Retiring early is a dream for many.
However, people often hesitate due to a fear of high healthcare costs, given that Medicare doesn’t come into play until the age of 65.
We address this concern today — in the first episode of our brand-new season about insurance! Zacc Call and Laura Hadley explore three options for pre-65 health care coverage: COBRA plans, retiree plans offered by employers, and plans obtained through the exchange.
Zacc and Laura discuss:
[00:00:00] Welcome to The Financial Call. We are financial advisors on a mission to guide you through the financial planning everyone should have. Whether you're doing it yourself or working with a financial advisor, these episodes will help you break down complicated financial topics into practical, actionable steps.
Our mission is to guide motivated people to become financially successful. Welcome to The Financial Call. Today we're talking about pre-Medicare healthcare, so pre-65 healthcare, and this is the first episode of our insurance season, which is our last season. This is crazy. This is so weird, crazy that we're already here.
I think we'll take maybe a little bit of a break or really strategize around what do we do after this, but this puts a bow on the Guided Path series when we finish season eight. All eight seasons are in this order for a reason. We probably should have pulled in insurance earlier. I'm kind of feeling a little guilty about that, if I'm being honest.
We just don't focus a lot [00:01:00] on selling insurance because I think a lot of people feel like they get sold a lot of insurance. Mm-Hmm. But insurance is something everyone needs. So, we probably should have pulled this in earlier. Oh, well here we are today. We're doing it today. So, we're gonna talk about healthcare insurance.
We're going to talk about pre-65, post 65. We're gonna talk about life insurance for two episodes, term versus permanent. And then episode four is when to get life insurance, when to drop it. Episode five will be long-term care and disability. Episode six will be about property and casualty insurance and other forms.
So, a lot of different types of insurance to be covered here. We talked a bit about annuities in retirement income planning earlier. The income planning section covers that. Maybe, Laura, you and I need to go back and make sure we covered that enough. Maybe we need to add that here, but sounds good. Today is gonna be healthcare before age 65, and there are definitely options here.
It's changed over the last decade. I was just gonna say, this is such a common question that people have and [00:02:00] probably one of the biggest deterring factors for people retiring before 65 because they don't know what to do about healthcare. And there are lots of options that can make sense, so you don't have to stay at your job.
I mean, maybe your retirement plan looks fantastic and you just are afraid to pull the trigger because you don't know what to do for healthcare costs. So hopefully this will help paint a clear picture of the options, what the costs are. I am amazed at how right you are about this. Like how often people, you're amazed how right I am?
No, I was awfully, how right. Let's say it this way, by the way, Laura. I’m just kidding with you, Zacc. Laura is incredibly good at stuff here. So now I'm all like flustered. Flustered. Yeah. So, okay. But I'm amazed at how often the retiree will just completely take retirement off the table because they're not 65, because they're not 65.
So I guess it's not the retiree, but I'm amazed how often the worker in the twilight of their career is like, well, I guess I'm working till at least 65. Because they just had no idea there's an option out there [00:03:00] for them, which there are quite a few options. We'll go over them today, and Laura's right all the time.
Right? Zach's still feeling flustered. Okay. Just kidding with you. So, we have about an 80-page document called Money and Mind that Terri Flint and I spent many, many hours over a year working on. It's basically a book. And this book is designed to help retirees understand, or near-retirees understand the transition.
They're written in 14 articles. Seven of them are my style. They're very nitty gritty, down to the numbers, technical side of how do you get retirement done. And then the other seven are what matter more to people, which is like, how do you actually feel about retirement? How do you transition into retirement?
So, it's called Money and Mind, and my half is the money portion. Terri Flint wrote the mind portion. If you would like, we'd be happy to give you a copy of this. We don't sell it, it's just we have a bunch of copies available. It looks like a magazine. I've got it in my hand, or we can send you an e-copy and you [00:04:00] have a PDF of it.
But the reason I bring that up is the second article is healthcare. Healthcare, as Laura put it, is one of the major contributors as to why people hesitate to retire. So if you can get your income figured out, if you can figure out how you're going to get healthcare coverage, and then you figure out how to ensure that your money lasts, then you're pretty good.
And then from there on out, it's just, let's optimize taxes, let's optimize your estate planning. But all of those are long-term things that we can work on every year, but you cannot walk into retirement without a good understanding of your healthcare situation. Okay, so go ahead. I was just gonna say three plans.
