Healthcare in early retirement

Any healthcare experts out there? I’m trying to figure out this situation and could use guidance. Let me describe my thinking and tell me if it makes sense.

I am 61 and considering retiring next year when I hit 62. My H is already retired, over 65 and on medicare. I am currently buying healthcare through my employer that covers myself and my two adult children (age 23 and 20) paying what they call the “employee plus children” rate. After retirement, I believe I will be eligible to buy insurance for myself off the ACA exchange (right?).

My bigger concern is the kids and what happens to them. My oldest has to option to purchase healthcare through her job but hasn’t yet since she’s been able to stay on my policy for free. Her open enrollment period is at the end of the year. I am considering telling her to sign up for it this year when it comes around since my policy will be discontinued next year. Does this make sense?

My son is in college, His school sells insurance but says the policy starts at the beginning of the school year from what I’ve read. I haven’t actually spoken to anyone there about it yet so I’m not sure if this is flexible. This means if I retire in April, he would be without insurance for several months until the school year starts. Alternately, I could sign him up this August and essentially double pay for a few months. If I did this, I could change my policy to be just employee only starting in January.

Am I thinking about this correctly or is there some other way to do this? Am I correct in thinking that I could buy off the ACA exchange or is there something else I should consider?

Thanks for starting this. Lots of good questions. It will be interesting to see the advice you receive

First, look into whether you can keep your existing policy. At some larger companies those who qualify as retirees can keep the health insurance until age 65. Qualifying as a retiree can be based on years of service or a combination of age and years of service.

Next, look into the COBRA pricing. Everyone is eligible to keep their existing plan for 18 months under COBRA. And depending on where you live it may be longer. In CA you can keep COBRA benefits for 36 months as long as your company does not have a self-funded plan (ie. where an insurance company administers the plan but the company pays the benefits directly). Unfortunately most large employers in CA are self-funded.

Lastly, ACA costs depend on income. You may be able to draw down savings in such a way as to minimize income until you are 65. For example instead of using money from a 401K or IRA (taxable as ordinary income) after you retire you could use savings in a regular brokerage account or savings account.

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Thanks, I don’t think Cobra applies to me. I work for small non-profit with only 4 employees. I think Cobra only applies to companies larger than 25 employees. I could be wrong, but this is what my research turned up so far.

You’re correct. Small companies are not covered by COBRA. Also, make sure you know the insurance end date. My S was really surprised to find that his company insurance ended the day he left, rather than the typical end-of-month.

Your child whose employer offers insurance can join at any point in the year because loss of existing insurance is a qualifying event.

Your child in college may or may not be able to join mid-year at a discounted rate. I handled the student insurance plan at the school where I worked, and our students could join if they had a qualifying event such as loss of insurance coverage. You can usually find the insurance plan documents for the school online. If you know the insurer, you should be able to go to their website, pull up the school & find the plan documents. If you aren’t sure who the insurer is, PM me the name of the school & I will see if I can find the insurer.

COBRA is also very expensive. You and/or your children may be eligible for the ACA exchange at any time due to loss of insurance. I believe that may be a situation where you do not have to wait for the next enrollment period. You should check on this. Another option if you are a Christian/ or other faith that is willing to attest to their criteria, is a health care sharing program called Medi-share. You can enroll any time & it is extremely inexpensive. You could use this as a gap to other options. I have used it in a gap situation & was very happy. However, you would need to be willing to understand this option well. It requires certain things such as no use of drugs or tobacco in any form. If for instance you are injured while driving under the influence, they would not cover you. They also do not cover preventative care but will cover most other things. This is super inexpensive catastrophic coverage, or especially if you are healthy & can get all of your preventative care covered before you lose your current coverage in order to gap to another option.

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Adding on to what @mikemac said…note that withdrawals from Roth IRAs do not count as income when calculating MAGI and eligibility for reduced rate ACA insurance. If you have Roths, you could draw down from that money first to maximize your eligibility for the subsidized premiums.

