≡ Menu

Retiring Early? Health Insurance Decision Guide

Comprehensive Guide To Healthcare Implications of Early Retirement for Colorado Residents

You’ve worked hard your entire life and thanks to solid planning and good fortune you are able to retire early. Congratulations!!

Most people are not eligible for Medicare until they turn 65, so this guide will help you understand your health insurance options along with the financial implications and opportunities that an early retirement provides.

Most people who are retiring were previously covered by an employer sponsored health insurance plan. When you leave the company, you will be offered the option to continue on the company health insurance plan for up to 18 months through COBRA.

COBRA is often a very good value for dental and vision insurance, but it may or may not be your best option for health insurance, depending on the plan costs, benefits, your utilization of the plan and timing.   The first alternative to COBRA is individual health insurance, either purchased carrier-direct or through the Connect for Health Colorado marketplace.  A broker can help you price out both options at no extra cost.

If your spouse is still working, a second alternative to COBRA is joining your spouse’s company’s plan.  This is very time sensitive, so your spouse will want to reach out to their HR department to request the pricing to add you to their plan, ideally a month before you retirement date. Your loss of employer sponsored health insurance due to retirement should be a qualifying event in which your spouse can add you to their plan, provided it’s done within very quickly (generally within 30 days).

Timing Considerations

If you are retiring mid-year and you (or a covered family member) have met or are close to meeting your deductible, then it’s often a good idea to keep that employer coverage by electing COBRA, at least for the remainder of the calendar year – assuming the deductible operates on a calendar year. While using COBRA to continue your former employer’s health insurance is not cheap, if you start a new individual plan mid-year, you will be starting all over with a new deductible and out of pocket maximum… that still operates on a calendar year basis.

It’s also worth noting that everyone who was covered by the employer sponsored group plan will be offered COBRA, but that not everyone has to take it. So, if you and your spouse were covered by your work’s plan, if just your spouse has met the deductible, you could elect COBRA just for your spouse and you could get your own individual coverage.

Individual Market Plans VS COBRA

When you leave your employer sponsored group plan, the last day of coverage (the day before COBRA benefits would begin, if elected) is day 1 of a 60 day Special Enrollment Period in which you and any covered family members can start a new individual health insurance plan.

Coverage in the individual market has its positives and negatives. There are no PPO plan options in Colorado’s individual health insurance market, regardless of if you go carrier-direct or source your health insurance through the Connect for Health Colorado marketplace. Also, if your income will be fairly high (sometimes the case with mid-year retirements), you may not be eligible for any Premium Tax Credits that can reduce the cost of health insurance. So, it is ALWAYS worth comparing the cost of individual plans against COBRA both when you first retire and for the year following retirement. On the plus side, the individual market gives you a number of health insurance carrier options and the monthly premiums can be less than COBRA.

Financial Considerations & Opportunities to Save

Most often, when people retire their income decreases, so it’s possible that they may be eligible for federal Premium Tax Credits that can dramatically reduce the cost of health insurance. For people in their 50’s and 60’s those Premium Tax Credits can be quite valuable.

Even if your income is too high the first year, you may see your income fall significantly the second year of retirement, so this is something worth reviewing with your financial planner beforehand.  If you can keep your household income fairly low, at least until you turn 65 and are eligible for Medicare, the federal Premium Tax Credits can make health insurance surprisingly affordable.

Your health insurance broker will ask you for your tax household’s estimated Adjusted Gross Income (AGI), which you can find on page 1 of your federal 1040 form. An estimate of your AGI will be required, since your future income will almost certainly be different than your past income, so it is worth talking about with your financial planner and/or tax professional.

What’s Needed To Make An Informed Decision

  • Estimate of Adjusted Gross Income (AGI) for your tax household for current tax year
  • Estimate of AGI for your tax household for next tax year
  • Monthly COBRA costs for health insurance only (excluding dental, vision, etc). You may have to request a premium breakdown by family member
  • COBRA health insurance plan’s deductible, out of pocket maximum and if any family members have met either or are near meeting them.
  • Quotes on individual health insurance plans

Armed with these numbers, a good health insurance broker can do a preliminary review to determine if COBRA is the best option or not for the current year. Please note they may need to wait until the following year’s rates are released in late Fall to make a similar recommendation for the following year.

Planning Ahead

Please note that you do NOT need to wait until you retire to do an analysis. Your health insurance broker can give you solid budgetary numbers for individual market costs, if you provide AGI estimates and some basic demographic information. This is a helpful exercise as health insurance costs are an important line item in your household post-retirement budget.

Colorado Health Insurance Brokers will work with you to understand what your needs and priorities are and will then research plans from the top health insurance companies in Colorado to find the right plan for your needs both before and after you turn 65.  Get a free personalized quote and Colorado Health Insurance Brokers will help you find the right under 65 or Medicare plan that meets your individual needs and compare that against COBRA or coverage through a spouse’s health insurance plan

*Best Price Guarantee: Because health insurance rates are filed with and regulated by the Colorado Division of Insurance, you won’t find the plans we sell offered for less anywhere else. If you buy from Colorado Health Insurance Brokers, another agent or directly from the health insurance company, you’ll pay the same monthly premium for the same plan.