People who are considering early retirement, say around 55, have probably earned, saved and invested so far in their professional careers. There is usually a significant amount of income or income generated by dividends or interest. For many, the reason they do not retire is the cost of health care and health insurance. In this article, GrayBeard Retirement looks at the cost of insurance in the health market and the available subsidies in three common areas where retirees live. The basis of a plan to minimize the cost of the health insurance premium is also presented.
Cost management of health care and health insurance is one of the most important, if not the biggest, financial preoccupations. A strategy to manage these costs is to minimize them. Health problems have many possible origins. They can be caused by heredity or natural causes, exposure to chemicals, accidents and lifestyle. The first three are probably more fortunate than choice, but the choices we make can positively impact the cost of lifestyle-related illnesses.
We can help control the costs of our health care by:
- Make healthy lifestyle choices.
- Properly manage the conditions we have.
Choice of life
Not only are cigarettes expensive, but those who smoke have higher health costs. A case study by Healthy Capital on white paper found that, for a 50-year-old man, the health care costs billed for him increased by $ 1,924 when he smoked. This amount assumes that the man has health insurance through his employer.
According to the Centers for Disease Control,
"Eating a healthy diet helps prevent, delay and manage heart disease, type 2 diabetes and other chronic diseases. A balanced diet of fruits, vegetables, whole grains, lean meats and low-fat dairy products is essential for all ages. If you are overweight, losing up to 5% to 7% of your body weight can help prevent or delay type 2 diabetes. "1
People with type 2 diabetes spend more on health care. The aforementioned Healthy Capital study indicates that people without type 2 diabetes, or at least who manage it well, spend about $ 2,000 less on health care.
According to the Center for Disease Control, regular physical activity can reduce the risk of developing various chronic diseases.2 You will find the Office of Disease Prevention and Control's guidelines for physical activity. right here.
Lifestyle Choices Can Really Affect Our Health Costs Of course, there are other good reasons, but we should consider choosing a healthy lifestyle to reduce our overall health care costs.
What are the options for health insurance for pre-retirees?
In general, there are three options for health care insurance.
- Do not have health insurance and pay all you have to pay.
- Health insurance of the healthcare.gov market.
- Departmental Health Cost Sharing Plans.
This article will discuss the option of no health care and market option. If the answer to this article seems to indicate interest, I will suggest another option on the Ministry of Health option.
The option not health insurance.
When one examines the cost of health insurance, one may be tempted to give up insurance and pay 100% for health care. This is now a possible option after the removal of the individual mandate from the Affordable Care Act. For young people, this could be an option. However, for us, older people may not be a good idea. If we are retired, we have a limited ability to earn more if unforeseen costs arise. In addition, it is worrying that in the United States, people aged 55 and over spend more than half of all money spent on health care.
So, even if we make all the right lifestyle choices, giving up health insurance is not a good idea.
Health Insurance Market (Healthcare.Gov)
For the health care insurance sector, I will examine three current or popular retiree locations. The first is Central Florida, I chose a zip code in Ocala, Florida, for analysis. The second is the region of Austin, Texas. I chose a zip code in a city just north of there, Georgetown. Finally, in the Phoenix area of Arizona, I'm looking for a zip code in Scottsdale, Arizona. Arizona is one of three states to be associated with Medicaid's expansion.
The first step is to determine what the plans are for each zone. There is an area on the website that shows the available plans and grants without registering. He asks a few questions other than the location to make the decisions. They are:
- Number of people in the household
- Age and sex of each person in the household
- Eligibility or health coverage with an employer
- Parent of a child under 19 years
For the purposes of this analysis, the following entries were made.
- 2 people, man and woman
- 55 year old man and 55 year old woman
- No for both people
- No for both people
- No for both people
- No for both people
The website guides you to the available plans. There are 4 categories of metal planes; Bronze, silver, gold and platinum. We omit Platinum for the rest of this article. The metal designations only indicate the payment levels. For example, Bronze has the lowest premium, but the plan pays less when a claim is made. Conversely, Gold plans have higher premiums and pay more in the event of a claim. The metal category does not indicate a measure of quality of care. The following figure is a generalization provided on the website.
The website explains different circumstances in which each level may be appropriate.
In these plans, there are different types of networks of health care providers.
- Exclusive Supplier Organization (EPO): A care management plan where services are covered only if you use physicians, specialists or hospitals in the plan network (except in emergencies).
