Health Insurance for Early Retirees
If you are considering an early retirement (before you reach the age of 65), you will need to address the issue of medical insurance coverage. Although the options for such coverage are limited, there are several alternatives worthy of consideration.
COBRA
COBRA medical insurance is authorized under federal law and made available to any worker who loses or quits his or her job. It allows a worker to continue participation in his or her employer’s group health benefits plan, but is only available for 18 months, with premiums paid by the worker. Because it is expensive and temporary, it should be viewed as nothing more than a short-term solution.
Many workers who decide to retire early purchase individual health insurance policies. To qualify for such coverage at a reasonable rate, a worker must be healthy, which means that the worker must have normal blood pressure and be free of diabetes, cardiovascular disease, cancer, etc. If you know you are going to retire before the age of 65, a wise strategy is to discontinue participation in your employer-sponsored plan and to purchase an individual health insurance policy while you are still employed. Often, employers will contribute to the cost of an employee’s individual health insurance policy, based on the fact that the employer is ultimately saving money in these cases.
Health Savings Accounts
Under a new feature of the federal tax law, an individual is allowed to put tax-deductible money into a Health Savings Account (HSA). Then, money in the HSA can be withdrawn at any time (tax free) to pay medical bills. Ideally, money will be left in the HSA to appreciate tax free, while the individual pays medical bills with other funds. Years later, the money in the HSA, which will have grown substantially and free of taxes, can be accessed for major medical expenses.
