Health Insurance Options for Early Retirees

I plan to retire next February and was wondering what my health-insurance options will be. Can I keep my current company-provided group coverage under COBRA for the next 18 months, or will I be forced to purchase my own medical policy from either a private insurer or my state’s new exchange? I’m under 65, so I don’t qualify for Medicare yet.

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If you retire in 2014, you’ll still have many of the same health-insurance options that retirees have always had: Your employer may still offer retiree health insurance (the number that do continues to shrink every year), you could get coverage through a spouse, and you’ll still be able to continue your employer’s coverage for up to 18 months after you leave your job under COBRA, the federal law that requires companies with 20 or more employees to let workers remain on their health plan.

Starting in January, you will also have the option of buying a health-insurance policy through your state’s exchange -- regardless of your health. Plans on the exchanges won’t necessarily be less expensive than today’s individual policies (especially if you’re healthy) because the plans must expand to cover ten “essential health benefits” and they can’t charge extra for people with health problems. But you may qualify for a subsidy to help cover the cost if your income is below 400% of the federal poverty level (about $46,000 for an individual and about $94,000 for a family of four in 2013). Even if you earn too much now, you may qualify for the subsidy after you stop working and your income drops. See How to Qualify for a Government Health Insurance Subsidy for details.

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In the past, early retirees would generally keep COBRA coverage if they had a health problem because they would have a tough time qualifying for health insurance on their own. If you choose to stay on COBRA, you’ll have to pay the full premium yourself -- which can be a big jump from what you’re paying as an employee if the company currently picks up a big part of the cost (employers typically pay about 70% to 80% of the cost of employee coverage). But it enables you to keep your current coverage, which can be the best option if you’re currently undergoing treatment with certain doctors or providers or if you’re close to your 65th birthday and keeping the policy for a short time until you qualify for Medicare.

Compare the cost of buying coverage on your state’s exchange (including any premium subsidy you’d qualify for) with the cost of keeping COBRA coverage, and find out what doctors, hospitals and other providers are included in the exchange’s plan. You’ll be able to see rates for the policies on the exchanges starting in October; go to www.healthcare.gov. For more information about next year’s changes to health insurance for early retirees, see New Options for Health Insurance.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.