One of the most common questions on the WCI Forum, the private WCI Facebook Group, and even my email box is some variation of this:
Q . What should I do for health insurance between the time I retire early and age 65 when I become eligible for Medicare.
A. Short version: You buy it.
Long version: See below
What's Special About Health Insurance?
I find the question hilarious actually. It really is demonstrative of our screwed-up health insurance system where we usually buy it through our employers. I mean, when you really look at it, what's so special about health insurance? I NEVER get these questions:
What should I do about housing in early retirement?
What should I do about groceries in early retirement?
What should I do about gasoline in early retirement?
What should I do about my cell phone bill in early retirement?
There really isn't ANYTHING special about health insurance in this regard. The simple answer is that you just BUY HEALTH INSURANCE in early retirement. Just like you pay your property taxes, buy your groceries, and pay your other bills. However, most Americans, including many doctors, have never actually purchased health insurance so it is a complete mystery how to do so.
How to Buy Health Insurance On The Open Market
The easiest way to buy health insurance is to call up a health insurance broker and have them outline your options. It's a bit like buying life insurance or disability insurance, except there is no physical and you probably have to shop it every year instead of just once. Once you pick the option you like, you sign the contract, write them a check for the first payment, and set up automatic ACH payments for the rest of the year. Easy peasy. Seriously. I've done this at least 5 times in the last decade. I assure you that it is no different to do it at 55 or 60 as at 40. Just Google “health insurance broker in [your town]” and choose from the dozens of options. If you don't like the person you chose this year, pick a different one next year.
So what should you look for in a policy? Well, mostly it's finding your place on the continuum from high premiums/low deductibles/low co-insurance/large panel of doctors and hospitals to low premiums/high deductibles/high co-insurance/small panel of doctors and hospitals. If you usually have lots of health care expenses, pick something on the left side of the spectrum. If you usually don't have any, then pick something on the right side of the spectrum.
As a general rule, I'm a big fan of HSA-eligible plans. They usually have a bit higher of a deductible (minimum of $1,400 single/$2,800 married for 2020), but they give you access to a sweet triple-tax free investing account.
No Limitations on Pre-Existing Conditions
Sticker Shock
Of course, the first thing you will realize when you go to buy health insurance on the open market is that it is REALLY expensive stuff. Unfortunately, for the last few decades and probably your entire life you have never actually seen or paid the price tag on health insurance. You have been shielded from this by your employer. More and more at least part of the price tag is being passed on to the employees, but a lot of employees made a really crazy assumption – that their portion of the premium was all (or even most) of the premium paid for the insurance. It usually isn't. We recently implemented a group health insurance plan here at The White Coat Investor and got to decide how much of the premium to pay for employees. We chose 80%. That's pretty typical.
So what does health insurance cost? Well, for my family of six, it's $1,100-1,400 a month, including dental. When you include what we actually spend on health care above and beyond the premiums (including HSA contributions) it is usually a figure between $20,000 and $25,000 a year. I could pick a cheaper plan and I could pick a more expensive plan, but that's what we're paying in 2020. It goes up most years, sometimes by just a little but often by 5-10%. Sometimes a lot more.
It obviously varies by how nice the plan is, your age, and your geographic location. Lots of early retirees have found their health insurance cost is $2,000-3,000. As I said early, health care is really expensive stuff. For some reason, we think the price should be more similar to what we pay for cell phone service than what we pay for rent. That is not the case.
This should be one of your major budget items in retirement because health care, you know the stuff that health insurance helps pay for, is expensive stuff. All that technology, highly trained staff available 24/7/365, and bloated bureaucracy doesn't come cheap. Even if we fixed all the issues we have with health care (and there are many) I don't think we could get the price down more than 20-30%. It's always going to be expensive.
So if you can't afford to pay for your health care in early retirement, YOU CAN'T AFFORD TO RETIRE EARLY. Just like you can't afford to retire early if you can't pay for housing, food, or transportation. Work a few more years until you have enough money to pay for all of your living expenses, including health insurance.