- Health Maintenance Organization (HMO): A type of health insurance plan that generally limits coverage to care provided by physicians who work for or work under contract with the HMO. It does not usually cover off-grid care except in an emergency. An HMO may ask you to live or work in your service area to qualify for coverage. HMOs often provide integrated care and focus on prevention and well-being.
- Service Point (POS): A type of plan in which you pay less if you call on doctors, hospitals and other health care providers belonging to the plan network. POS plans require that you obtain a referral from your attending physician to consult a specialist.
- Preferred Supplier Organization (PPO): Type of health plan in which you pay less if you use providers in the plan network. You can use doctors, hospitals and providers outside the network without recommendation, at an extra charge.3
Among these types of networks, the EPO is the most restrictive, followed by the HMO, the POS and then the OPP, which is the least restrictive. For the rest of this article, the network type will not be referenced in the presentation. A consumer is well advised to read and understand the rules of the plan and the network he selects. More information can be found right here.
We will now examine the availability of plans in each area. As a general rule, the larger the number of packages available, the better the consumer. Ocala has the most projects, followed by Georgetown and then Scottsdale.
Costs of the plans
In addition to the number of packages available in each zone, the range of premiums, deductibles and disbursement ceilings has been studied. The premium is the monthly cost paid to the insurance company. The deductible is the amount that the consumer has to pay before the insurance company starts to pay part of the bills. The maximum disbursed is the maximum amount that a consumer will have to pay in network bills during the year. In the tables below, the ranges of premiums, deductibles and disbursements for each site are presented.
(Note that the minimums and maximums are costs for each level of metal, there is no correlation, the minimum premium does not fit with the minimum deductible, etc.)
To analyze the results, it is necessary to know the health situation of the consumer. The goal here is not to recommend a path to choosing a plan, but to demonstrate the approximate costs for our 55-year-old couple. However, as a general rule, a person who uses a lot of health care will probably try to minimize the total premiums and fees they pay. A healthy person will probably focus on the premium and the deductible. City examples give us an idea of the plans and costs in the health market.
The website also provides grants to which the couple may be eligible. Subsidies are determined by the level of household income. Entries were made at different income levels for each location. The following table shows the available grants.
Source: Author with date of healthcare.gov
Grants are quite similar for all three sites except Scottsdale. For Scottsdale, with an income of $ 22,714 and under, there is no subsidy. However, there is a note that Medicaid may be available at these income levels. I believe, but I have not verified, that Medicaid has a maximum asset value to be eligible. Therefore, this strategy will not work in Arizona with revenues below $ 20,000 when assets are above the Medicaid threshold. For our couple, Georgetown, TX and Ocala, FL, have grants available for annual revenues ranging from $ 17,000 to $ 65,000. Arizona benefits from grants ranging from $ 22,715 to $ 65,000.
Grants can cover a significant portion of the premium. If the couple can keep and live with an annual income of $ 50,000, there are plans available in Georgetown with no net premium after the grant. For Ocala, there is a net premium of about $ 50 a month. In Scottsdale, the net premium available is approximately $ 200.
Put all together
You can buy health insurance for a very small fee, but there will always be deductible and non-refundable amounts to pay. This is true whether insurance is obtained through the market or insurance provided by the employer during working years. If the couple can not afford to absorb this cost up to Medicare eligibility, it may not be wise to retire before household finances can absorb the expenses. .
Detailed financial planning is needed to maintain income in the "slice" of the subsidy, especially before the age at which retirement accounts are accessible without penalty. Grants are "verified" on the tax return. Thus, if the income ends up being above estimates or outside the tranche, some or all of the grant will have to be repaid. However, if one manages to manage this successfully, there are significant savings on health insurance premiums.
Note: During the writing of this article, a federal judge declared the ACA unconstitutional. This decision will probably be challenged and will go on for years in the courts.
GrayBeard Retirement deals with appropriate investments for retirees, asset allocation and other financial aspects of retirees, particularly those who retire earlier. Please give me a follow up and take a look at my article here on a strategy to withdraw from your 401-K free sentence as early as age 54.
- How to prevent chronic diseases | CDC
- Basics on Physical Activity | Physical activity | CDC
- Type of plan and supplier network
Disclosure: I / we have / we have no position in the actions mentioned, and do not plan to initiate position in the next 72 hours. I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose actions are mentioned in this article.