More than 60 percent of baby boomers approaching retirement are “terrified” of what health care costs may do to their retirement plans, according to a recent study by Nationwide Financial.
They’re so worried about the costs of health care that 40 percent say that they would delay retirement if it meant buying their own health care. The rollout of Obamacare could have a big impact on the decision of when to retire. Workers without access to a company health insurance plan are 7.5 percentage points more likely to retire after their 65th birthday (when Medicare eligibility kicks in), than those with access.
Health care advocates say the changes to the health care system will be a huge boon to older Americans with pre-existing conditions and serious illnesses who can now purchase affordable individual insurance for the first time. “Health care spending is always a major source of uncertainty,” says Henry J. Aaron, a senior fellow at the Brookings Institution. “If you don’t have good insurance you can get wiped out instantly by misfortune or illness. I think this is a far better environment for pre-65 retirees than what existed before.”
But critics contend that insurance premiums on the new exchanges will be more expensive than in the past for middle-class and upper middle class retirees who want moderate or top-tier coverage.
A progress report released by the government this week showed that not enough younger Americans between 18 and 45 have purchased insurance, a pattern that if sustained could threaten the law’s long-term economic viability. Enrollment of younger people balances the risks associated with insuring a pool of older, less healthy ones. Through December 28, 33 percent of those purchasing insurance were between the ages of 55 and 64, including many early retirees.
If you’re thinking about retiring this year, here are your best options for health care coverage:
The Exchanges. Carrie McLean, head of customer care at eHealthInsurance.com, says the average cost of silver-plan coverage for a 55-year old individual (In the 36 states where the federal government is running exchanges) is $432 a month or $5,184 a year. The Kaiser Family Foundation calculates the average premium for an individual in their late 50s or early 60s at $500-$600.
The Manhattan Institute concluded that older Americans would fare the best on the new exchanges and that a 64-year old earning less than 111 percent of the median income for his age would spend less on premiums than in the past.
Steven Vernon, a continuing research scholar at the Stanford Center on Longevity, says that the exchange programs are too expensive for middle class people and more affluent consumers who are not eligible for subsidies.
“The bottom line is that comprehensive coverage is expensive,” says Vernon, referring to the top-of-the line gold and platinum plans. “Reasonable coverage costs a lot of money and cheap is cheap. To me it could be a deal-breaking decision on whether you’re able to retire between age 55 and 64.”
Company Coverage. Some early retirees can avoid the new insurance marketplaces entirely if they’re eligible for insurance through their own former employer or the current or former employer of a spouse.
It’s becoming increasingly rare for a company to provide health care benefits to retirees, but before you sign up on the exchanges you should make sure you can’t get a private policy elsewhere. Just 18 percent of current private sector workers are eligible for retirement benefits before they turn 65, compared to 29 percent in 1997, according to the Employee Benefit Research Institute.
In some cases, rather than provide insurance directly to their retirees, companies are instead providing them with a subsidy that they can use to purchase their own insurance from a private exchange, which is similar to the federal and state exchanges set up under Obamacare.
Medicare. Once you turn 65, the best option for insurance is usually Medicare. Be sure to sign up for Medicare Part A and Part B between three months before the month of your 65th birthday and three months after that month in order to avoid a penalty for late enrollment. If you’re working at age 65, you can defer signing up without penalty until you leave your employer.
The amount that retirees with Medicare will need for health care coverage has declined, but the totals are still staggering. A married couple with drug expenses in the 90th percentile, throughout retirement, would need to have $360,000 saved just for health care in order to have a 90 percent change of having enough money to cover those costs, according to an October EBRI analysis. That does not include the cost of a nursing home or long-term care insurance.
Determining whether to buy supplemental coverage (Medigap) in addition to Medicare or to purchase Medicare Advantage depends on individual needs. Ross Blair, the senior vice president of ehealthMedicare.com, says that the major benefits of Medicare Advantage are “low cost, all-in-one coverage,” a guaranteed provider network, and the ability to change plans annually.
Medigap is supplemental insurance sold by private companies on top of Medicare for retirees who want additional coverage for costs like copayments, coinsurance, deductibles costs that Medicare doesn’t cover. Costs can run as high as from $6,000 to $8,000 annually.
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