Medicare Isn't Free
The other thing that I find hilarious is that people think this issue ends at age 65. People are appalled to learn that Medicare isn't free, despite the fact that 2.9-3.8% of all the earned income (and for high earners a lot of the unearned income) they ever made has been taken from them by the government to pay for Medicare.
Health insurance isn't free, but I recommend you get some before doing this.
First, you have to actually be eligible for Medicare. That means you have to be 65+, have worked (and paid Medicare taxes) for at least 40 quarters (10 years), have been a US citizen or permanent resident for at least 5 years, or be disabled. Okay, no big deal, most of us will qualify for that at 65.
Medicare Part A
Second, THAT is just Medicare Part A, which covers the cost of hospitalization. That's right. It doesn't cover doctor visits and it doesn't cover medications. And even though there are no Medicare Part A premiums for the folks above, there are Medicare A costs. These include a deductible of $1,408 per hospitalization in 2020. If you're there longer than 60 days, there is a co-insurance amount of $352-704 PER DAY. Medicare A also pays for Skilled Nursing Facilities after qualifying admissions. But only the first 20 days are “free.” After that, it costs $176 per day for the next 80 days. After that, you're on your own.
Medicare Part B
Third, Medicare Part B (covers physician services, outpatient hospital services, certain home health services, durable medical equipment etc.) has both premiums and deductibles. The premiums vary from $144.60-$491.60. Double that number if you're married. By the way, this is a GREAT use of those HSA dollars you saved up as this is an HSA eligible expense. The annual deductible is $198 each.
Medicare Part D
Fourth, Medicare Part D (covers prescriptions) also has a cost. The average monthly premium in 2019 was $33.19. The range this year is from $13 to 83. There are also monthly co-pays (set amount per prescription) or co-insurance (set percentage of the cost of the prescription.)
Medicare Part C
Fifth, I bet you noticed that letter I missed, didn't you? Yup, there's a Medicare Part C (Medicare Advantage). Lots of people buy Medigap insurance instead. This gets complicated, but basically both are bought from highly regulated private insurance companies and cover co-pays, deductibles, and expenses not covered by the other Medicare plans.
Yes, this is obviously cheaper than buying health insurance on the open market as a 70-year-old. But it is FAR from free. So now that I've disabused you of the notion that health insurance is (or even should be) cheap prior to age 65, and that is isn't free after 65, it really makes this common question look pretty silly, doesn't it?
What Are Your Options?
So, what can you actually do about health insurance between the date you retire and age 65? Let's list them out.
Go Bare
Well, I don't think it is a very good option, but approximately 17% of my patients choose this one. They simply don't buy health insurance and hope for the best. I'm sure some get lucky and avoid any significant health care expenses. Or they simply don't pay their health care bills. This obviously has serious potential to come back and bite you. It is at least penny-wise, even if often pound-foolish. Under current law there is no financial penalty for committing the currently illegal act of not having health insurance. Welcome to America.
Buy Health Insurance
This is the option my family has chosen. We simply call up the insurance broker and buy the stupid stuff. Yup, it costs a lot of money, but you're so rich you don't have to work anymore so you should be able to afford to buy it.
COBRA Your Employer's Health Insurance
Here's another option. In fact, to be truthful, this is what we did in 2019 since my physician partnership decided I should not be eligible for their health insurance because I only work half-time. COBRA is a federal law that allows you to take over the premiums for your employer's health care insurance for a period of up to 18 months after you are no longer eligible for the insurance. Usually, that's because you quit or are fired, but as you can see in my case, there are other reasons too.
When I tell people I'm “on COBRA” the first thing they say to me is “I hear that's really expensive.” No, it's not. It's EXACTLY the same price I was paying before, since as a partner/owner of the business I had to cover the entire premium myself. It wasn't a surprise to me what health insurance really cost; I've been paying that price myself ever since I made partner in 2012.
