Demystifying Healthcare Insurance for Early Retirees

Many of our clients have accumulated enough wealth to consider an early retirement or “work optional” phase in their lives. However, one of the concerns voiced is around healthcare. If you’re like most Bay Area professionals, you’ve relied on an employer-sponsored healthcare plan for most of your professional life. The thought of navigating the individual market or private insurance for the first time might be quite daunting – but it doesn’t have to be. We invited Jeff Vose, Director at Rose Insurance Group, to speak at a recent webinar and to give insight on the health insurance market. Jeff has been in the insurance space for almost two decades and is an expert in individual and family health insurance.

Transitioning from Employer-Sponsored to Private Health Insurance

COBRA: A Short-Term Option for Continued Coverage

COBRA is simply a continuation of your employer plan that is available for 18 months, or possibly longer in some cases. This plan can be expensive, as individuals are generally responsible for the full premium cost plus a small administrative fee. However, there are several benefits of COBRA as a short-term solution while you determine your next step.

Continuity of Coverage: COBRA allows you to maintain the same health insurance coverage you had while employed, which can be especially important if you have ongoing medical needs. Plus, COBRA cannot deny coverage or charge higher premiums based on pre-existing conditions, providing peace of mind for individuals with ongoing health concerns.

Familiar Network of Providers: COBRA allows you to continue seeing the same doctors and specialists you were using while employed, without interruption, which can be crucial for ongoing medical care.

Comprehensive Coverage: COBRA offers the same coverage options available through your previous employer-sponsored plan, including medical, dental, and vision coverage.

One consideration where COBRA might be a good strategic choice is where you are in the calendar year. Say there are only a couple of months left in the year, you have some known impending medical expenses, and you have already satisfied your out-of-pocket maximum. In this scenario, you may benefit from paying a higher plan cost to guarantee that you don’t have additional out-of-pocket expenses. On the other hand, if you have a full year ahead of you and you have paid little in the way of out-of-pocket deductibles, you have more incentive to research alternatives sooner.

Navigating the Individual / Private Healthcare Insurance Market

In the private healthcare insurance market, your zip code dictates what companies are available and your age dictates the price. As a family unit, your cost will be an aggregate of everyone’s individual cost. There’s a high degree of standardization across the private market which brings simplicity and advantages.

It may seem overwhelming to see 20 or 30 companies available to you, but that standardization means there are effectively four tiers of coverage: Bronze, Silver, Gold, and Platinum. At each respective tier, regardless of the insurer, the plans will offer identical benefits. The question is choosing a tier of coverage that aligns with your requirements. Notably, one advantage the private insurance market offers that an employer-sponsored plan doesn’t is the ability to right-size your family plan. For example, if you have a family member with certain meaningful care needs, you may select a Platinum plan for that family member. You can then select lower tiers for yourself and other family members without any current significant needs.

Covered California: Don’t Leave Money on the Table

Once you’ve determined the type of coverage you want, there are two paths to securing the plans that you’ve selected. One is to go directly to the insurance company. The other is to submit your application for the same plan from the same company – with all of the same doctor networks and benefits – by way of Covered California.

Going direct may be a smoother, easier path to application approval. However, you may be surprised at the subsidies available to offset your healthcare costs through Covered California. For example, a Bay Area family of four (two adults and two teenage kids) may have a forecasted 2024 income of $250,000 and qualify for a cost reduction of over $1,000 per month – more than $12,000 per year of savings. The same family could have income upwards of $325,000 before the subsidy phases out entirely. So, Covered California should not be considered something for low-income families. Rather, it is a program offered to make healthcare coverage as affordable as possible.

Assess your Healthcare Insurance Needs Annually

There’s always uncertainty about your healthcare needs in the future. But the choices you’re making about insurance is an annual one. Every year you have the option to change your coverage during an open enrollment period. Other life events may contribute to your decision to change your coverage from one year to the next. For example, a child going off to college may have access to a university-sponsored plan. More often than not, that’s a more economical option than continuing to cover them on your plan. You may join the board of a company that provides you access to their company-sponsored benefits. Rather than try to anticipate and select a plan that covers you indefinitely, select a plan that adequately covers your current needs and evaluate your coverage annually.

Finally, as you age into Medicare at age 65, health insurance will get a lot less complicated. Medicare will give you significantly more coverage and benefits at significantly lower costs. There are Medicare supplement plans out there for under a couple of hundred dollars a month that will cover 100% of your expenses.

It’s not a productive exercise to try to make decisions about health coverage years in advance of your retirement. Your specific health needs may change. The market will definitely have changed. However, it is productive and prudent to incorporate healthcare insurance as you would any other financial planning line item.

Seek Professional Guidance

When the time comes, a professional insurance advisor can help you assess your preferences and determine the best options. These advisors are unbiased and available to help you make an informed decision. They’re compensated by the insurance provider (not directly by you) and do not benefit from making one recommendation over another.

A professional insurance advisor can help you navigate the nuances that exist around qualifying events and enrollment periods, whether it be COBRA, private insurance, or Medicare. If you make a misstep or miss the window, you will have to live with the mistake until the next enrollment period, leaving you with inadequate coverage or excess premiums. Working with a professional insurance broker should never cost you anything. Your premiums will be the same whether you apply directly, or work with any certified, registered broker. Nevertheless, be cautious of any broker who reaches out to you, and be sure not to pay any additional fees for their guidance.

Key Takeaways

• Explore Covered California. Everyone deserves affordable healthcare insurance. Based on your income in retirement and your zip code, you may qualify for a significant subsidy.
  Evaluate and right-size your coverage annually. Your insurance plan should meet your current needs and you have the opportunity to adjust as life events dictate.
• Plan for healthcare costs as you would any other line item in your personalized financial plan. It’s unproductive to try to select specific coverage for the future. However, by understanding cost ranges for coverage types you’ll likely prefer, you can plan that expense into your budget.
• Seek professional guidance. Insurance planners are available to provide information and facilitate applications. With their guidance, you can make informed decisions that protect your family.

At Summitry, our financial advisors will incorporate healthcare insurance expenses into your personalized financial plan. We will review your plan with you regularly to make adjustments as life events and goals dictate. We also have an ecosystem of the Bay Area’s best to connect you with, such as insurance advisors like Jeff Vose at Rose Insurance Group, estate planners, and more. Consider Summitry your resource for navigating the complexities of living in the Bay Area and setting you up to live your best Bay Area life. Contact us today to discuss your financial situation.