Finding health insurance before Medicare kicks in

Close up of a medical insurance form
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(MoneyWatch) Finding affordable medical insurance is a critical part of retirement planning, particularly if you want to retire before age 65, the eligibility age for Medicare. By getting the right kind of insurance, you help 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 help you determine just when you can afford to retire.

Welcome to Week 13 of my series,  

16 Weeks to Plan Your Retirement . It's time to explore your options for obtaining affordable medical insurance. This can be a tough challenge -- you may need to be creative and persistent to obtain the medical coverage you need -- but it's a step you ignore at your own peril.

To adequately cover the subject, I've written five posts on the topic. This first one will cover your options before age 65; my next four posts will discuss the complex situation you have after you become eligible for Medicare.

Here are four conventional possibilities for getting medical coverage between the time you retire and age 65:

--You might be eligible for retiree medical insurance through your employer or your spouse's employer. Not many employers offer this type of insurance, but it's worth your time to find out. 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 who are eligible for employer-sponsored retiree medical insurance may be 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 regarding medical claims. If you buy individual medical insurance and have a dispute, it's just you versus a big insurance company.

--You can purchase COBRA coverage from your former employer. The premiums are usually high, however, and the typical coverage lasts 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 may want to consider semiretirement, under which you would seek out work at an employer offering medical coverage for part-timers. 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, get quotes through 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.

One more thing to keep in mind: In 2014, health care reform is scheduled to offer state-run insurance exchanges where anybody can buy insurance, along with a ban on exclusions due to pre-existing conditions. It remains to be seen, however, how many states will comply, so you'll have to check the status for your state. Even then, the  

coverage will be expensive .

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 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. Although this sounds like a plus, 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 -- most European countries qualify. If you like this option, before you cross the pond you should determine whether you'll qualify for coverage once you're there.
  •  Volunteer for the Peace Corps, teach English while you're an employee. While this option isn't for the faint of heart, it might offer a bridge until you reach age 65, when you become eligible for Medicare.

Some people may be tempted to "go bare" and forgo any medical insurance. They hope they won't contract an expensive medical condition, or that they'll get public assistance if they fall ill. Hope is not a good strategy! My  

experience with my own surgery  shows the danger of going bare. While I understand that economic conditions might force you to go with this option, if I were you, I'd try everything in my power to avoid it.

After you've done your homework, do you find that the monthly premiums will 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 posts, which cover medical insurance alternatives once you attain that age.)

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. If you want to secure 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 when you'd like, you're better off finding out before you quit your job. The time you spend investigating your options will be spent wisely 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.