Get the Taxpayer to Pay
There are lots of government programs to assist you in buying health insurance, both federal and state. Most of them are based primarily on taxable income. They don't ask WHY your taxable income is low. They generally don't care if it is low because you are disabled, lazy, caring for an ill family member, or living off capital gains and Roth IRA withdrawals. Early retiree millionaires usually qualify for these programs just as easily as very poor people. These include programs like Medicaid and “Obamacare,” (although to be fair in most states Medicaid actually does have some asset tests that you may or may not be able to get around with careful planning.)
Under PPACA (Obamacare), those who purchase health insurance through the state exchange qualify for some form of tax subsidy. This varies by family size and income, but you generally get something until you hit 4X the federal poverty level (a modified adjusted gross income of $134,960 for a family of six, $100,400 for a family of four, $65,840 for a family of two, and $48,560 for a family of one.) At half of those income levels, your subsidy is substantial- about half of the annual premiums. Many early retirees can get their AGI down to levels where they qualify for subsidized health care, even while enjoying a nice lifestyle by living off of Roth IRA withdrawals, qualified dividends, long-term capital gains, principal, and loans.
Get a JOB
Use a Health Sharing Organization
These organizations are usually Christian-based “ministries.” They have some similarities to health insurance, but also substantial differences. Many early retirees have found them to be a great deal because the “premiums” (usually called something else like a “share”) are half the price (or less) of health insurance premiums. The “deductible” structure is also often a bit different, such as a “per health incident” amount rather than an annual deductible. Many health care costs are NOT covered, reading the fine print is essential.
Another reason these programs work is that they self-select a healthier population. Because the programs don't cover the cost of medications for chronic conditions, if you get lupus or rheumatoid arthritis and require expensive medications on a long-term basis, you leave the program and sign-up for regular health insurance, either with a without a PPACA subsidy.
If you do decide to go with one of these programs, I recommend you get the most expensive version that includes some form of catastrophic coverage. Health insurance that caps out at $125K simply is not adequate and leaves the serious potential for having to declare bankruptcy in early retirement.
READ THE FINE PRINT ABOUT WHAT IS COVERED AND WHAT IS NOT. You will likely find some surprises there. IT IS NOT THE SAME THING AS HEALTH INSURANCE, for better and for worse.
TrumpCare
The Trump administration passed a regulation that allows you to buy a “bare-bones” health insurance plan for up to one year. These plans often exclude medications, maternity, and mental health expenses and have high deductibles but do come with a significantly lower premium. Discuss with your health insurance broker. Like COBRA, it only works for a short time period, but it might help you bridge the gap to Medicare.
Medical Tourism
For more elective stuff, you can also go to foreign countries and just pay cash. I don't really see this as a solution to the issue, because it obviously won't work for every medical condition. But it could potentially help you supplement things. If you're not willing to move to a foreign country to reduce your housing expenses in early retirement, you probably aren't willing to travel for health care.
As you can see, anyone asking this question likely has limited knowledge of how both health insurance and Medicare work. Ever since PPACA eliminated the ability to exclude pre-existing conditions, nobody who has assets sufficient to retire should feel like they cannot retire JUST because they need health insurance.
Health Care Inflation
The final concern I hear from people is that they have no idea how much health care is going to cost in 10 years. They have seen substantial premium increases in the last 10 years and so they worry the cost will continue to climb. They are right to worry. New, improved tests, treatments, and medications cost more money and health insurance, hospitals, Big Pharma, and even doctors are going to try to raise their prices whenever they can. But health care is hardly unique in this phenomenon. The price of everything goes up and down all the time.
What do you think? Are you going to retire before 65? If so, what do you plan to do for health insurance in that time period between retirement and age 65? Comment below!
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Thanks as always for providing timely and well written content.
