Early Retirement? 9 Ways to Find Health Insurance Before Medicare

Last Updated Jun 6, 2011 5:05 PM EDT

Finding affordable medical insurance is a critical part of your retirement planning, particularly if you want to retire before age 65, the eligibility age for Medicare. You'll want to protect yourself against the threat of high, uninsured medical costs, which can blow up the careful plans you've made for your retirement. You'll also want to factor the cost of your premiums into your retirement budget for living expenses to find out when you can afford to retire.

Welcome to Week Ten of my series, 12 Weeks to Plan Your Retirement. It's time to explore your options for obtaining affordable medical insurance. This can be a tough challenge, but nevertheless, it's a step you ignore at your own peril. You may need to be creative and persistent to obtain the medical coverage you need. To adequately cover the subject, I've written two posts on the topic: This first one will cover your options before age 65; my next post will discuss the options after you are Medicare eligible.

Here's a checklist of four conventional possibilities for getting medical coverage between retirement and age 65:

  • If you're lucky, you might be eligible for retiree medical insurance through your employer or your spouse's employer. Not many employers offer this insurance, but it's worth your time to inquire. If your employer offers it, look at the eligibility requirements to make sure you qualify and to see how much you'd pay for premiums. It's entirely possible you still can't afford the monthly premiums, even considering any premium subsidies from your employer. Some people may be eligible for employer-sponsored retiree medical insurance but are tempted to buy less-expensive coverage on their own. I prefer employer-sponsored coverage because your employer can act as an advocate on your behalf if you have disputes with medical claims. If you buy individual medical insurance and have a dispute, it's you against a big insurance company.
  • You can purchase COBRA coverage from your former employer. The premiums are usually high, however, and the typical coverage lasts for just 18 months. But COBRA coverage could enable you to retire at age 63-1/2, if you're prepared in all other areas.
  • You could work for an employer that offers medical coverage for part-time workers, so you could still be semi-retired. Some companies, such as Home Depot, want older, experienced workers, and they offer medical insurance as part of a package to attract them.
  • You can purchase retiree medical coverage on your own -- provided you don't have a pre-existing medical condition that excludes you from coverage. You can investigate the premium costs for such coverage through online websites such as www.ehealthinsurance.com. If you plan to buy insurance on your own, do your shopping with an online shopping service, since premiums can vary substantially among insurance companies. And investigate such options as high deductible plans that can reduce your monthly premiums by hundreds of dollars.
While health care reform bans exclusions due to pre-existing conditions starting in 2014, even then, the coverage will be expensive. And with some politicians working hard to overturn health care reform, those exclusions for pre-existing conditions might survive beyond that date. So part of your retirement planning must be to follow the development of political efforts to overturn health care reform.

If none of the above options appeal or apply to you, here are five creative possibilities. While they won't work for everybody, they might be worth investigating:
  • Move to a state with low health care costs and low costs for medical insurance. Click here for more up-to-date information on health care costs by state.
  • Move to one of three states that currently offers universal care -- Maine, Massachusetts, or Vermont. Note, however, that your insurance costs will probably still be expensive.
  • Move to a country with cheaper medical costs or insurance costs, such as Panama, Costa Rica or Thailand.
  • Move to a country with universal health care, such as most European countries. However, you'll need to be careful to determine if you'll qualify for coverage before you move.
  • Volunteer for the Peace Corps, teach English abroad, or work for some other organization that provides health care coverage while you're working for them. Not for the faint of heart, but it might bridge you until you reach age 65, eligibility age for Medicare.
I'm always impressed by the creativity of our users. If you have other innovative solutions to the medical insurance challenge, please help your fellow MoneyWatch readers by adding them in the comments box below.

Some people may be tempted to "go bare" and not buy any medical insurance. They hope they won't contract an expensive medical condition, or they hope to get public assistance if they become sick. Hope is not a good strategy! While I understand that economic conditions might force this situation on you, if I were you, I'd try everything in my power to avoid it.

After you've done your homework, have you found that the monthly premiums bust your budget? Remember that your costs for medical insurance should fall once you're eligible for Medicare. So if you're in your early 60s, you only have to tough it out until you reach age 65. (Stay tuned for my next post, which covers medical insurance once you attain age 65.)

The bottom line: Monthly premiums for medical insurance before age 65 can easily amount to several hundred dollars for yourself and can top $1,000 for a married couple. To help get the best coverage at the most affordable prices, you'll want to explore all your options, get a good estimate on your monthly premium costs, and factor these amounts into your retirement budget. Even if you find you can't afford to retire, you're better off finding out now, before you quit your job. The time you spend will be a good use of your time, and may just help you save money.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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