Early Retirees: Know Your Health Coverage Options

Marcia Duhart, 64, is something of a rarity among early retirees. Merrill Lynch, her former employer, has been paying 60 percent of her health care benefits for most of the last nine years since she retired in 1999.

Although Duhart's health care insurance premiums have risen from $258 per month to $465 per month during that period, the Monroe Township, New Jersey resident says she is happy with the preferred provider organization plan she has through Horizon Blue Cross Blue Shield of New Jersey because it covers most of her costs, including dental and vision, and allows her to see a large number of doctors.

"It worked out very nicely," says Duhart.

But "most companies are doing away with it [retiree health insurance] unless you work for a Fortune 500 company," and it's even happening with them, says Howard Hook, a financial adviser with Access Wealth Planning LLC in Roseland, NJ.

Thirteen percent of private-sector employers offered health benefits to early retirees or Medicare-eligible retirees in 2005, down from as much as 21.6 percent for pre-65 retirees and 19.5 percent for post-65 retirees before 2000, according to the most recent statistics from the federal Agency for Healthcare Research and Quality.

There are several places that retirees can turn to for coverage until Medicare kicks in at the age of 65, says Hook: COBRA (Consolidated Omnibus Budget Reconciliation Act), which is a short- term fix; trade groups or other professional associations to which the retiree belongs; and insurance companies for an individual policy, which can be very expensive.

Other sources of coverage are only available to some early retirees: a spouse's health insurance plan if married, the U.S. Department of Veterans Affairs for veterans and Medicaid for low- income individuals, notes Patricia Barry, who answers health insurance questions as "Ms. Medicare" for AARP Bulletin Today.

Early retirees with pre-existing conditions like heart disease or cancer face special challenges, says Scott Noyes, owner of Noyes Capital Management, LLC of New Vernon. If their coverage lapses, getting a new policy will either be astronomically expensive or impossible, he says. Noyes has one piece of advice for these retirees: "Get back into a corporate environment [until the age of 65].... They're not allowed to ask about medical backgrounds."

Most people who leave a group health plan sponsored by a company that has at least 20 employees are eligible for up to 18 months of coverage through COBRA, according to the U.S. Department of Labor. Those who qualify for COBRA usually pay the discounted monthly premium rate that their employer was getting, plus 2 percent for administrative costs, says Hook.

Trade and other professional groups may offer discounted group plans but chances are they are more expensive and less flexible than company plans, he says. Buy an individual health insurance plan "only if you have no other option" because they are more expensive, says Hook.

While there are many variables such as pre-existing illness or conditions, a 62-year-old retiree should have saved at least $50,000 to cover approximately three years of monthly premiums and out-of- pocket costs, such as co-payments until Medicare coverage kicks in.

"If you know ahead of time that you're going to retire at a certain age, you can set aside money for those costs to cover the shortfall before you turn 65," says Hook.

Retirement snuck up on Orlando Cachuela, 51, of Logan Township, NJ. Five years ago while working in the information technology department of MBNA, which has since been bought by Bank of America, Cachuela was hospitalized because of high-blood pressure. Combined with a second hospitalization for the same reason a month later and the need to take care of his ailing mother, he decided to stop working.

Cachuela was able to get onto his wife's health insurance plan through her employer, JPMorgan Chase & Co., he says. They've been paying about $350 per month for a medical, dental and vision plan that also covers their 13-year-old son.

Cachuela's 48-year-old wife, also in the IT field, plans to retire soon so the couple has been shopping for a new health insurance plan. Because Cachuela runs his own business out of his home called Obie Graphics, which sells custom-designed mouse pads and coffee cups through eBay.com, Horizon Blue Cross Blue Shield of New Jersey quoted him a discounted rate of $978 per month for medical and dental coverage for his family.

The insurer would have charged $1,500 per month just for medical coverage if he hadn't gotten the plan through his business, Cachuela says.

Howard Hook, financial adviser for Access Wealth Planning, says most companies are getting rid of their retiree health insurance plans.

Trade and other professional groups may offer discounted rates, but chances are they are more expensive than company plans.

Copyright Journal Publications Inc. 2008

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