One of the most complex and puzzling issues you will face in retirement is managing your health care insurance. This is an involved issue that you will need to research extensively; it’s also an issue that is subject to changing regulations, so be sure you have the most current information. First of all, what health care coverage do you and your family have at your place of employment, and will your employer continue to provide you with coverage once you’ve retired, either for a short period of time or for the rest of your life? If your company has a human resources department, the staff there will have all the resources to advise you. If your company is small, then talk directly with your boss. Don’t wait until the last minute; give yourself time to prepare your options. Most likely, you’ll lose your company coverage; less than a third of large U.S. companies offer retiree health insurance (down from 66 percent in 1988), and less than 10 percent of companies with fewer than 200 employees offer any coverage to retirees. If you work for the U.S. federal government, you’re in luck — you and your family can maintain your coverage, though you’ll continue to pay premiums of course.Bonuses
Medicare is a U.S. government entitlement program that provides health care insurance to retirees aged 65 and older, as well as to some disabled individuals. Medicare is funded through payroll deductions that all U.S. taxpayers pay throughout their working lives (at 2.9 percent, which employees split 50/50 with their employees; i.e., you pay 1.45 percent of your salary, and your employer pays the remaining 1.45 percent). Parts of Medicare are also paid for through premiums and copayments. As a retiree, you will no longer have to pay into the Medicare system; Medicare is only deducted from earned income, which does not include Social Security, pension, or investment income. However, some parts of Medicare will require you to pay monthly premiums even in retirement. And if you continue to work in retirement, your salary or pay may be subject to the regular 2.9 percent Medicare tax.
Medicare is divided into four broad areas. Part A covers inpatient care in hospitals, as well as skilled nursing facility care, hospice, and some home health care. This part is covered through the Medicare tax that you’ve paid through your working life; you are automatically enrolled at age 65. Part B covers doctors’ services, hospital outpatient care, and also some forms of home health care. Part B also covers some preventive services, either to keep your good health or to monitor chronic illnesses you may already have. Part B coverage is optional and requires payment of a monthly premium of about $100. Part D is a prescription drug option that covers part of the cost of prescription drugs; there are many options under Medicare Part D, and all options require the payment of a premium as well as some copayment or coinsurance for each prescription you fill. And Part C refers to “Medicare Advantage Plans”: health plans that are operated by Medicare-approved private insurance companies.
Because Medicare doesn’t cover all contingencies, there are various private supplemental plans that are available to Medicare beneficiaries; these supplemental policies are broadly referred to as “Medigap” coverage, as they fill the “gap” between Medicare reimbursements and actual costs. Before applying for Medigap coverage, you must already be enrolled in Medicare Part A and Part B. The various Medigap policies have been standardized into ten separate plans each offering different combinations of options; these are all sold and administered by private insurance companies. Nearly 20 percent of enrollees in Medicare are also enrolled in a Medigap policy.
If you retire before the age of 65 and your employer does not provide you with continuing coverage, you have a few options. COBRA is a law that permits individuals who retire prior to age 65 to continue with their existing employer-provided coverage for up to 18 months. However, if your employer was paying part of your insurance premium during your tenure as an employee, that obligation stops at retirement, and you must pay the COBRA premiums in full. Your employer, who will continue to maintain your policy through the company group policy during the period of COBRA coverage, can even charge you an extra 2 percent for administrative costs. However, your basic premiums should not go up, as you will be covered under the same plan that covered you as an employee.
COBRA coverage can be extended beyond 18 months if the beneficiary is determined to have become disabled. Such extensions only last for an additional 11 months, and your former employer’s group health plan can charge you up to 150 percent of the normal cost of your premiums during the extension period.
If you’ve used up your COBRA coverage and all available extensions and you’re still shy of age 65, and thus not yet eligible for Medicare, you’ll have to go to the private market to cover yourself in the meantime. Don’t wait until the last minute to do this; you’ll have to shop around and find the coverage that’s most suitable for you. It may cost you more than you want to pay, but don’t go uncovered.
There is much to consider in providing health insurance for you and your family once you’ve retired, and this brief discussion is only meant as a broad introduction. Do all the research you can, seek advice from your company’s human resources department prior to your retirement, and select the combination of plans that works best for you.