Sadly, once more you failed to cover every niche group and remote possibility that does not apply to most of your audience. 🙂
You left off the option where the employer continues to subsidize the majority of the insurance costs for you, and you start paying only a small portion despite being retired.
TRICARE for military retirees and families.
It’s not great insurance, but if you have assets to cover the small premiums and the large gaps, AND the time to deal with the bureaucracy, it is less expensive than “buy it yourself”.
I would actually love to see a post on this. I’m halfway contemplating staying in for 20 (owe until 11 now), vs switching to the reserves for the last bit (vs just getting out). I have done a little digging into what Tricare actually costs the retirees/spouses but maybe missed something…
When I’ve run the numbers, if you’re not out by 4-8 years, you’re generally better off staying for 20. Of course, that assumes you can’t get out and make $800K.
@KFM
1) Thanks for your service
2) Whatever you find out now about Tricare, in 9 years it will have changed. In the meantime, a great way to find out how people like it is to talk to your patients that have it and have to use it sometimes outside your military facility. (in addition to the interwebs, of course.)
3) I totally agree with Doug Nordman @ the “The Military Guide ” blog – you only have one life, and don’t “gut it out” in the military if it’s not fun just for the pension or the healthcare coverage. I stayed in for 30 because I had a blast and got to live in Europe and Hawaii, both coasts of the U.S., and do academic medicine with only 2 war zone deployments. But your mileage WILL vary – so do what is awesome, not what you can “stand”.
When I was in (2006-2010) people were doing two war zone deployments in every 3 years. Your deployment experience will be heavily dependent on timing.
When you catch a breather, you might to rerun the numbers on how the various arms of BRS (tsp match, continuation pay, pension) interact with the stay in/get out decision.
That would make for an interesting post. Are you volunteering for a guest post?
And one way if you don’t want to stay in 20 years is to have your spouse do so. I first recognized the benefit of Tricare when a new bride of a retired soldier said “wow we only pay $300 a year I used to pay more than that every month for just me!” Of course that was a long time ago; now we pay $600 a year. Plus at present $31 for every off post office visit and $61 for every off post ER visit possibly similar amount per day for hospital stays can’t recall. Plus co-pays if you don’t get your prescriptions directly from a military pharmacy.
Still an absolute bargain (once you have paid the high initial price) and one reason we had the confidence to stop working 15+ years prior to Medicare. It also seems to be basically a Medicare advantage plan; you have to use Medicare once you are over 65 and I don’t fully understand it- perhaps someone can elaborate here- but the co-pays and so forth that most Medicare patients have is covered by Tricare. Apparently though we have to pay the usual Medicare part A and B premiums.
I have been told that in some markets, even in ours next to a military base, some providers do not accept Tricare. A colleague who I presume was over 65 or his wife was anyway had to go 2 hours away to find a participating oral surgeon when his wife had a mouth cancer.
Would you take Tricare? I mean, we take it in the ED (just like we take Medicare and Medicaid) but I can hardly blame a private practice doc for not taking it. It basically pays Medicare rates.
You’re right. That would have been a good option to cover. Many government employees besides military retire with a pension that includes health care too. You’d think I could have remembered that one as my parents used it.
The biggest advantages of retiring from many federal or state government jobs are the pension, AND continued subsized health insurance. Early retirement (but not extreme early retirement) is possible in many situations.
Also, if you decide to move overseas, in some locations it is possible to purchase private medical insurance in the local country, and this is usually at a much lower cost. Often, there are facilities which are even Joint Commission internationally accredited.
“You buy it. ”
I’ve used that line a lot, too. We looked at the health sharing ministries, but I wasn’t comfortable with what would not be covered. I’ve got boys that will be teenagers in a few years, and a lot of the trouble that kids can get into that could lead to a need for medical care would not be covered (think sexual health, alcohol or drug abuse). Obviously, we’d like to avoid problems there for other reasons, too, but I’d hate to be stuck with a six-figure ICU bill from a devastating car crash or something.
