A: Finding and funding health coverage between early retirement and Medicare eligibility can seem like a challenge, but actually there are a number of options available for you to consider.
If your spouse is still working or you’re covered under a domestic partner’s plan, your easiest option might be to sign on to his or her policy, assuming it offers decent coverage at a reasonable price. You also have the right to continue the coverage you received from your employer under a COBRA plan, typically for 18 months after you leave your job. However, your premiums will be more expensive than they were when you were working, because you’ll have to pay the full cost of the insurance plus a 2% administrative fee.
I’d recommend that you compare the cost of those two options with the cost of policies available from health insurers in your area. Under the current provisions of the Affordable Care Act (ACA), people who aren’t covered by an employer’s plan can purchase insurance from a federal or state insurance exchange. You can research the policies currently available to you at healthcare.gov. However, those options may well change in the future.
Ask your doctor and dentist whether there are any procedures they would recommend you take care of while you’re still covered by your employer’s health plan.
When doing your research, you might consider purchasing a high-deductible plan. Your premiums will be lower—but more important, with such a plan you’ll also be eligible to open a health savings account (HSA). An HSA allows you to save money to pay for medical expenses not covered by your insurance. Contributions aren’t counted as taxable income, and any interest earned is tax-free. Withdrawals are also tax-free, as long as they’re used to pay for qualified medical expenses; these include home health care and prescription drugs. Once you’re eligible for Medicare, you can even draw on your HSA funds to pay certain Medicare premiums.
One more thing: If you know you’re about to leave the workforce—whether you’ve decided to take early retirement or you believe a layoff is imminent—it’s a good idea to ask your doctor and your dentist whether there are any procedures they would recommend you take care of while you’re still covered by your employer’s health plan.
And, of course, it can’t hurt to start exercising and eating right, if you’re not already. The best health insurance is staying healthy.
3 Questions to Ask Your Advisor
- If I opt for COBRA, can I switch out before 18 months?
- Would an HSA make sense in my financial circumstances?
- What factors should I consider in comparing exchange plans?
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This material should be regarded as general information on health care considerations and is not intended to provide specific health care advice. If you have questions regarding your particular health care situation, please contact your health care, legal or tax advisor.
Bank of America Merrill Lynch is also a marketing name or the Retirement Services business of Bank of America Corporation ("BofA Corp."). Banking activities may be performed by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A., Member FDIC. Brokerage services may be performed by wholly owned brokerage affiliates of BofA Corp., including Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S").
While you can use your HSA to pay or be reimbursed for qualified medical expenses. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% federal tax. Certain limits may apply to employees who are considered highly compensated key employees. Bank of America recommends you contact qualified tax or legal counsel before establishing an HSA.