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If you are retiring before age 65 (when most people become eligible for Medicare), you will want to figure out how you will get health coverage and consider any special medical conditions you need to cover. Here are some options for coverage until you are eligible for Medicare:
As a retiree, you may be eligible to enroll in your spouse's employer-sponsored health plan. This could be a good option for you, especially if the employer covers the additional premium as an employee benefit. If you are eligible for your spouse’s plan, you should be able to request enrollment in that plan within 30 days of your loss of employer group coverage. Check with your spouse's employer for eligibility requirements, but also consider your options for insurance if your spouse should quit working and/or loses his or her coverage due to some unexpected event. Your spouse's employer plan also may allow you to extend benefits through COBRA.
COBRA may allow you to continue your employer's health care plan (if you work for an employer with 20 or more employees). With COBRA, you pay your full insurance premiums plus a service charge, but you are able to continue your policy for 18 months. (You may be able to continue COBRA coverage for 29 months in the case of disability, or 36 months if the loss of coverage is due to divorce, death or if you lose your dependent coverage because your spouse becomes eligible for Medicare.)
While it may be expensive to foot the bill yourself, employer policies typically provide better coverage at a lower cost than you can get on your own, especially if you have health problems of any kind. Your employer must let you know about your choice to continue COBRA coverage, and you must make up your mind fairly quickly to sign up, so don't procrastinate.
If you cannot participate in COBRA, or if there is a gap between when your employer coverage ends and when you are eligible for Medicare, then consider these options:
Health Savings Accounts (HSAs) are tax-preferred savings accounts in which you can deposit as much as $2,900 this year ($5,800 for a family) in tax-deductible dollars. This money may be used, tax free, for out-of-pocket medical expenses. The HSA must be paired with a health insurance policy with a deductible of at least $1,100 ($2,200 for a family). Before opening an HSA at a financial institution, be sure you understand what counts toward the deductible. For information, see IRS Publication 969.
NOTE: The AFL-CIO warns that HSAs often are touted as affordable health insurance alternatives for the uninsured, but HSAs do little to help the uninsured gain affordable coverage and will not contain health insurance costs. On the AFL-CIO site, find out why they are a bad deal for working families .
Portability plans also may be available for retirees who are not yet eligible for Medicare, are terminating from employer group coverage, and are looking for individual health insurance coverage. There are specific rules of eligibility for these plans. If you are eligible and apply for individual coverage within 63 days after losing employer group coverage, federal law guarantees that you will be eligible to purchase individual insurance coverage regardless of your medical condition, through a health insurance carrier, a state high risk pool, or another source designated by your state. Coverage cannot be limited due to a preexisting medical condition. Portability plans typically offered are a low-option plan and a high-option plan. You will have higher out-of-pocket costs in the low-option plan, but a lower monthly premium.
Note: Federal law does not regulate the cost of these portability plans. Some of these policies may be quite expensive.
Individual insurance plans also are available through most health insurance carriers, but can be very expensive. These policies are issued directly to an individual, and the premiums are based on your age. Unless you are eligible for a portability plan described above, you may be rejected due to pre-existing medical conditions.
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