I’ll note that direct primary care providers will recommend packaging their services with a health sharing plan. There are no DPC options within 3 hours of me, so we obviously didn’t consider it, but it’s worth mentioning.
So we bought a traditional health insurance plan. The price was no different going through a broker, the insurance companies, or healthcare.gov. Ours is an ACA plan, but we don’t qualify for a subsidy. It’s $960 a month for a family of four. Bronze, high-deductible plan, and HSA eligible.
Cheers!
-PoF
In Wisconsin my least expensive choice is a bronze HSA high deductible account for $1886.86/mo or $22,642.32/y. My wife and I are both healthy and have no need for Pregnancy, mental health, or other costly options. We are not on any medications and as I primary care physician I don’t foresee any healthcare needs in the next year. I am also smart enough to know that one can get hit by a truck or get Covid. I am in a rural area so I don’t have many choices locally. I am frugal by nature so I have trouble with the cost vs benefit. Obviously I need to protect my nest egg, otherwise what have I been saving for? It is just disheartening for many of us to spend so much.
Great post.
This has to be the most informative and comprehensive posts on the healthcare question i have ever seen in all of blogdom . Thank you.
Wow. Thanks.
Thanks for the awesome article comparing many options! Great summary! Another option we have been looking into is working with a private doctors(s)/concierge type service to supplement insurance as well. My toddler son had to get a few stitches last year, and between hospital ER and Physician charges, even after insurance the amount billed to us was a little over $5k. Thankfully my wife is an attorney in healthcare industry and also teaches medical coding so with her experience and know how we were able to get it significantly reduced. We have talked with a local private Dr. and was told the charge through her would have been just over $100. Just food for thought.
Was your local private doctor open when your toddler lacerated himself? Part of that high ED bill is because you went to see the availabilologist.
But I’m not convinced Concierge/DPC is the answer. I don’t buy health insurance because I’m worried I’ll get a $100-500 bill for something. I’m basically paying cash for that stuff already. I’m buying it for the potential ICU stay or cancer treatment. I mean concierge care is fine, but it’s not a health insurance replacement IMHO.
I love my pediatrician, but would not want him sewing up my kid…nor does he have the resources such as good drugs and/or several sets of extra hands. I mean, if it was a $100 repair, it sounds like something that a shower and superglue could fix! 😉
Excellent article.
I just retired at 63 3/4 and have signed on for COBRA for my wife and me.
It seems that healthcare is much more expensive here in New England than it is for you in UT. We have a high deductible, HSA-eligible plan that is costing over $1800 / month for two of us.
This plan will carry us until I am MC age. We will then go to the exchange for single coverage for my wife for the next 18 months.
I did take these costs into account when planning when to retire. I actually used the company paid healthcare premiums to justify “One More Year” thinking. Fortunately, my wife is a better big picture visualizer than me, and she pointed out that this was spurious thinking, since we had the resources to pay for insurance ourselves, but we are not guaranteed any extra time in life!
You did not really mention (as it was probably outside of the scope of this informative post) the other unpleasant surprise awaiting most of us when we become Medicare eligible. Despite paying into the plan at a higher amount than most throughout our working lives, we will likely also bear the cost of higher Medicare premiums, based on means testing! C’est la vie
Maybe it’s more expensive in NE, but the main reason your cost is higher than mine is you’re 20 years older. $1800/month is actually pretty good for early 60s.
Yes, Medicare premiums are means-tested.
While it is impossible to predict what health insurance inflation will be, the idea of thinking about the future cannot leave out the elephant in the room (animal metaphor chosen intentionally as sadly this is political). There is a case pending before the Suprem Court that threatens to eliminate the PPACA and with it the protections to buy insurance regardless of pre-existing conditions. Those of us old enough to remember the days before Obamacare probably remember people who were dropped from their health insurance because they were sick and found themselves unable to ever buy insurance. Guaranteed access to health insurance in the USA remains as uncertain as inflation rates. I find little comfort from the oft quoted notion that going back to those old days is politically impossible nowadays.
