Health care continues to be one of the largest expenses in retirement. How retirees choose to handle this expense is impacted by many decisions, including when to stop working, when to take Social Security benefits, and how to generate cash flow in retirement.
Retirees have several options for health insurance in retirement. Some are eligible for Medicare Parts A and B, and many also have the option to add a supplemental plan to fill in the gaps between traditional Medicare and their personal needs. Regardless of which type of coverage they decide to select, it is important for them to carefully consider the options and costs before making a decision.
The prevalence of employer-sponsored retiree health insurance has declined since the late 1980s, and this decline accelerated with the implementation of SFAS 106 in 1993. Employers continue to find ways to reduce the cost of their health plans for retirees, but these changes may be limited given the strong incentives for them to do so.
If a retiree is considering leaving the workforce before they reach age 65, they should make sure that their retirement income, both from work and other sources, will be enough to cover the cost of health Access the information insurance until Medicare kicks in. Depending on their income, they might also be eligible for subsidies in the ACA marketplace. However, if their income is higher than average for the year of retirement, it is important to remember that the ACA uses an adjusted gross income specific to the marketplace that can be different from the MAGI used in other parts of the tax code.
One way to avoid the risk of not being able to afford insurance in retirement is to find a part-time job that provides it. Another is to seek out a partner who still works and can offer family or individual coverage through his or her employer. Finally, they can seek out COBRA coverage, which allows retirees to retain their previous employers’ insurance for 18 months.
Retirees who opt to stay in the workforce until they reach age 65 should consider signing up for Medicare early, if possible. Signing up before the year in which they turn 65 can help them avoid paying a penalty for delaying enrollment. For those who continue to work, they should keep in mind that their health insurance through the workplace will usually terminate when they leave or are laid off. They should also look into the availability of a supplement plan and consider if they will be able to use their employer’s prescription drug benefit at work once they retire. They should also check into the options and costs of their supplemental plan to see if it can be paired with their existing Medicare coverage. They should also conduct an annual review of their supplemental and Medicare coverage during open enrollment each fall. These reviews can help them determine whether they need to change their plans to reflect the changes in cost and coverage.
