Understand Your Retirement Options

While people age 65 and older are covered by Medicare, many older Americans age 55-64 face difficulties accessing affordable health insurance.   13 percent of people age 55-64, or 5.2 million people were uninsured in 2000.

A study by the Employee Benefit Research Institute (EBRI) show that a 55-year old retiring today will need $83,000 to cover typical group insurance premiums plus out of pocket expenses for 10 years to get to age 65 when Medicare is available.  The amount needed for 10 years of individual coverage until Medicare kicks in could be as high as $256,000 for some one with chronic medical problems requiring prescription drugs. 

In 2002, only about one-third of firms offered retiree health coverage, down from 66% of firms in 1988.  If you're fortunate enough to receive employer coverage, you'll probably be paying a greater share of premiums as well as higher deductibles and co-pays.

Medical coverage for retirees will require some careful planning.  Here's some help.

• Continue Coverage with Cobra Cobra (Consolidated Omnibus Budget Reconciliation Act of 1985) is shorthand for the name of  federal law that allows people to continue health insurance in a group plan-after a layoff, divorce and for college graduates who no longer qualify for coverage under a parents policy.  Federal law requires most employers who have 20 or more workers to offer Cobra benefits (church plans are exempt).  Firms with fewer tan 20 employees may be subject to COBRA-like requirements under state law.  In most instances , Cobra  coverage continues for 18 months after a job loss, or 36 months after a divorce.  Under Cobra, you will have to pay the full cost, plus 2 percent for administration.  Because you're buying at group rates, COBRA is less expensive than buying insurance on your own, but it's not cheap.

• Set up a Medical Fund Health Savings Account (HSA)  These accounts are offered by a small but growing number of employers, insurers, and financial institutions.  These accounts must be used in conjunction with a high-deductible health insurance plan and are like an IRA for health care.  Like an IRA, the HSA allows for tax free contributions and investment earnings.  For singles, the maximum pre-tax contribution to an HSA is $2,600; for families, it's $5,150.  Withdrawals for medical purposes are tax free and withdrawals in retirement for any purpose are penalty-free.  HSA's are complex and we've provided several links on this website for additional information.

• Find Alternative Coverage  First explore professional organizations that may offer group coverage.  Many professional groups and alumni associations offer group insurance to members.  You may be able to join these organizations and qualify for coverage.  If you cant find group coverage, you'll have to shop for individual coverage.  Contact several top insurance carriers such as Blue Cross/Blue Shield.  Also web sites like insure.com will offer tips and quotes.  Rates will vary depending on local laws, health care costs and on your own health.  Unlike group policies, you must disclose your medical condition to obtain individual coverage.

• Part time work  One of the most common ways of dealing with retiree health care costs is to get a part time job with an employer who offers these benefits.  an increasing number of retirees are turning to this option.  The challenge is finding employers who offer these benefits.