There’s no greater challenge for an early retiree and their adviser than hunting for health insurance to tide them over until they’re eligible for Medicare.
“Many clients with employer-sponsored group coverage have no idea how difficult — sometimes impossible — it is to find health insurance,” says Ed Stuart, a certified financial planner and principal of RegentAtlantic Capital LLC, a Chatham, N.J., wealth management firm. It’s not just a question of affordability. Depending on the client’s health and where he or she lives, insurance may be unavailable at any price.
By federal law, employer-sponsored group insurance must cover all workers. But individual policies are state regulated, and in most states, insurers can permanently exclude coverage for pre-existing conditions and chronic illnesses. (The exceptions are that in New York, New Jersey, Massachusetts, Maine and Vermont, you can’t be denied coverage. Of course, that doesn’t mean you’ll be able to afford it.)
The cost also varies widely. “Health insurance is much more expensive in metropolitan areas,” said Joel Weiner, an attorney and certified financial planner in Palatine, Ill. Mr. Weiner, who also runs Professional Training Services Inc., a continuing-education program for financial services professionals, added: “Where there are more people, more people get sick.”
Here are the health insurance questions you’ll want to explore with clients who are talking about retiring before they qualify for Medicare at 65:
*If your spouse will continue working after you retire, are you eligible for coverage in their employer-sponsored policy? If the answer is yes, check the plan’s rules. In general, your spouse’s employer must be notified that you want to enroll in the plan within 30 days of your leaving your job.
*Can you continue your coverage in your former employer’s plan under COBRA? COBRA is a federal law requiring companies that employ 20 or more people to extend coverage to their former employees for up to 18 months. But it’s expensive; the client must pay the full premium, unsubsidized by their former employer, plus a 2% administrative fee. However, COBRA is often the best option, and it gives you time to explore other choices before committing yourself. You have 60 days from your employment termination date to sign up for COBRA when you leave your job and another 45 days to send in the first payment, which covers you retroactively.
*Can you qualify for group coverage through a professional association or trade group, or as a self-employed consultant? In some states, such as Connecticut and Delaware, even a sole proprietor with no employees can buy small group insurance, which is less expensive than individual coverage (see statehealthfacts.org for information about your state). “In New Jersey, a company that employs two or more people 25 hours a week qualifies as a group,” said Jane Merahn, senior account executive at Schechner Lifson Corp., a Summit, N.J., insurance brokerage firm. “If your client is a consultant with a secretary who’s covered by her spouse or by Medicare, for example, she can opt out of his two-person group and he can still cover himself.”
*Does your current employer-sponsored group coverage let you convert to an individual policy without medical underwriting when you leave your job? “This is very expensive, but if it’s available, it’s probably the best choice for people who are affluent,” especially if they’re in bad health, Mr. Weiner said.
*Can you afford — and are you healthy enough to qualify for — a high-deductible individual policy, perhaps combined with a tax-free health savings account? To be combined with an HSA, an individual policy must have a $1,100 minimum deductible. The policy’s maximum annual out-of-pocket expense before insurance kicks in is $5,600. (The maximum annual contribution to an HSA for an individual is $2,900. The HSA grows untaxed, and withdrawals are tax-free when spent on qualifying medical expenses.)
When it comes to shopping for coverage, you’ll have to refer clients to an independent insurance agent who specializes in life, health and disability insurance, someone who can compare policies and knows medical underwriting requirements. It takes research to find someone you’re comfortable with, but it’s essential, Mr. Weiner said. “From an ethical and legal perspective, you’re probably going to be responsible for what happens,” he said. “You have to get out there and network, go to association meetings with health insurance people or call the [Arlington, Va.-based] National Association of Health Underwriters, get resumes of local agents and interview them. A good financial planner can’t be a hermit,” Mr. Weiner said.
Here are some resources:
*To find licensed agents: National Association of Health Underwriters, nahu.org.
*To contact health plans directly: America’s Health Insurance Plans in Washington, ahip.org.
*To comparison-shop online for price quotes on a wide range of individual and small-business policies: eHealthInsurance Services Inc. of Mountain View, Calif., ehealthinsurance.com.