This kind of boils down your three main options before Medicare at 65. Those are COBRA plan, retiree plan, and just getting a healthcare plan off of the exchange. And a lot of times you can get a subsidy through that. So why don't we start off with COBRA? So COBRA, basically this is continuing your current benefits that you get [00:05:00] through your work.
Your employer's paying a big portion of your premiums, they usually stop paying those premiums once you retire, so you are then responsible for paying those maybe a little bit more to cover their administration costs. It is one of the higher cost plans for you to choose, but if you've already met your, maybe your out-of-pocket maximum that year and you don't wanna switch over to a different plan and reset your deductible and out-of-pocket max, might be worth it just to continue paying those higher premiums till the end of the year, especially if you're still needing to see the doctor.
That was exactly where I was when it came to Capita, by the way. Oh really? Yeah. So I was working at a previous employer, had wonderful healthcare coverage. And when I joined Capita, we were less established than when you joined Capita. Mm-Hmm. Let's put it that way. We didn't have a healthcare plan for employees, so I was on my own to find my own private healthcare coverage.
So, I knew that was going to be expensive. Through the exchange? Yes, exactly. I knew it was going to be expensive and I wasn't gonna qualify for any subsidies or any [00:06:00] help, so I left my old employer in October of 2015. This is also a little trick for people to know. If you work at all during a month, then you get healthcare coverage for the full month.
They only cut coverage once a month. So, I worked a little bit into October, had coverage through in the end of October, so I needed coverage for November and December. I was eligible to sign up for a new plan because if you have a work change, that's a life event, you can sign up for an exchange plan. So I could have.
But I thought, you know what? I'm already through my deductible this year. There's only two months left. I would be so frustrated if I signed up for a new deductible and my new deductible was going to be $13,000. And Murphy's Law, that would happen. Right? Exactly. Right. So my kid would go to the ER or something like that.
So I'm thinking like, I don't want to have to pay another $13,000 if something happened here at the very end of the year, so I decided I would just take on COBRA for two months and then switch to my own plan. Do you remember how much your COBRA premiums? I do. I'm getting there. Probably too slow.
Okay. Jumping the gun. [00:07:00] No, I'm going way too slow. My wife always says short story long, like just get there. It was over $2,000. This was back in 2015. So, premiums have gone way up since then. Even in the last year, they've almost gone up 20%. Last five years, they've basically doubled. And this was eight years ago.
Wow. And I was paying $2,000 a month. And then I switched over to a private plan on the exchange, and I paid a little over a thousand. It was about $1,100 a month. Get this, it was $1,100 a month with a $13,000 deductible. So, I was paying, wow, about $13,000 a year for the privilege to pay the first $13,000 of medical expenses without any help.
So, I knew I was $26,000 out of pocket before any help from anybody. It was brutal. And that was you and your wife and three kids? Yep. That was three kids. Yep. So yeah, it was not fun, but that's where we were and we decided those two months, that was worth it because we'd already been through the deductibles and that was a [00:08:00] pretty low risk tolerance decision for us.
I mean, we could've risked it. It probably would've been fine. I don't think we had any major medical expenses, so I probably wasted $2,000 in the process. Because you paid it. Yes. It always works out that way. Right? That's a good point. Okay. COBRA goes up to 18 months, so it's not a long-term plan. You can't be on your old employer's plan forever.
They will continue coverage for up to 18 months. The idea behind this, the COBRA law there was to help people bridge a gap. If they got let go or if they had a change in work and they needed to get to new coverage, that gives them a pretty good runway to find some other plan of some type. Not a long-term solution, but can be a good short-term solution.
So I was paying, I think, $250 a month when I was working at that employer, and it went from $250 a month to $2,000 a month. So, I didn't know that at the time. I had to sign up before I got all the details. It's a little bit of a surprise. If you are thinking about COBRA, that's a really good option.
We're gonna go into exchange, but I'm just gonna throw out a retiree [00:09:00] plan, and that's one where we probably won't cover it too much because they vary by employer, but a lot of employers, if you're over a certain age, usually around 60 years old, they will offer you a plan of some type between 60 and 65.
