire before age 65, you won’t yet be eligible for Medicare. And finding other health coverage you can afford can be a real problem.

[See How to Get Retiree Health Insurance Before 65.]

Even if your employer has a generous retiree health insurance benefit, it might not always be there. Employers are increasingly ending their retiree health insurance programs. If your spouse doesn’t have health insurance benefits that can help you, you will need to come up with some other way of ensuring health insurance coverage until you can begin receiving Medicare.

Individual and family health insurance. If you already have an individual or family health plan, you can maintain the same coverage in retirement. However, if you don’t, apply before leaving your previous health plan so that you don’t end up with a gap in coverage. If you are in good health, you can still get reasonable premiums, especially if you get a high deductible plan and pair it with a health savings account. You might also consider insuring yourself separately from other members of your family. In some cases, a spouse in a younger age category can get much cheaper coverage if you are both insured separately.

[See 6 Retirement Benefits in Decline.]

State risk pools. For those with health problems, individual or family health insurance may be unaffordable or not an option. Some states offer risk pools that can help you obtain affordable health care coverage, even with a pre-existing condition or poor health. (You might need to be rejected from a private insurance plan in some states to qualify.) Additionally, under the Affordable Care Act passed last year, there are new long-term care choices. And provisions that go into effect in 2014 will ensure your ability to receive coverage and state insurance exchanges will help you to find affordable health care.

Bottom line. For those who choose to retire before age 65, there are significant challenges associated with getting adequate health care coverage. However, because of the rising cost of health care and the damage one significant uninsured accident or illness can do to your finances, it is important to make sure you are covered. For healthy seniors, this can be done affordably, especially if you have the resources to pay a higher deductible and combine it with a health savings account. For those with poor health, there are risk pools available that can help you get the guaranteed coverage you might need.

[See Income Diversity Can Ease Your Retirement.]

Even when you are eligible for Medicare, you will still need to pay some of your own costs. So participating in a good health insurance plan now will help you preserve some cash for out-of-pocket expenses later on in retirement.

Jeff Rose is a certified financial planner and U.S. combat veteran. He blogs at Good Financial Cents and Soldier of Finance.