Going bare may end up the only option for early retirees when they find out being over 50 is considered a pre-existing condition. Going bankrupt may be their future if they get sick.
Via email:
The issue in my area. Absolutely no PPO plans. Only miserable hmo plans with docs no one knows. For me isn’t cost problem. Can’t get a ppo or pos plan for any amount of money.
Yes, access an be a bigger issue than cost in some areas of the country.
I want to “second” the comment about the issue being your area…I live in Texas where there are “absolutely no PPO plans–only miserable HMO plans with docs no one knows…” Even when you believe you can afford it, you really can’t just buy it here….
I am a fairly recent widow (coming up on 3 years)…my biggest challenge in this “unplanned early retirement” is finding heath care coverage. I wanted to pass on a few ideas that I am working on…
1. COBRA is eligible to widows for 36 months. I have recently discovered that the State of Texas allows me to continue COBRA coverage for another 6 months. 0bviously readers need to check their own states. This extension will get me through another calendar year and I am very grateful.
2. I am looking at going back to school full-time (uuggghhh) solely to get health insurance. Although I am a CPA and don’t need (or want) another degree, I may be pursing another degree solely to get health insurance.
I have found one of the campuses in The University of Texas system that has classes that are (1) accelerated-only 8 weeks a semester, and (2) are totally online. I can be a full time student for health care purposes taking either 4 graduate hours per semester or 7 undergraduate hours per semester. The fact that this is in-state tuition for me is very beneficial.
The total cost of tuition, books and academic health care is MUCH CHEAPER than going on the open market with horrible coverage and also much less financial risk than health sharing plans.
16 weeks per year of classes provide me much more flexibility than going back to work 30 hours a week to qualify for employer health care.
Unfortunately, health care coverage for widows isn’t something folks think about much…I have 2 college aged sons and in this crazy job market, I worry about not having a health care plan they can even stay on until they turn 26….
Thanks so much for what you are doing on the White Coat Investor…great info for me personally as I navigate this life that I didn’t choose…
Now that’s creative to go back to school. But is it really better than just working?
Great tip on the COBRA widow extension, although I’m sorry for your loss.
I retired in 2013 at age 53 so this has been a “hot button” issue for a long time. For the record, I was a finance manager for a large manufacturing and I was on the committee that helped design our corporate group insurance plans as well as 401(k) plans.
For the past nine years, we have purchased our insurance through my wife’s employer. We did this since her employer, a mid sized property and casualty insurance company, subsidized at least some of her health insurance. The plan, while by no means inexpensive, provides a reasonable “out of pocket” maximum that can fit is my budget. The maximum that I pay between insurance premiums, deductibles, and out-of-pocket is approximately $24k per year including full prescription coverage. As my entire budget for the year is generally $60k, that is a very significant portion of our budget.
When the ACA came along, I met a health care broker through the AAII. I discussed whether I should keep the current plan or scrap it and buy insurance through the ACA. At the time, my county in Arizona had 15 active insurers. He discouraged me from the ACA plan noting that nearly all of the insurers would opt out of ACA once the federal government stopped covering their losses on their plans. Within three years, there was only one option which is at best, very mediocre.
I actively discourage people from retiring early unless they afford to pay their insurance pre-Medicare. I might also add that when I projected health care costs in 2013,, I made a 13 year projection of what I thought that I would pay for insurance through 2024 when we will both be covered by Medicare. My actual costs in 2020 exceeds what I expected to pay in 2024 even though I used a 7.5% inflation estimate in my original projection.
I really liked the Medicaid option, keep your AGI low while living off Roth and capital gains. Also Remember that 29% of Physicians are Foreign. Another option is to just move to another country that has universal healthcare. If you’re not a citizen and don’t qualify, you can still purchase private insurance at a much lower cost compared to the USA while you live on a retirement visa. I am making sure all my children born here in the USA get their Canadian Citizenship.
