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No Job? Not Eligible for Medicare? You Have Options

I write a lot about planning for Medicare and how one’s retirement income may increase health costs and decrease net Social Security benefits. I speak daily about health costs in retirement, including the likely costs of long-term care expenses—adult day care, home care, assisted living or skilled nursing homes.

Lately I have been asked about what happens when one loses his or her job between the ages of 60 and 64. To me this is one of the worst times to be out of the workforce. There is the potential of age discrimination, which I don’t know if it can be proven or not. Anecdotally speaking, those I know in this age range and predicament swear it exists.

According to the Social Security Administration, full retirement age is 66 for people born between 1943 and 1954. Beginning with 1955, two months are added for every birth year until the full retirement age reaches 67 for people born in 1960 or later.

What Happens When You Lose Your Job Before You're Eligible for Medicare?

However, there’s the reality of being too young for Medicare and Social Security retirement benefits. Even if you are old enough to collect Social Security at 62, you still have three years (or longer) before Medicare eligibility. So being eligible for early benefits doesn’t solve the healthcare problem. (For more from this author, see: Healthcare Costs in Retirement: What to Consider.)

Now what? If you are married and were on your spouse’s plan, it’s not an issue. But what if you were the one carrying the benefits? Generally speaking, you will be covered by a continuation of benefits (COBRA). Your dependents up to age 26 will be covered too. Or you can join your spouse’s plan.

Individual Coverage From the Health Insurance Exchange

If neither of the above options are available (no COBRA or spousal plan), you can apply for health insurance via the health insurance exchanges. There’s no guarantee it will be as affordable as your employer-sponsored plan. You may or may not qualify for a premium subsidy. You may or may not qualify for Medicaid. But you will hopefully find coverage. It may get a little dicey because, at the time of this writing, 41 insurers have left the individual healthcare market on the health insurance exchanges since the Affordable Care Act has become law.

In a perfect world, you want to hold out to at least age 65 before you leave work. But we don’t live in a perfect world. As my grandmother was fond of saying, man plans and God laughs. This is why healthcare planning is important. How can you discuss retirement, savings, financial planning, etc. if you ignore mandatory health costs? Even if you accept they are mandatory, I have, through the course of my work, come across very few people who have really understood how much health care costs and how it cuts into monthly income. (For more from this author, see: The One Mandatory Cost in Retirement.)

There is no perfect solution here. There are multiple considerations to be aware of as you are working and saving. Ask yourself the following: If you lose your job, where will your health insurance come from until you are eligible for Medicare? If your health coverage is not enough, or you have high deductibles, do you have enough to hold you over until you are better?

Using Your HSA or Life Insurance to Cover Healthcare Costs

Maybe you have been using a health savings account (HSA) over the years. There could be enough funds in there to help you get by. If you own a disability income policy that you purchased on your own and it’s portable, it may be very valuable to you if you become disabled and have not been approved for Social Security disability benefits.

If you have cash-building life insurance, you could use the cash on a tax-favored basis to help you meet your health needs. If you get sick, you may have access to a portion of the death benefit while you are alive. Insurers calculate the benefit differently, so it helps to work with an insurance advisor who understands the nuances. (For related reading, see: How to Plan Financially for a Chronic Illness.)

The bottom line is plan for the worst and hope for the best.  The options I mentioned above should not be ignored even if you believe you are comfortably employed. Some of the options have a residual value, whether you are alive or not, so the resources used for planning are not all for naught if you wind up being very healthy before Medicare.

One final point here. Even when you do reach Medicare eligibility, remember that Medicare is not free. I write and speak about that daily. The planning does not automatically end just because you received your Medicare card in the mail.

(For more from this author, see: Sometimes the Less Expensive Option Costs You More.)