Are you considering retiring before age 65 and worried about covering healthcare costs before Medicare kicks in? You're not alone! In this episode of Friends Talk Financial Planning, Bridget Sullivan Mermau and John Scherer discuss various ways to bridge the healthcare coverage gap if you retire before age 65. From spousal plans to Marketplace health insurance, COBRA, and more, we've got you covered with practical tips and insights.
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🔗 Resources:
- Alliance of Comprehensive Planners: https://www.acplanners.org
- John's firm website: https://www.trinfin.com
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TRANSCRIPT:
Bridget: John, you can apply for Medicare at age 65, but a lot of people retire earlier than that at 50, 55, 60, 62. And they want to cover healthcare. That's what we're going to talk about today on Friends Talk Financial Planning. I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.
John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. And before we dig into paying for health care before Medicare age, I want to remind all our viewers, hit that subscribe button. That helps other people find this information on YouTube. We're trying to get to a thousand subscribers, so please hit subscribe. And I’m looking forward to talking about health insurance and paying for it, Bridget.
And as you were describing in the lead up, you mentioned age 62, which I hadn't really thought of, but 62 is when people are eligible to get Social Security. Whether you take it or not, it's a whole other discussion, maybe a topic for another episode. But at 62 people sort of feel like, hey, I can retire now. I can get Social Security and my health insurance, Medicare, but they're two different ages. And what do people do in your experience and what can we share with our viewers?
Bridget: Yeah, there is confusion about the ages for Medicare, but it’s 65. So look on your Social Security statement and can see if you're eligible. That's all I have to say about that. Okay. So today, we’re brainstorming, and we got a lot to cover. So the first way is through your spouse's plan. If your spouse is still working, use your spouse's plan. Okay. I think that's pretty simple.
John: Well, it seems simple, but a lot of folks in my experience have their own insurance through their employer. If I retire and my wife is still working, I can just jump on her plan. It's just one of those things. It’s simple, but hey, don't forget. It's easy, but it's an easy one to overlook.
Bridget: Or a lot of times people price out several different options. So what are the options?
John: Right.
Bridget: The second way is 20% of employers have employee retirement, medical benefits. So separate from the regular insurance they've got, if you're retired, you can get benefits. Now, you actually know about this, so why don't you talk a little bit about this. Again, 20% of the employers have this, which I think people don't realize.
John: Yeah. And that's a surprising number. I know about this, and I can share some of my experiences, but 80% of people don't have this, so most people don't. But there's a big chunk of folks who do. Pay attention if you have these benefits. A lot of my experience working here in Madison is working with state employees. And with the state of Wisconsin anyway, the plan is you accumulate sick leave over your career.
If you don't use all your sick leave, you can use those credits to buy health insurance when you retire. And perhaps more importantly, in Wisconsin anyway, if you've worked for 20 years for the state, you can continue to stay on the state's plan. Usually when you retire or when you leave service, you have to go off your company plan at some point. But Wisconsin lets you stay on as long as you pay the premiums for it. So you can stay on.
And if you have sick leave that you built up, that can go to cover some of that, so it can be a double dip. Other employers do that, too. A lot of times it's the older school, Fortune 500, big companies with great benefits, those sorts of things. So pay attention. Sometimes it's easy to skip over that in your little benefits booklet that you have retiree benefits.
Bridget: Right. And don't forget also to look at your spouse's plan. Again, people are oblivious to the benefits. And if you're married to such a person, you might have like taking a deep dive into their benefits to find out if they have retiree benefits, which you wouldn't have even cared about until you're at this stage. So take a look, both to see if your employers got it, or your spouse’s employer. Again, generally, employers with great benefits and municipal employers are where we see it. But just double check, make sure.
John: Right.
Bridget: Okay, next, marketplace: healthcare.gov. Now here is the interesting thing about this. I think a lot of people don't realize because they look at it and they think, “Oh, this is so expensive.” But if you meet the income requirements, you can get a premium tax credit. Those are set to expire in 2025. They'll probably change in 2025. But right now we're recording in 2024, so you got 2024 and 2025 with marketplace and premium tax credits. And people don't realize that once you're retired, your income goes down. So you might be eligible for premium tax credits when you're 64 that you would have never been eligible for when you were working.
John: That's right. You can go online to look up rates. We use healthsherpa.com as a source for looking up things. But I hear from folks saying, “Oh, it’s so expensive.” And the premium is expensive. I mean, it's health insurance. But after you take into account what the net cost is, man, it can be really affordable for a lot of people as they get into retirement for the exact reason you described. Taxable income goes down, even though maybe your cash flow is still pretty high, but it's the taxable income, and it can be surprisingly affordable for people.
