Pre-retirement Considerations Part III

health care

Our two most recent postings highlighted savings and spending benchmarks that readers might incorporate into their retirement decision-making process. This article examines an important element of the spending side of the equation—health care coverage in retirement.

Health care costs are one of the major categories in most retirees’ budgets. Those considering retirement must have a plan for their health care coverage to avoid unpleasant surprises after they leave the workforce. This is especially true for those contemplating retirement prior to attaining age 65.

Many of us have enjoyed the benefits of employer group health care coverage during our working years. While the annual enrollment process and the ever-increasing premiums/deductibles caused some sleepless nights, the basic structure of the coverage was a given. Our employer had already made many decisions when negotiating with the insurer. For retirees, there is much less structure in place, especially prior to age 65.  Retirees under this magic age must develop a “bridge plan” for coverage prior to qualifying for Medicare.

Some large employers extend their health care coverage for their retirees and for those fortunate enough to be in this circumstance, retaining this protection will usually be your best bridge strategy. This group is a minority of the pre-retirement population, however, so most people will have to pursue a different approach. COBRA (an acronym for Consolidated Omnibus Budget Reconciliation Act) coverage is a legally mandated requirement that an employer offer continued health care coverage to former employees. COBRA coverage must be offered for between 18 and 36 months depending on the applicable circumstances. While it may seem like a blessing to be able to continue coverage under the former employer’s health care plan, many are surprised at its cost. This is because the employer may have paid a major percentage of the premiums for active employees and this will generally no longer be the case for a retiree. The regulations require that COBRA premiums cannot exceed 102% of the total cost to cover a currently active employee. Just the same, COBRA coverage is offered at group rates, so it may still result in better coverage, or a lower premium than an individual health insurance policy.

If neither of the aforementioned possibilities apply, the retiree will be seeking an individual policy. The individual policy marketplace has been undergoing substantial change due to the Affordable Care Act of 2010 and all of the subsequent legal challenges and decisions. Because of this on-going state of flux, it is nearly impossible to make any general statements in this arena as they will most likely change at some point in the future. Nevertheless, searching at will provide the most up-to-date information regarding individual policy rules, regulations and required coverages.

Retirees attaining the age of 65 are generally best served by enrolling in Medicare.  The program website: is a great resource for learning about Parts A, B. C and D. Another useful tool is the publication, “Medicare and You” which is available by downloading it from the website or through the mail. While the Medicare program is a well-established benefit for seniors, it is important to be aware of its limitations and costs. Medicare does not cover dental or vision needs and entails premiums, co-payments and deductibles. For these reasons, many participants purchase supplemental “Medi-gap” policies or bundle their needs within the Medicare Advantage program (Part C).  These costs must not be overlooked when projecting expenses upon leaving the world of work.