Interesting point about coverage for survivors who formerly were insured through a spouse.
Maybe you skipped over it but it would seem there is a much better solution than paying tuition to get health insurance through UT. As a CPA, how about taking s job that includes health insurance? You would still pay the employee’s share of the cost but you would have income to cover that and more.
You are correct, I could take a job that would provide for health insurance AND have income to cover that and more.
Fortunately, my husband and I lived below our means and saved such that I am able to financially be in “early retirement”…I have structured my life that I do a great amount of volunteer work (enough hours that equate to a part time job) plus I am able to travel (pre-Covid of course) that I wasn’t able to do as a caregiver when my husband had cancer or both of our parents were aging…translate that into–>I really don’t want to go back to work full-time. To be at the level of job that would pay sufficiently for me to have job satisfaction, there is a great level of stress with that…(sorry that sounds like spoiled brat!)
Another factor is that I will use the security social security strategy to take my own personal retirement at 62 with a reduced benefit then convert to spousal benefit at full-retirement age. If I take a job, I will only be able to make $18,240 before I lose social security benefits. I am younger than 62, but looking forward. Also, any 30+ hour a week job I would take would be substantially more than that…so I would totally lose out on my early retirement social security benefits for that time…
Another strategy I have looked into a bit, is starting my own consulting company (I have done that in the past), but I would have to have at least 2 people for a group insurance plan in the State of Texas. Again, the start up costs and general hassle factor seems more than just taking 16 weeks a year of classes online.
I recently learned about the whole “digital nomad” idea…I was considering being a “digital nomad student” pre-Covid 19 to travel while I am doing online classes…not sure that idea will work anytime soon…
Jim, can you comment on the discussion of your group excluding part-timers? Particularly when you’re paying for it already, I’ve never understood this. We negotiated with our insurer to cover folks down to 6 shifts/mo…why in the heck does the insurer care how much somebody is working as long as they’re getting paid? Why do the other people in the group care as long as the doc is the one paying?
I agree with your “just buy it” statement, but it would be easier to let the group take care of it, plus there is probably some economy of scale. Ideally, I would like a situation similar to the school or state employees–they have the option of paying for it forever (although, the doc would not get any subsidy from the group). What am I missing?
It’s not logical. Don’t try to apply logic to the situation. And no point in making a big fuss as it’s about the same price on the open market for me and we’re now buying it through WCI which is even cheaper anyway.
Jim,
There is actually one more good option physicians can consider. Work for the VA. At age 57 (some at age 56 if born before 1965), with 10 years of creditable federal service, you can retire with a FERS pension under the MRA + 10 retirement option. The pension is reduced by 5% for every year before age 62. However, if instead you postpone (NOT DEFER) your FERS pension to age 62, you get a full pension in which you can purchase excellent health, dental and vision insurance at a VERY REASONABLE price. Previous federal employee and military service counts as creditable service. You can work in private practice to age 47, work at the VA for 10 years and retire as early as 57. You can then postpone your FERS pension to age 62. A FERS pension includes a COLA similar to social security. An experienced primary care physician working full time for 10 years at a major VA currently can make about 230K + 15K performance bonus. The FERS pension would be about $23,000/year (230,000 X 0.01 X 10). You could then purchase inexpensive excellent fee for service health insurance for your family. Alternatively, you could decide to work part time at age 57 and build up your pension. You can also purchase excellent dental, vision and life insurance cheaply as well. At age 65, you can get part A and part B Medicare with FEHB which is about the best health insurance one could buy with practically NO out of pocket costs. I’m currently 63 working part time at the major VA (associated with the University) in the BEEHIVE STATE. I enjoy working with the medical students and residents from the university. I am building up my pension, earning a reasonable salary, receiving federal perks and loving my job at the same time.
While you can buy back prior military service, you need at least five years of qualifying civilian federal service in order to get a FERS retirement. (You can even buy back the four years at a federal service academy.)