I have been looking into this recently as I was Covid retired from my state job last June. I am 55 and DH is 60. He is working for another year so we still have his state employee coverage… We both have options to continue buying insurance from our employers after we retire. But, from what I can tell, even the unsubsidized ACA silver and gold plans are less than paying the full premium price to keep our current Cadillac insurance. We are both very healthy and have a good amount in our HSA/veba accounts that would cover several years of copay/deductible expenses. So I think that is what we are going to do when DH retires next year.

COBRA costs will basically be the full unsubsidized cost of your former employer’s medical insurance plan, which can be significantly higher than the employee share if the former employer was significantly subsidizing it. Cost will also depend on the demographics of the employees (i.e. whether they have lower or higher medical costs) as well as how much coverage the plans offer. Whether the COBRA plan will cost more or less than an ACA plan in your area depends on many things. You may want to compare the full unsubsidized cost of your current employer’s plan to the cost of ACA plans in your area, as well as compare the coverages.

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We just went through this. My husband “retired” in March 2020 when he was laid off (took a severance package) at 60 (I am a year younger and only a contractor - so no insurance). We went with COBRA to finish out the year in 2020. Partly because the market insurance costs in NJ were so high and partly because by that point in the year we had met our medical deductibles and when we did the math it didn’t pay to start over. Also, the ACA rates are based upon annual income and with the severance payout it was high in 2020.

One difference is that we were not insurance any children (daughter is on her own work insurance).

For this year and the next few years, the plan is to go with the ACA rates and live off savings (not 401K or other pension monies). Our goal is to have basically an extremely low earned income during this period. Due to COVID changes to ACA rates this year, our premiums are something like 20% of what we paid for COBRA last year.

Then once we are old enough to go on Medicare we will start using monies from retirement plans - social security, 401K, etc. - and once again have earned income.

You need to carefully do the math. Your children will do better on plans of their owns (whether work, ACA, or student.) Losing you as their insurer will be considered an event which makes them eligible for insurance at their company or school (ACA rules are a little different so you need to check that). I think this works both ways and them getting insurance from their work or school is an event you can use to kick them off of your plan also.

Thanks everyone for your responses. It seems that I am on the right track. I need to do more research on options for my college son,but it sounds like it won’t be too difficult for myself or my working daughter. I was worried this would be a big problem but it doesn’t sound like it is. It also helps to read the stories of others who have gone through this.

You could also use the Find Local Help tool for This will give you close by Agents/Brokers or Assisters who are better versed of particulars in your state or locality.
Local Assistance for Health Insurance Application

Although small companies may not be covered by federal COBRA laws, 40 states have “mini-COBRA” laws. State COBRA Laws | Core Documents

As someone who is in this “gap” right now, here’s another factor to throw in the formula: If you cover your college aged child, your “family” size is larger, so the income ceiling for ACA is also higher.

If your student doesn’t have enough income to be required to file a tax return, their income is not included in the ACA family income. We kinda got bit last year, as my student had unearned income that required them to file. We were on top of it enough to not have any issues as a result, but it sure would have been nice for the unemployment income tax waiver to have been passed before the end of last year!

( Required to file is not the same as filing to recover withholdings.)

One other comment that may or may not be relevant about reducing income next year (and I’d suggest not posting personal details on the internet). It may be possible to take long-term capital gains this year at a 0% rate so that those gains are not part of your income if you are going to be drawing down those assets to supplement whatever Social Security and pensions you may be receiving while being covered under ACA. There are several ways to try to keep income low while receiving ACA coverage, this is just one of them.

The long-term capital gains tax rate is 0% if you fall within the 10% or 12% Federal tax brackets. This means an income after deductions of less than about $80K if married-filing-jointly. The standard deduction is almost $25K, and you can contribute another $7K to an IRA (if you meet the qualifying rules). So potentially you could have a household income up to $112K (more if itemizing) and pay no capital gains on the part of that $112K that comes from capital gains. You’d want to work this out with a good online calculator if you have complexities such as your husband collecting Social Security. One article by a financial advisor discussing this (slightly outdated, but with nice graphics) is Mechanics Of The 0% Long-Term Capital Gains Rate

Filling out the 0% capital gains bracket is actually something everyone for whom it is possible should consider.

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