Healthcare Reform and Early Retirement

Healthcare reform has once again emerged as one of our nation’s top priorities during this election year, and those who are planning an early retirement are giving special attention to this issue. A recent study by the Urban Institute states that currently 2.8 million “boomers” are preparing to retire by age 62.  Typically, people are increasingly taking early retirement in their 50’s or early 60’s, thus making them ineligible for Medicare.  Unfortunately, non-group health insurance coverage often is prohibitively expensive for those who retire early.  Although being uninsured is risky because serious health problems expose the uninsured to catastrophic health care costs, many early retirees are compelled to be uninsured or marginally insured until they reach 65 years of age.  In fact, approximately 16% of those in the 50-64 age category are currently uninsured.

If you are planning an early retirement, developing a plan now is extremely important as illustrated by a lawyer friend of mine who was offered early retirement from his county government employer.  It was a good deal because full retirement was offered at the age of 57.  In considering the opportunity, a few barriers popped up. It turned out that the biggest obstacle to the opportunity was the availability of health insurance.  Taking advantage of COBRA (a federally mandated requirement to offer health insurance for up to 18 months) would solve the problem short term. However, this left a balance of 6 years before he was eligible for Medicare.  He then went to the private insurance market to find equivalent health insurance.  The plan would not include pre-existing conditions and the cost turned out to be over $2000 per month which was totally un-affordable. Fortunately there was a good ending to the story.  He was offered part-time work with benefits from the same employer.  He was able then to plan a partial early retirement for himself.

This happy ending is not available to many people who are considering early retirement. If you are planning an early retirement, what are some additional practical steps you might take to avoid the dilemma faced by my lawyer friend?  One option is to look at individual insurance as opposed to family coverage.  This would allow certain family members to fit into younger age grouping and lower prices for their health insurance.  Make sure if you do go with family insurance it is in the name of the younger spouse.  This will help when the older spouse qualifies for Medicare.  Another alternative is to negotiate with your employer for some financial assistance since he will be saving a large sum of money for the premium he no longer pays after you leave.

These practical steps are limited in their success.  Real reform and the corresponding solutions must be long term oriented.  There are two basic approaches through which long term healthcare reform can take place.  One approach involves an increased role of the government in the provision of healthcare services, and the subsequent rise of regulations to try and direct it.   The expansion of Medicare or a plan similar to the universal national health insurance in Canada, are examples of how the government would attempt to reform healthcare. The other approach relies on the free market in solving the problems. Individual health insurance that is owned by the individual is an example of this approach. Both approaches address the problem of health insurance for retirees who have not reached the age of 65 as well as the concerns of all the other consumers of the healthcare system.

One free market solution  referred to earlier is Consumer Directed Health Care (CDHC).  It draws upon our long track record of ingenuity and creativity. The CDHC plan combines a high deductible health insurance plan with an HSA (Health Savings Account). These HSA’s can be used for health expenses and are owned by the individual or family.  Balances can accrue tax free over time. The introduction of the CDHC alternative has already spawned many creative solutions. For example, limited primary health care services are now available in grocery stores, drug stores and other convenient locations.  This development makes primary health care more accessible, affordable, and convenient as they usually have extended hours.  Also, new information on the pricing and quality of health care services is becoming increasingly available. This helps make patients more knowledgeable hence wiser consumers of health care services. Examples of new resources on the internet for information on medical pricing and quality of care are Carol.com and MySCHospital.org.

As we attempt to find solutions to providing health care insurance for early retirees there will be much debate. The increased availability and popularity of Consumer Directed Health Care will be at the center of the debate as well as a larger role for government. This election will likely determine what approach we will take towards allowing one to have health insurance that is portable; allowing more people to take advantage of early retirement.

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