 |
 |
Healthy Planning - Thinking About Retiring Early? Get Health
Insurance First.
December 12, 2005 - by Carrie Coolidge
View Actual Article (pdf)
"Choose this [COBRA] only as a very last
resort," says Paul Zane Pilzer, author of The New Health Insurance
Solution (John Wiley & Sons, 2005). "It is expensive and it is
temporary. If you develop a health condition while on it, you could be
prevented from getting permanent affordable health insurance."
"So instead of tapping the [Health Savings]
Account for a $500 doctor bill today, pay the bill out of other funds
and let the HSA grow. But hang on to that $500 receipt. Since there is
no time limit on reimbursements, says Pilzer, you can reimburse yourself
out of that account decades later, after the money has compounded tax
free. "
"Most people considering early retirement
should stop participating in their group health insurance plan, if they
have one, when they are healthy," says Pilzer. "Instead, buy your own
policy. Your employer might chip in toward the cost (some employers give
cash rewards to employees who opt out of the company plan after showing
evidence of alternative coverage)."
Helen L. Modly shudders at the thought of health
insurance options for her clients who dream of early retirement. "It is
a huge, ugly problem," says the fee-only planner in Middleburg, Va.
"People are delaying their retirement just because of it."
Though the standard age for retirement is 65, only 64% of people age 55
to 64 are employed. The other 36%, not yet eligible for Medicare, either
have to be married to someone with employer health insurance or have to
scramble to find coverage. The scrambling is occasioned by two things.
One is that, even for healthy people, medical insurance is fearsomely
expensive. Employers have seen their costs climb 63% over the last four
years, says personnel consultant Towers Perrin, and will spend an
average of $14,500 next year on insurance for a family of four. The
other is that individuals trying to buy insurance on their own confront
a difficult marketplace whose providers don't particularly want their
business, especially if they have a preexisting medical problem.
COBRA
If you lose or quit
your job, by law you will be entitled to continue to participate in your
employer's group health benefits plan, at your own expense, for 18
months. The benefit is called Cobra after the federal law that mandated
this option. "Choose this only as a very last resort," says Paul Zane
Pilzer, author of The New Health Insurance Solution (John Wiley & Sons,
2005). "It is expensive and it is temporary. If you develop a health
condition while on it, you could be prevented from getting permanent
affordable health insurance."
So, use Cobra to tide you over while you hunt for a long-term solution.
What you need is an individual (as opposed to a group) policy that is
guaranteed renewable. This means that if you develop cancer later, the
insurer can't throw you out. However, you probably can't get in if you
have cancer or any other costly ailment when you apply.
This is what James Smith, 55, did two years ago after he and his wife,
Sei Yuen Chak, 55, left jobs at a printing company. They continued under
their former employer's policy, which had a monthly premium of $1,012 to
cover them and a dependent nephew, 14, while searching for a new plan
with lower premiums. Through the Web site of Ehealthinsurance in
Mountain View, Calif. they found a Blue Cross/Blue Shield of California
plan at $790 a month. It's not a deluxe plan: This "preferred provider"
deal steers them to doctors that they might not have picked on their
own. But buyers of health insurance can't be too picky these days.
Individual Policies
The strategy for most
early retirees is similar to that ultimately used by the Smiths--buying
an individual policy, if you are healthy enough to qualify for a
reasonable rate. That means normal blood pressure, no diabetes, no
cardiovascular disease, no cancer and so on. You will be examined by an
insurer-approved physician.
Most people considering early retirement should stop participating in
their group health insurance plan, if they have one, when they are
healthy, says Pilzer. Instead, buy your own policy. Your employer might
chip in toward the cost (some employers give cash rewards to employees
who opt out of the company plan after showing evidence of alternative
coverage). You will still be paying out of pocket, but the investment is
worthwhile if it gets your foot in the door. Canceling your policy based
on health status is prohibited in the majority of states as long as you
pay your premium, but the cost can be increased annually to account for
inflation and your age. To keep the premium down, raise the deductible
every year, recommends James Oatman, chief actuary for Assurant Health,
an insurer.
"Lock in a base rate when you are young and healthy," says Pilzer.
"Everyone should have an individual policy. The time to get it is when
you don't need it." The leading issuers of individual health plans are
Assurant, Blue Cross/Blue Shield, Humana, Golden Rule and Aetna.
Preexisting Conditions
A preexisting
condition is likely to make a policy a lot more expensive (rates
potentially double the standard ones) or simply unobtainable. Some
health insurers may be willing to accept preexisting conditions that
others will not, says Robert S. Hurley, vice president of strategic
operations at Ehealthinsurance. People denied coverage because they are
sick can usually get a policy from a state assigned-risk pool.
Thirty-three states have risk pools, with coverage for an individual
ranging in cost from $2,064 a year in Georgia to $11,424 in Indiana.
Most of the rest of the states force insurers to accept all comers,
albeit at stiff rates; an unhealthy individual's rate can be 15% to 200%
higher than a healthy individual's of the same age.
Health Savings Accounts
If you are healthy and
thinking of retiring early, consider starting a health savings account.
HSAs, a new feature of federal tax law, are coupled to high-deductible
health insurance policies. You put tax-deductible money into the HSA,
same as you would into an IRA (until age 65). Tax-free withdrawals can
be made anytime to pay medical bills, but your objective is to leave as
much money as possible in the account to compound tax free and be there
for medical costs as you get older. The amount you (or your employer)
can put into the account is equal to the deductible on the insurance
policy, up to a ceiling. In 2006 that ceiling will be $5,450 for a
family policy. You will be able to throw in another $700 a year if you
are over 55.
High-deductible plans have another advantage: They tend to be more
lenient when it comes to a preexisting condition, says Hurley of
Ehealthinsurance.
HSAs are very unlike the use-it-or-lose-it flexible spending accounts
that have been around for years. On the contrary, the whole idea is to
save for doctor bills in your golden years. So instead of tapping the
account for a $500 doctor bill today, pay the bill out of other funds
and let the HSA grow. But hang on to that $500 receipt. Since there is
no time limit on reimbursements, says Pilzer, you can reimburse yourself
out of that account decades later, after the money has compounded tax
free.
Short-term Policies
An early retiree who will turn 65 less than a year
later should buy a nonrenewable short-term health insurance policy. A
nonrenewable short-term policy costs approximately 25% of what a
renewable policy would cost for the same time period, and the insurer
won't be very fussy about your health. If you retire at 63, take the
Cobra plan, then go to a short-term policy that will last you until you
are on Medicare.
One thing is for sure. Going without insurance is not an option. Last
year more than half of all personal bankruptcies in the U.S. were
prompted by medical problems, according to a joint study conducted by
professors at Ohio University and Harvard. The revised bankruptcy bill
that went into effect in October will make it even more difficult for
families to pursue bankruptcy to wipe out their medical debts, according
to Stuart Gollin, head of the bankruptcy and solvency practice at
accounting firm Weiser Llp.
The bottom line is simple, warns Gerry T. Smolka, senior policy adviser
at AARP's Public Policy Institute: "If people don't think and plan
ahead, they may find themselves with some nasty surprises."
Sidebar:
What to Do if You Are Self-Employed
|
|
