It is titillating to toy around with the idea of retiring from the workforce. Doing your insurance homework beforehand, not so much —yet necessary—to avoid any financial missteps with your health coverage, before and after aging to 65. When making the leap into health insurance unknowns, gleaning information from your employer and experienced insurance professional is a must do.
Having a candid conversation with your Human Resources department to understand nuances and the timing of your departure should include questions such as:
When I retire, when will my health coverage terminate? Usually, coverage terminates at the end of the month or possibly the day you depart.
Am I eligible for COBRA? Employers with at least 20 full and/or part-time employees on more than 50% of its typical business days in the previous calendar year, must offer you the option to stay attached to the group’s health plan.
What will my premiums become? Brace yourself for sticker shock as your employer will not be subsidizing these for you any longer. IF you are eligible to stay on the group plan, paying 102% of the premiums will be required.
May my dependents stay on the group plan via COBRA? IF you plan your actual retirement to occur the month you age to 65, then your dependents may stay attached to the group plan via COBRA for up to 36 months. Pre 65ers, dependents and yourself may stay attached for up to 18 months.
Some of these answers can be found in your employer’s Summary Plan Description—the document that is rarely read; includes nuggets of knowledge about your group benefit programs and eligibility mechanics. It is best to hit these questions early on in your planning as these are the magic beans you need for your next move.
Sharing a discussion with a skilled insurance agent who can assist you with much needed financial due diligence is monumental. There are many intricacies that may affect you as you traverse from group to pre and post 65 coverages that may trip you up if you miscalculate your departure from the work world.
Planning your exit before aging to 65? There is no hiding the fact when it comes to purchasing an individual non-subsidized Affordable Care Act plan, it is expensive! Deciphering if you are eligible for a subsidy and how that math actually functions takes on an entirely new set of lenses. In 2021, the American Rescue Plan Act (ARPA) changed the arithmetic of subsidy assistance (taxpayer dollars that are given to taxpayers to pay for their health insurance premiums). Today, tax credits can be given to those who earn more than $53,000. Slated to expire in 2022, the Rescue Plan and the billions of dollars to support specific facets of ACA subsidy calculations may come to a hard stop, putting a crimp on credits that may no longer be available to a large portion of public who earned more than 53k.
In the pre-65 lane, you should also note that individual plans (on or off Helatcare.gov) are not the same as group plans. Individual plans tend to create benefit erosion “faster” than most group plans (meaning, you pay more for less coverage). Your employer’s group medical coverage alone may be the biggest reason to extend your employment a bit longer than desired.
Exiting after your 65th birthday may be a much easier route both financially and strategically. Post 65, premiums and plan design options are very different. This should not be taken lightly, as you may be prey to poor advice. Get educated about the fundamentals of Medicare and understand there are two types of plans that augment Medicare, Medi-gap or Advantage.
Other items that can sway retirement planning is your reportable income. Both pre and post 65, pay attention to your Modified Adjusted Gross Income (MAGI). Not appearing on your tax return, MAGI does include passive income that will affect allotted ACA subsidy dollars and future Medicare Part B premium costs. Spoiler alert: Income relative to rental property is included in MAGI! Be prepared to gather intel from your tax professional about this so you are not stung later.
Nothing worthwhile is easy. Weighing your options to continue to work beyond your 65th birthday or hopping out beforehand can be a bit overwhelming without keen guidance. My advice to you is start your planning early; understand and compare your current group coverages to potential individual or even short-term options; premiums are going to be expensive for pre-65ers and always have knowledgeable professionals in your corner to assist with cost-risk analysis.
Andi Dolan, founder of Traverse Benefits, a locally owned independent insurance agency providing health, life and disability insurance solutions for individuals, employers and Medicare beneficiaries across Northern Michigan.