Some even offer a plan after 65 as a supplement to Medicare. A lot of employers, these are employers from the eighties and nineties actually, where this is going away. But if you were at a company for a really long time, it's worth asking. I was working with a client that worked for Utah State University up in Logan, in Cache Valley, Utah, and I just suggested they ask, just find out.
She went and asked, and it turns out she was eligible for healthcare coverage that was basically like a hundred percent covered for her. I can't remember all the details, but it was really, really robust, like a really rich plan. And she was eligible because she had worked at the university for so long and she had no idea.
Nobody had ever told her about this plan, and she found out about it about a year before she retired, and she'd been there for decades. So it's worth just [00:10:00] checking in to make sure that your company has or doesn't have a retiree healthcare option. If they do, throw it in the mix. You've got COBRA and then your retiree healthcare plan from your employer.
The last one is the exchange. So this one's more involved because of subsidies and limits. Laura, how would you describe the exchange? Like the general exchange? This came about the Affordable Care Act through what people call Obamacare. How do we explain this to everybody? How does this work? I feel like this is just finding health insurance that's not tied to an employer.
Anybody can go out and find a coverage plan that works for them. It was through the Affordable Care Act, Obamacare a lot of people know it as. There are subsidies attached to it, so if your income is low enough, you can get a pretty good subsidy to help cover these premiums. It used to be a cliff for your income.
I think it was around 69,000. If you earned a dollar over that, you would lose all of your subsidies. So, it was a pretty important number that we had to make sure we didn't go over. That got changed I think in 2020 [00:11:00] with COVID. I think you might be right. I can't remember. It's been a couple years at least.
Yeah, they changed it, so it wasn't so much a cliff. If you went over, that was okay. Your premium still went up a little bit, but you didn't completely lose the subsidy. It was super helpful. I had a family member who barely went over. Luckily, he was able to put money inside of an HSA plan and reduce it back down and sneak back in.
Oh, it would've cost him about $12,000 if he couldn't have brought his income back down a little bit. But a lot of times if your income is low enough, you can get a pretty darn good subsidy and even have a low deductible, and you can choose lots of different plans. You know, you can have a high deductible plan that's gonna be lower cost or a low deductible which is gonna be higher costs, and choose what works best for you.
A lot of times you can strategize around your income, your taxable income. Let's say you do retire or are trying to bridge the gap to Medicare, you get on a healthcare plan through the exchange. And we're trying to keep your income below, let's say 60,000. Well, if we draw from your Roth account or from an HSA, that's not gonna show [00:12:00] up as taxable income, so you might actually be spending more than that $60,000 number, but it's still showing as 60,000 so you can keep that subsidy.
Yeah. We see a lot of people who have a few different account types, and they can bridge that gap for two or three years, keeping their income low, and then once they get on Medicare, they're okay to let it go a little bit higher. The Medicare income limits are for a couple closer to 190,000, where you start to have higher costs on your Part B premiums.
But now that number that Laura said was back at 69,000, it's now about 78,000. Inflation. They ratchet it up a little bit each year. So there are four different tiers with this. Right now, for a couple, I just put in two people in Utah, and I'm on healthcare.gov. If you are trying to figure this out, I would mess around with healthcare.gov.
I'm gonna give you a couple clicks to make. Healthcare.gov. Then at the top, there's a spot that says, see topics, hover over that. Then click on the button that says, find out if you'll save. Takes you to a page where you can put in your state, how many people [00:13:00] are in your family or need coverage, and then it will give you dollar amounts.
So, I did Utah and two people. If you are below 19,700, you may qualify for Medicaid. If you're between 19,000 and 49,000, I'm rounding by the way, not gonna give you the exact numbers 'cause you're just listening, but about 19,000 to $49,000 you can get a lower premium. And on top of that, they're going to make it so that when you actually use your healthcare coverage, the deductible is likely to be lower and you may get extra co-payments and help on top of it.
So there are different tiers of this. 19,000, I'm gonna round again, 20,000 to 50,000. That's the range where you not only have a subsidy on your premium, but you get extra help on the actual healthcare expenses. Then about 50,000 up to that 79,000, that's where you get the subsidy. You're not gonna get the extra help on deductibles and copays and things like that, but you do get the full subsidy.
And then above 78,000, this is, goes back to what Laura said, where it used to [00:14:00] be, you were out of luck entirely. But now they phase that out more gradually. So there's a little button that you click on to see the plans and you can put in your zip code. And I'm doing this as we're talking, by the way, so we'll give you a couple of examples, but you can put in your zip code.
