Robin Bess - Money Matters

Right now, one of the biggest unknowns for retirees is the cost of health care coverage. For those who retire before they are eligible for Medicare at age 65, this expense can take a hefty part of your monthly income.

Don’t gamble that you won’t have any medical expenses between your first day of retirement and age 65 by skipping health coverage altogether. Even if you’re in perfect health, you never know when an accident could send you to the emergency room, which would result in large out-of-pocket expenses.

So, what are your options?

If your spouse continues to work after you retire, consider getting health insurance through their employer. Health policies offered through an employer can cost less than individual policies because the employer often pays part of the premiums.

You can keep your former employer’s health insurance. The Consolidated Omnibus Budget Reconciliation Act (COBRA) states that when you leave your job, your employer must give you the option to keep your health coverage for up to 18 months.

If you choose to accept the COBRA health insurance, know that you pay the entire premium, including the amount your employer had been paying on your behalf. Talk to your company’s HR department or your health insurance provider for information about how much it would cost to stay on your employer’s plan once you retire.

Finally, you can purchase a plan through the Health Insurance Marketplace. This is a government service that helps people shop for and enroll in affordable health insurance. The Health Insurance Marketplace (also known as the “Marketplace” or “exchange”) provides health plan shopping and enrollment services through websites, call centers and in-person help. You can also get quotes from licensed health insurance agents in our area.

Once you retire you have 60 days to purchase new health insurance. Losing health coverage qualifies you for this Special Enrollment Period. This means you can enroll in a health plan even if it’s outside the annual open enrollment period. If you miss this special enrollment window, you’ll have to wait for the next open enrollment period to change your health insurance.

When comparing individual health insurance plans, pay attention to the deductibles, co-pays, premiums and coverage options. Look at several plans to find the one that best aligns with your health needs and budget. Make sure the plan enables you to use your preferred doctor and that you’re comfortable with its coverage for your recurring or planned medical expenses, like prescription drugs.

If you purchase a health insurance plan with a deductible of more than $1,350 for an individual or $2,700 for a family, you’re eligible to open a Health Savings Account (HSA). This enables you to set aside up to $3,500 for health care expenses each year for individuals or $7,000 for families. If you’re 55 or older, you can contribute an additional $1,000 more than that limit.

Money you contribute to an HSA reduces your taxable income in the year you make it, and you won’t pay taxes on it if you use it for qualifying medical expenses. You can use the money for nonmedical expenses, but you’ll pay income tax on it, plus a 20 percent penalty if you’re younger than 65. After 65, the penalty goes away, though you’ll still pay tax if you use the money for nonmedical expenses.

Contributions never expire, rolling over from one year to the next, so you don’t have to worry about using up all the funds before the end of the year.

It’s best to come up with a plan for health insurance before you retire so you don’t have any gaps in coverage and you have this expense built into your retirement budget. Explore your options today to see which offers you the best coverage for the most affordable price.

Robin Bess is a financial advisor and director of client services at Cambridge Financial Services.