Bridget: Yeah, absolutely. Okay, next, COBRA And I'm going to say yours or your spouse's. So COBRA is when you leave a job, they have to send you a notice within 60 days, I believe, saying, “Hey, you can continue on our old healthcare plan.” So this works great if you like your old healthcare plan. Usually when people do it, it's pretty pricey, but it's, again, something to take a look at. Also, it might be something in play if you're retiring at 64 and a half, and so you have a gap, but it's not super long. You can just hop on COBRA.
Oh, here's another thing. There're some weird provisions of COBRA. COBRA usually goes for 18 months, so it's a year and a half. But there's some weird provisions. If your spouse is eligible and you're younger, you might be able to go longer. Look it up. I don't want to get into the weeds on it, but if you're over 62, you might look at that. Just to dig into that. But again, usually the people that stay on COBRA are the people that really just like their doctors. They don't want to rock the boat right now.
John: Yep. And I'll say from our experience that with COBRA, oftentimes the going on the exchange is more cost effective. And sometimes people think, “Oh, I have COBRA. I get 18 months. I kind of need to do that.” And just check it out, see what the difference is. We've seen some pretty big savings. As you described, if you love your doctors, or you need the coverage for the 18 months, or maybe three years if you qualify for those certain things, stay on that. But don't be blind to the idea that you might get a similar or better deal on the exchange.
Bridget: Absolutely. Next one, the frontier. You're going to be a pioneer with this one. And these are health sharing ministries. So these started with religious groups. They've been around for at least 20 years, maybe 30. And that's just from when I heard about them. And so, these groups get together. They're not insurance. They're not as regulated as insurance at all. So insurance, and John can tell you about this, I can tell you about this, is highly regulated.
They've got to meet a lot of standards. So health sharing ministries work differently. You self-pay and then get reimbursed. And everybody puts all their money together. And it's a little mysterious. They don't have to pay for everything, so they can have moral clauses. I'm not exactly sure how that works and what morals the different ministries will or won’t pay for. So I wonder about things like addiction care.
That used to be a moral dilemma. Now everybody thinks it's a medical condition. So maybe they've caught up, maybe they haven't, maybe they just don't want to cover that. But the costs are lower. Oh, the other thing is that I haven't talked to anybody who had a health care ministry that had a major surgery or major things like that, so it's not insurance. Insurance is covering you for the big stuff.
John: Yeah.
Bridget: And so, I have a question mark there. And again, it's not like insurance, which is required to cover you with that stuff.
John: Yeah, it’s one of those things to keep in the back of your mind. The first four, your spouse's coverage, employer benefits, the exchange, COBRA, are the traditional ones. But it’s good to know that there’re other things are out there, like the health sharing ministries.
Bridget: I know someone who's on this now, and I would say they have a moral objection to the cost to the cost of medical insurance. They think it's objectionable. And they also live in a more rural area, and they have a provider they like. It’s more subtle; it's not a black and white thing. Okay, next, private insurance. These are cheapy plans. I've been on one of these before, but it was decades ago. They don't do the underwriting.
They'll say, “Oh yeah, we accept you,” but they don't do the underwriting until after you file a claim, so that's cheap. If they decide to lie on your application or something, then you got a problem because they'll probably just give you your premiums back, which were cheap, and not pay the claim. So these can be appropriate. Maybe if I need two months, and I don't have COBRA available. I just want something. I would still look on my exchange and you might even be able to get these temporary plans on the exchange.
John: Yeah.
Bridget: And then other. The other one is a part time job. I don't know how many hours you have to work at Starbucks these days to get health insurance.
John: It used to be 20.
Bridget: Yeah, that's a famous one. But that type of thing. Professional association. So I know someone who is a realtor, and they get it through their professional association. I'm a member of AICPA or the CPA society. You can get it through them. I'm sure the state society has it. Also, we're both members of a financial planners’ association, NAPFA, which I think you could get it from. So you can check out your associations. The larger the association, the more of the people who want to get insurance through them, the better.
John: Yep.
Bridget: Okay. And last but not least, Medicaid. This for low income people, Medicaid or CHIP if you've got kids.
John: Yep. Know it’s available, right?
Bridget: Yeah, exactly. Oh, that's right, I forgot. And again, remember, geez, when you stop working, your income can look really low, which might not have been your situation before.
John: That's right.
Bridget: Those are our many ways. I think there are nine altogether. That gives you ideas for how to cover your healthcare costs before the party starts with Medicare.
John: That's awesome. Well, hey, that's a great place to wrap things up here. I'm John Scherer, she's Bridget Sullivan Mermel, and we both run fee-only financial planning practices. Bridget and I are both taking on new clients. We'd love to hear from you. But if you like what you hear on our show and you'd like to find an advisor in your area, we're both members of the Alliance of Comprehensive Planners, and you can check out acplanners.org to find an advisor in your area.
Bridget: And don't forget to subscribe.
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.