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Healthcare Options for Early Retirees and the Self Employed

by retirebyforty on May 9, 2012 · 27 comments

in biggest worries, health

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healthcare options for early retiree self employed

cough for me

In my previous post, Don’t Quit Your Job to Follow Your Dream, I put health care first in the post and it was not a coincidence. Health care is one of my biggest concerns about quitting corporate America. The cost of health care keeps increasing every year, and it is outpacing inflation by a wide margin. Sometimes I wonder if my investments can keep up with rising health care costs! I’m only 38 and I won’t qualify for Medicare until I’m 65. Medical insurance can be very expensive and difficult to obtain if you have any pre-existing condition. This is a huge HUGE problem for early retirees, the unemployed, and the self employed. Here are some health care options:

COBRA

If you leave a job with a group health insurance plan, the Consolidated Omnibus Budget Reconciliation Act allows you to continue using the same health care plan for a limited amount of time if you are willing to pay the whole cost. This means you will have to pay any amount your employer used to cover plus administrative expenses. The good thing about COBRA is that you benefit from the group rate and continued coverage. However, the cost can be a bit shocking to employees who formerly paid only a part of the cost. COBRA coverage generally lasts for up to 18 months, so if you are 63 and a half, this might be the way to go until you qualify for Medicare. This is not a good option for me because I have 27 years left before I hit 65.

Spouse’s insurance

If you have a working spouse whose employer offers a family health care plan, this is another way to fill in the health insurance gap. The premium is generally much less than buying insurance privately. I just checked Mrs. RB40’s plan and we’ll have to pay an additional $160/month extra to cover me and the RB40 kid. This is a good option until Mrs. RB40 retires, and I’m planning to go with this. $165 per month is not trivial, but it is affordable.

Part-time job

A part-time job might provide the health insurance you need until you are old enough to qualify for Medicare. Costco, Starbucks, and Trader Joe’s are some of the companies that provide health care benefits to their part-time employees. However, there is a qualifying period before part-timers can sign up for the health care plan, which could vary from a few months to a year or more. I won’t be able to take any part time job until the RB40 kid goes off to school, but it could be an option for the future if I need to. This would be my last option though because I’d rather work for myself.

Private insurance

This is a very costly option because you will not receive any group discounts. The insurance provider will usually decline your application if you have pre-existing conditions. Your state may have a group plan that you can join if you’ve been turned down by a private insurer. Your state may also subsidize a portion of the health care premium if your income is below a certain level. However, low income plans have many requirements and a long wait time to join. This cost and the difficulties with pre-existing conditions are why so many self employed people do not have adequate healthcare coverage. You can get a quote from eHealthInsurance to see how much it would cost.

On demand health care

This might be a good option if you are young and relatively healthy. On demand health care clinics offer an affordable option for everyday health problems. For example, each visit at ZoomCare costs $99, which may be a good short-term solution if you don’t have a chronic illness. But this is not a good option for older folks because long-term illnesses will inevitably show up.

Move to a country with more affordable health care?

My parents live in Thailand and they have access to basic healthcare for a minimal cost. I tried to find insurance for my mom in the US, but she kept getting turned down due to pre-existing conditions. The wait time for elective surgeries such as a cataract operation is a few months long, but it is available at a cost that regular folks can afford. If you have more money, you can always buy top notch care at private hospital.

Finding affordable health care in the U.S. is a big problem for early retirees, and there is no easy way to avoid the high price. Perhaps we will have more options when the health insurance exchanges become operational, but I will have to see it to believe it. Until then, we just have to take care of our health as much as possible and minimize our health care costs through better living.

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{ 26 comments… read them below or add one }

Kurt @ Money Counselor May 9, 2012 at 7:31 am

Affordable, available health insurance is the #1 hurdle not just to early retirement but self-employment.

RB40, if you ever purchase private insurance after your retirement, be very, very careful. The application form is long and complex. You need perfect recall of every visit and every conversation with a medical professional, and you must record the details on the application. If you overlook something and later have a significant claim that’s even remotely connectable to something you didn’t disclose on the application, there’s an excellent chance your insurer will refuse to pay on the ground that you ‘lied’ on your application.

My definition of a private health insurance company: A bunch of people working to deny applications, a bunch of people working to justify non-payment of claims, and a guy who makes copies. That’s pretty much the business model.

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retirebyforty May 9, 2012 at 3:39 pm

Yeap, I’m sure the health insurance company will try their best to deny payment. I wonder if they can still do this after 2014 when they can’t refuse to cover someone due to pre existing conditions anymore. I’ll do my best to put everything down, but who can remember every little things?

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Modest Money May 9, 2012 at 8:03 am

Health insurance definitely is one of the drawbacks of being self employed or retired. Here in Canada it is less of a problem since we all pay into basic medical coverage. I don’t get perks like dental and medicine coverage though. Previously I was covered by my girlfriend’s medical benefits at her job, but now that I’m not with her I’m really on my own for that kind of stuff.

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retirebyforty May 9, 2012 at 3:40 pm

You can be covered by a girlfriend’s benefit? That’s very progressive. In the US, you have to be married to get spouse’s coverage.

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Steve May 9, 2012 at 10:22 am

There are so many issues with health care in the US as a non-employee (whether that means retired, self employed, or whatever). For instance, there are (at least) two reasons you can’t really go without it:

Like any insurance, it covers catastrophic situations, which are relatively rare but can be financially devastating.

When you do get medical care, even routine care, the insurance companies have prenegotiated rates, but uninsured people get billed for fake amounts 2-5x as much.