And then it has you put in your family, so you'll say it's me and somebody else. If you're doing these two people, you know, in this case I'm saying we've got a couple that's married, no dependents. Normally we're talking to people who are about 60 years old and they're trying to figure out how do I bridge this gap to 65.
So I'm just clicking through and putting in ages. We've got a man and a woman that are both 60 years old exactly to make things simple. And they need healthcare for five years. Let's say they make $95,000 a year, and when I say make, I mean they show $95,000 a year. That couple gets a subsidy of $1,189.
It is November 22nd in 2023. That's gonna change in the future, [00:15:00] but as of today, that person gets almost $1,200 towards their healthcare premium every single month. That's a pretty big deal, and I think that is enough to get some people over the hump into retirement. That subsidy right there. So if you are super healthy and you're willing to take a really high deductible plan.
You could have the two of those people covered for $174 a month. That's hardly anything, but your deductible in that case is $12,000. So, you're on the hook to pay the first $12,000. Now remember, I was paying about 1,100 a month and had a $13,000 deductible, so the subsidy makes a big difference here for those people.
Huge. By the way, there are 76 plans popping up right now for them to choose from. So, if you say, I'm just not that comfortable with a deductible that high, start scrolling because it'll go through and you'll eventually get to lower deductible plans and they'll end up costing $500 or [00:16:00] a thousand dollars a month, but they normally would cost two to 2,500. 2000 to $2,500 a month.
You'll get the idea. But the point is this might be a reasonable solution for you to prevent the risk of like, oh my gosh, what if one of us had cancer? Or what if one of us gotten a really bad accident? The worst case scenario is maybe 10 or $15,000, maybe 20 at most out-of-pocket maximum. Not that that's a small amount of money, but that's not ruin us to most retirees, that's gonna be okay.
And for that, they may really appreciate the ability to get their life back. And we know a lot of people in their seventies and eighties that really slow down and that wish they had retired earlier. So, if healthcare is the one thing stopping you from retiring, go to healthcare.gov, plug in your information, see what type of subsidies you can qualify for.
Yeah, here's a Molina plan for $3,100 deductible. So as soon as you've met $3,000 worth of medical expenses, the [00:17:00] plan starts to kick in and help with coverage, and it's $995 a month. After the subsidy? After the subsidy. Good point. Not the end of the world. Not cheap, not exciting, not fun. But hey, if you get to retire because of it.
Good for you. Yeah. So, Laura, let's recap our three main strategies. So, COBRA, if you have a retiree plan that your work offers you to bridge the gap, and the exchange. Anything else we need to cover on pre-65? I think that's about it. The only other thing out there that I know of are health reimbursement plans, like Christian ministry type plans.
Those were really big deal when everybody was required to have coverage through the Obamacare Act, they forced it. And so, some people who just didn't want any coverage at all would do that. I've heard that isn't great to try to get reimbursed. It can be difficult, and so you end up getting stuck with the bill for some healthcare expenses, so just be a little bit cautious of those.
I'm not saying that they're bad and I've never been on one, but I've heard stories that they can be difficult to actually get [00:18:00] paid later. Whereas, you know, we don't love insurance companies, but it sounds like they've been more responsive than those reimbursement group plans. That is pre-65 healthcare.
Next episode, we'll do post 65. We're trying to keep this simple and help you in 20 minutes today to get a really good feel list, at least what you should be looking into. There are private healthcare agents. If you need somebody, let us know. Especially if you're here in Utah. Insurance is state by state from a licensing standpoint, but a lot of them will be licensed in many states.
So, if you are in any state and you need somebody, give us a call. We'd be happy to make an introduction. At least ask our people if they're licensed in your state, and then they can help you navigate this. With 76 plans, it can be helpful to have somebody to say, okay, what kind of medications do you take?
What kind of doctors do you see? In what network? Great. Now there's really only three options. Here they are. Okay. Thank you. This podcast is intended for informational purpose only and is not a substitute for personal advice from Capita. This is not a [00:19:00] recommendation offer or solicitation to buy or sell any security.
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Further, Capita does not provide legal or tax advice. Please consult with your legal or tax professional for advice prior to implementing any strategies [00:20:00] discussed during this podcast. Certain of the information discussed during this podcast is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity.
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