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Find Health Coverage Before Medicare

EDITOR'S NOTE: This article was originally published in the April 2009 issue of Kiplinger's Retirement Report. To subscribe, click here.

It's bad enough that your retirement savings are evaporating. But if you lost your job, retired early or are turning to self-employment, you'll need to budget for health coverage. And the tab could be hefty.

Even retirees whose former employers continue to offer coverage until Medicare kicks in at age 65 can expect a bit of sticker shock. As health-care costs continue to rise, companies are reducing coverage or requiring retirees to pay more.

Many employers are limiting costs by giving each retiree a fixed contribution to pay for medical care, says Ed Pudlowski, a principal with Ernst & Young. "The employer will tie the payment to age and service -- if you retire at age 55 after ten years you get X number of dollars," Pudlowski says. The money goes into a special account, which is used to reimburse retirees for out-of-pocket medical expenses.


These retirees are the lucky ones. Most retirees don't get any benefits from their former employers. Only 31% of large firms that offer health benefits to their employees also offer retiree coverage, down from 66% in 1988, according to the Kaiser Family Foundation.

You do have options if you need to find insurance on your own. Start your search at the Web site of the Foundation for Health Care Coverage Education ( The site provides a detailed "matrix" of each state's private and public health programs. You can call for help at 800-234-1317.

If your former employer provided benefits, you may be eligible to continue coverage under a federal law called COBRA. The law requires companies with 20 or more employees to allow former workers to buy benefits for up to 18 months. Many states require smaller employers to offer continuation coverage under "mini COBRA" laws.

But COBRA can be costly because the employer no longer subsidizes the premium. The average annual tab in 2007 under COBRA was $4,704 for individual coverage and $12,680 for family coverage, according to Kaiser.

The economic-stimulus law offers some relief, providing a 65% COBRA subsidy for up to nine months. The federal subsidy applies to workers who were involuntarily terminated between September 1, 2008, and December 31, 2009. To qualify, your income must be less than $125,000 for individuals and $250,000 for families.

Once your COBRA benefits expire, don't wait more than 63 days to sign up for a policy in the individual market. Under the federal Health Insurance Portability and Accountability Act (HIPAA), private insurers must offer some type of coverage after your company benefits expire, even if you have a medical condition. The law does not cap premiums, however. Each state has its own rules, so contact your state insurance department.

If you wait longer than 63 days and have a medical condition, you may not be able to find coverage at all. "Someone will lose a job, run out of COBRA benefits and start shopping for insurance months later," says Larry Harrison, an insurance agent in Las Vegas. "By then, the window is closed."

HIPAA was a godsend for Alix Vandivier, 53, a retired college administrator in Las Vegas. Two years ago, she was diagnosed with multiple myeloma and eventually left her job. Six months before her COBRA benefits expired, Vandivier began looking for insurance. Four companies turned her down. She learned about HIPAA when she called the state government, which referred her to Harrison.

Harrison found Vandivier a policy that costs $800 a month. As a person with a disability, she'll be eligible for Medicare in six months. "Eight hundred dollars is a lot better than the $15,000 I would have to pay for chemotherapy," she says.

COBRA and HIPAA benefits are the best options for someone with a serious medical condition. But a relatively healthy person could find a cheaper policy in the individual market. "Corporate health insurance offers one-size-fits-all benefits," says Sam Gibbs, senior vice-president of eHealthInsurance, based in Mountain View, Cal. "You can search for a plan with just the benefits you need."

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