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retirebyforty May 9, 2012 at 3:41 pm

I think the biggest cause of bankruptcy is due to medical emergency. We really should make basic health care more affordable in the US.

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Amy @ Jobcred CV Builder May 9, 2012 at 11:43 am

A very enlightening post. Good to know that certain companies grant health insurance for part-time positions. I think that is the best option for me. I also heard young adults below 26 are recently given the benefit to re-enroll for dependent coverage under their parent’s insurance.

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retirebyforty May 9, 2012 at 3:42 pm

I forgot to include the under 26 benefit. I don’t know anyone under that age. :)

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Jim May 9, 2012 at 12:08 pm

Does the ‘on demand health care’ option basically mean going without insurance? Personally I think everyone needs to make it a high priority to get at least a high deductible health insurance plan. Young and healthy people don’t stay young and healthy forever. Even an invincible 22 year old kid can break a leg skiing or end up in the hospital with appendicitis. The younger you are the cheaper and easier it is to get insurance so I don’t see any good excuses to risk it.

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retirebyforty May 9, 2012 at 3:45 pm

Unfortunately, that’s what many people are doing. I know a few self employed people who are doing this and it’s working so far because they are healthy. I don’t think it’s a good long term solution either. I’m waiting to see how the Health Care reform works out. Can the insurance company deny payment for pre-existing conditions even if they can’t deny coverage? I think basic health care should be available to everyone and will vote to support that.

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Jim May 9, 2012 at 12:13 pm

Another point : Starting in 2014 the problem of pre-existing conditions will go away due to Health Care Reform law. The law will make it so that insurers can’t deny you coverage due to pre-existing conditions. Thats actually already the case for children, but for adults we have to wait til ’14.

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krantcents May 9, 2012 at 12:43 pm

Medical insurance costs are a huge deterrent to independence. I wish the federal government would work on reducing the cost of healthcare in addition to accessability.

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retirebyforty May 9, 2012 at 3:46 pm

Will you have this problem when you retire in a few years or will medicare be available for you?

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Linda May 9, 2012 at 12:53 pm

This is truly my biggest concern and I’m hoping that the Health Care Reform law doesn’t get tossed out by the Supreme Court. Not all of us have the option of going on the insurance of a spouse. I would feel so less like a wage slave at work if I knew that I didn’t depend on them for my health insurance. I could do the same type of work I do now as a consultant…but that health care benefit is very necessary to me.

Recently I applied for supplemental Long Term Disability insurance and was turned down twice, by two different insurers! Why? The first one turned me down because I had noted on the application that I’d had panic attacks in the past. I haven’t had one for about 10 years and never took disability leave from a job because of panic disorder, but that didn’t matter. The next one turned me down because I had indications of too much stress. Really. My regular visits to a chiropractor for adjustments needed from sitting on my a*s all day chained to a computer are indications of too much stress for them to take on as a long term disability risk. Wow. I can only imagine how hard it would be for me to get medical insurance if I ever left my job.

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retirebyforty May 9, 2012 at 3:49 pm

Thanks for sharing your thought. I’ll have a very difficult time getting health insurance too for similar reasons. It seems the more you take care of your self (preventative health care), the more ammunition they will have to use against you in the future. It’s ridiculous. My mom has more long term health problems and I haven’t been able to find health insurance for her either.

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Invest It Wisely May 9, 2012 at 1:31 pm

I live in Canada, but private insurance is kicking my ass. I never felt that when it was just an automatic deduction but now it’s another $1500 a year. At least the public system will cover the rest, and I’ll pay it back in taxes when I generate more income. :)

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Invest It Wisely May 9, 2012 at 1:33 pm

P.S. This is on the gf’s spousal coverage plan; that’s the incremental cost to cover myself. ;) I’d be paying double if I went it alone.

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retirebyforty May 9, 2012 at 3:50 pm

It is pretty awesome that you can get on your girlfriend’s plan. Here in the US, you need to be legally married ( I’m pretty sure.)

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Invest It Wisely May 10, 2012 at 8:40 am

It’s the same here but if you’ve been living together for a long enough time, you can use common-law marriage to apply for the same benefits.

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Jeffrey May 9, 2012 at 1:43 pm

I’m debating between COBRA from my current job that I leave in 2 weeks and using http://www.ehealthinsurance.com/, which a lot of people have recommended to me.

For COBRA, it’s about $205 a month for an okay plan. I could probably find something less. I also have to look into what the tax implications might be for choosing either one. I have the advantage of being young and healthy for now at least ;)

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retirebyforty May 9, 2012 at 3:51 pm

Are you under 26? Can you get on your parent’s plan?

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Christa May 10, 2012 at 6:07 am

My decision to freelance completely hinged on my husband switching jobs. His previous employer had terrible health insurance, and since I have a pre-existing condition, the coverage would have been terrible. It’s a shame that we had to plan our entire lives around insurance (waiting to have kids, being careful about switching jobs, etc.) — I would love to see the US go a more progressive route with a really good national insurance plan!

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Broke Professionals May 10, 2012 at 4:43 pm

I have a friend who started working at Starbucks part time just because of the health benefits – she also nabs free lattes now!!!

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Crystal @ Prairie Ecothrifter May 11, 2012 at 12:30 pm

We used ehealthinsurance to find private coverage and are paying $330 a month for a high deductible plan now. It’s working out well so far, but the key is we have to stay in good shape.

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101 Centavos May 13, 2012 at 10:43 am

Have you considered a policy through the National Association of Self Employed? I have a friend who retired early, and this is the way he went.

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retirebyforty May 14, 2012 at 1:57 pm

I’ll check it out. Thanks!

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