Health Insurance for Early Retirees

Despite a limited income, I've invested wisely in my IRA over the years and could retire next year at age 62. However, I don't know if I will be able to get medical insurance or how much it will cost after the COBRA provisions expire in 18 months. Given that I take medication for depression, it is likely that any future coverage would have major restrictions -- that is, if I were able to get coverage at all. Are there any alternatives for health insurance for people like me?

You ask such a great question. So many of our readers have saved carefully through the years and could retire early, except for one unknown: How much they'll have to pay for health insurance until they're eligible for Medicare at age 65. You're very wise to start thinking about that now and get an idea of how much those extra costs will be.

The good news is that several consumer-protection laws can help you qualify for health insurance on your own, even if you have medical conditions.

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Your first step should be to continue coverage through your employer's plan through COBRA, a federal law that requires employers with 20 or more employees to let them keep their coverage for up to 18 months after they leave their jobs. Your premiums will be a lot higher than they had been as an employee -- after you leave the job you have to pay both the employer's and employee's share of the cost, and most employers subsidize about 75% of the premiums for employees. But at least you can't be rejected or charged a higher rate because of your health.

If you're healthy or have moderate medical conditions, check out your other options right away because you may find a better deal on your own. The prices and rules about covering medical conditions can vary enormously from insurer to insurer, so it's a good idea to contact an insurance broker who knows which insurers in the area are likely to offer the best deal for someone with your condition (you can find a health insurance broker in your area through the National Association of Health Underwriters). You can also visit eHealthInsurance.com to get price quotes for several companies' policies (or call 800-977-8860 if you have medical conditions to explain them up front).

If you have a medical condition, some insurers may reject you while others may offer you a decent rate. Or some may offer you a policy but exclude the condition, while others could boost your premiums by 25% to 150%. It's generally better to pay extra than to accept an exclusion for a potentially expensive condition.

And if insurers do reject you, you generally have other options. Thirty-three states have high-risk pools, which must accept people with medical conditions who have been rejected elsewhere (for more information, go to the National Association of State Comprehensive Health Insurance Plans Web site. And a few states, such as New York, New Jersey and Massachusetts, must cover everyone regardless of their medical condition -- this is called "guaranteed issue." This leads to very expensive insurance for younger, healthier people, but does provide an option for people who have health problems.

A few states don't offer high-risk pools or guaranteed issue policies, but you should still have some options if you're coming off an eligible group policy. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires that states provide some kind of coverage after you exhaust COBRA as long as you haven't been without coverage for more than 63 days in the preceding 18 months. For more information, see Health Coverage for All.

The rules and strategies vary a lot from state to state, but you should be able to get a lot of information at your state insurance department Web site (go to our insurance page for links). The Georgetown University Health Policy Institute also publishes excellent consumer guides for getting and keeping coverage in each state.