Many of us will not have employer-sponsored health insurance in retirement, whether we retire before or after Medicare eligibility. If you are younger than age 65, you may go to your state’s Obamacare exchange and purchase coverage. Coverage is based on income, not assets. Depending on when you sign up, you may pay full freight, receive an advanced premium credit or you may wind up on Medicaid. Yes, the quirk with Obamacare is someone with millions of dollars in assets could wind up on Medicaid. It’s legal and they didn’t lie to become eligible. Another option may be joining your spouse’s employer-sponsored plan.
If your employer used to offer retiree medical, don’t be surprised if the rules change. Many employers outsourced their retiree health care to a third-party firm. I have several anecdotes of retirees from major Fortune 500 companies losing their retiree medical benefits and being shifted to a website where they may purchase Medicare supplement plans and Part D prescription drug plans or Medicare Advantage plans. Sometimes the employers are given a small stipend, if you will, to defray some of the costs. The decisions on which plans to pick fall on the employees.
Employees Who Still Receive Employer-Sponsored Health Insurance in Retirement
Typically, civil service retirees, whether they are state, local, or federal, have a retiree medical package. Their unions negotiated this. You may still see this with private sector unions, often the large trade unions. This benefit is for coverage for pre-age-65 retirees and post-age-65 retirees. Those 65 and beyond usually have a Medicare supplement plan and prescription drug plan. You would think this would make health care in retirement simple for retirees in this situation because it is mindless. You would be surprised how easy it is to make a grave and costly error. (For more from this author, see: Sometimes the Less Expensive Option Costs You More.)
Recently I was contacted by someone who was complaining there were no doctors who would take her retiree medical plan. She wanted advice on selecting a new plan so she would have no out-of-pocket expenses other than a co-pay. Her frustration was understandable, but I learned a few things as the discussion continued.
There were doctors who accepted her plan, just not many close to her home. But the few who did were not that far away. What this retiree did not understand was that once you un-enroll from your retiree medical plan, you may not return. She did not realize how powerful her plan was when she reached Medicare eligibility. Her plan coordinated with Medicare. It not only offered an excellent prescription drug plan at age 65 and beyond, but also a very strong Medicare supplement plan.
To replicate this plan using insurance policies from the private sector, it would be incredibly costly. Her costs for the most part, have already been factored in to her retirement package. Yes, they may tweak things a little bit here and there as expenses for medical coverage rise, but she would be grandfathered in and the cost increases would likely be very modest. This was too great of a benefit, in my opinion, to give up to potentially have more doctors closer to your home. (For related reading, see: Healthcare Costs in Retirement: What to Consider.)
Focus on Long-Term Care Costs
Instead of worrying about the short-term, the couple of years before she turned 65, a greater threat is expenses from long-term care. Those costs are not covered by her retiree medical. They aren’t covered by private insurance in the absence of a long-term care plan. If you do not have a comprehensive long-term care plan, ask yourself the following question: What percentage of your assets are now in play for long-term care?
The answer is all your assets are now in play. You have not taken the steps to mitigate the risk. You have not used existing strategies that can leverage current assets to pay for a potentially significant cost. Some call this strategy of no third-party insurance self-insuring. That’s not accurate. You are self-paying in that scenario. Insurance means you have risk management tools and protection in place.
For lack of a better way of saying it, don’t look a gift horse in the mouth if you have retiree medical. As great as that benefit is, it will not prevent estate erosion via long-term care planning. Besides estate protection, long-term care planning gives you flexibility and options for the care you need. If you don’t need the plan, you or your heirs will still have a residual value for the protection you put in place.
(For more from this author, see: How to Plan Financially for a Chronic Illness.)