Health Insurance is one of (if not the) biggest concerns for early retirees. Giving up employer-sponsored coverage can feel like the golden handcuffs that can keep us in the same job longer than we might otherwise choose.
You might have questions about your options for coverage. Is Obamacare a viable or good option? How about a Christian health-share option instead of traditional insurance?
Health insurance and other medical costs are becoming a larger and larger portion of our budgets, but if you know what you’re doing, you can lower your costs dramatically. Let’s take a look at your major options, how you can play the health insurance game to win, and how to enter the retirement phase with confidence.
If you have been employed and received employer-sponsored health insurance, there’s a likelihood that you’re eligible for COBRA insurance coverage. COBRA gives workers and their families who lose their health benefits (even voluntarily) the right to choose to continue group health benefits provided by their group health plan.
COBRA can be a good option for short-term needs, as it can last for up to 18 months from separation of service. It is generally one of the more expensive options, as you’ll need to pay for the entire cost of coverage (employee cost plus employer subsidy) plus a 2% administrative charge.
However, if you only have a shorter gap until Medicare and several pre-existing conditions, it may be your best bet.
One note is that you can retroactively choose COBRA up to 60 days after separation for service, so you could in theory wait to find another health plan for up to two months and hope you don’t have any health incidents, which may save you several hundred dollars in other health insurance costs.
You can download a full guide to COBRA coverage here.
If you need or want to get private insurance, another good option is a marketplace (aka Obamacare or Affordable Care Act) policy. The full cost of these policies is likely similar to what you could get through COBRA, but there is one big advantage to an Obamacare policy – subsidies! These subsidies are based on your Modified Adjusted Gross Income (MAGI; this is usually the number on line 11 of your 1040). In general, the lower your MAGI, the more of a subsidy you’ll qualify for. However, there is one major caveat. If your MAGI is too low (below 100% of the Federal Poverty Line, you won’t qualify for any subsidy at all as the government will deem you eligible for Medicaid.
Unfortunately, most early retirees who won’t qualify for a subsidy because their income is too low also won’t qualify for Medicaid because they have too many assets. Fortunately, there is an easy fix for this. Just make sure your income is high enough (usually around $18,000 depending on age and number of dependents) through taxable retirement distributions or Roth conversions. Roth conversions can serve here as a double-win as they can help you qualify for low-cost health insurance while converting part of your retirement assets to grow tax-free for the rest of your life.
If your income is too high (again, depending on age and dependents, but usually around $40,000 – $50,000), you may not qualify for much or any of a subsidy. If this is the case, private health insurance may still be your best bet if you are uncomfortable with the alternatives or if you have significant pre-existing conditions which may not be covered by Christian health-share options. While there are many things I disagree with about Obamacare, it is nice to know that everyone is eligible for some sort of insurance, even if it is exorbitantly priced.
We’ll cover tax-planning strategies in further detail next week, but know that tax planning and insurance planning can be vitally linked for early retirees and should be done in concert with one another.
Christian Health-share ministries are becoming a more prevalent option for those seeking alternatives to traditional insurance. The major players here are Medi-Share, Christian Healthcare Ministries, Samaritan Ministries, and Liberty HealthShare. Each is slightly different in terms of the cost, what they cover or exclude, and how the coverage actually works. Some are set up to look more like traditional insurance, and some operate more like self-insurance where members help each other out.
One facet of these ministries that many Christians find attractive is that there are certain procedures and medications that are not covered, such as abortions and pregnancies conceived out of wedlock. Some of these companies require an affirmation of faith, a prohibition against drug use or drunkenness or other provisions. In some cases these are for faith reasons and in others they help keep members cost lower.
These ministries are not considered insurance for tax purposes and are not eligible for things like Health Savings Accounts (HSA’s). They do, however, meet the qualifications for qualified health care coverage under the Affordable Care Act, so the government will consider you insured even if they won’t give you a tax break for it.
Our family has used this type of coverage and have had a great experience. I’ve similarly had clients and friends use it with generally positive experiences as well. There are pros and cons to each of these companies and you should evaluate the best one for your family based on projected medical needs, prescriptions, and overall frequency and severity of doctor’s visits.
This is a very high-level look at these programs. If you are considering making a switch to one of these, I highly recommend an in-depth comparison. Michael Kitces has an excellent write-up of the ins and outs of these, as well as a thorough comparison of the four major providers.
The Bigger Picture
Regardless of which option you choose, I think there are a few main points of consideration:
Stewardship – When it comes to our finances, Jesus encouraged us to be “shrewd as serpents”. If you play the health insurance “game” well, you can save thousands of dollars per year. This can make a substantial difference and may free you up to retire earlier, be more generous, or just not be stretched so thin.
Conscience – You may also find yourself with two similarly-priced options, but one supports large insurance companies while the other is supporting other believers. Stewardship in this case might mean opting for non-traditional coverage.
Providing for Your Family – 1 Tim 5:8 instructs us that “if anyone does not provide for his own, and especially for those of his household, he has denied the faith and is worse than an unbeliever.” In addition to providing income and basic needs, this should also include access to doctors and health care when needed. So make sure that you have a plan in place whatever it is.
Faith – If we knew exactly what illnesses and injuries we would go through, this process would be much easier to navigate. Not only can we not know the future, but we’re not called to worry about it or try to control it. In the end, we can trust the Father to watch over our health and financial needs. So don’t obsess over making the perfect decision or over the small chances that something bad could go terribly wrong.