You do need two years of federal employee health benefit coverage immediately prior to retirement in order to get FEHB in retirement. Be sure to elect at least a 25% survivor benefit on your FERS pension in order to ensure your spouse has FEHB medical coverage if you predecease your spouse.
I’m thankful for the dedicated men and women working in my local VA hospital system!
You are eligible to receive a FERS pension at age 62 with 5 years of creditable federal service. In order to get FEHB you need to take an immediate annuity and you need to have enrolled in any FEHB plan for the preceding 5 years. The premium cost for health coverage in retirement is the same as a full time employee except you pay once per month out of your FERS pension instead of biweekly. Standard GEHA health insurance (a national fee for service plan) for self plus 1 costs $282.05/month. You can plans in retirement once per year during open season near the end of the year.
I’ve heard that someone can do 5 years at the VA and qualify for healthcare (at a cost) for life. Is there a specific age for this to work? Could I work there from 35-40 years old, retire from VA, and pay for health insurance through VA until Medicare kicks in?
The rules can be complicated, but I believe that the answer to your question is No. The 5 year rule is for persons who are working up to age 62, and then retire at age 62, or at an older age. You also have to have had health insurance coverage for a continuous period of 5 years or more, without any gaps.
If you try to qualify for a retirement at an earlier age, and then claim it later, then you have to work more years, and the rules for qualifying for health insurance are more complicated.
You should be able to research this by searching online. I would also recommend that you speak directly with a knowledgeable person in HR in the VA.
I see that another person has detailed how this works, if you want to retire earlier from the VA, and defer claiming the pension until age 62. The qualification for retirement healthcare coverage in this situation can be easy to not do correctly, so again consultation with HR is important. See above under DG135.
Yes, health insurance as part of a pension is a great option. Used to be a lot more common than it is now.
The VA I’m working at in SLC is hiring physicians. Given COVID-19, it could be a good option for someone in outpatient medicine that is paid on a productivity basis, especially if they are in their late 40s. Not many pensions have COLAs and health care coverage.
When we quit working last year we had to look for health insurance on our own. Cobra is around $2400 per month for a family of 3 (we are in our 40s). Market place in our state offers only HMOs, I was able to get PPO for $1140 per month thru our state medical association. Deductibles are very high but it also qualifies for HSA. The premium will increase as we age and there’s inflation factor too. So far very happy with it.
Great review of this very important subject- the big unknown in retirement costs.
To further the discussion and bring some more numbers to the table- the Fidelity and HVS Financial Studies, respectively, estimated that a couple turning 65 yrs in 2019 will spend $285,000 and $394,000 throughout retirement on healthcare related costs.
Once a retiree reaches 65 yrs of age, they will spend, on average, about $5000/year on cost-sharing.
And all of this is even without bringing long term care into the equation. That is an average even harder to pin down- since half of all retirees will not incur any LTC costs. On the other hand 15% will incur more than $250,000.
I wrote a couple of posts on this: https://physicianfinancebasics.com/healthcare-cost-in-retirement-the-basics-part-2/
-PFB
Not sure I buy those numbers because the average person retires on $100K in assets plus social security. No way can they spend $400K on health care expenses, so I don’t know where those numbers come from. And obviously many of those who “incur more than $250K in LTC costs” have Medicaid covering the bill.
The first number comes from the most frequently quoted report in this field: Fidelity’s Annual Healthcare Price Check. Here is the one from 2019: https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/press-release/healthcare-price-check-040219.pdf
The $300k price tag is a nationwide average. What makes it hard to incorporate into individual retirement planning is the very wide distribution of numbers. To give you an idea, the Vanguard Mercer Study broke down retirees into low, medium and high risk for healthcare related costs. Median annual healthcare cost for a low risk retiree was $3400 and for high risk $7600. The numbers get heavily skewed up also because for the high risk group, the range is even wider (90th percentile for the high-risk group is way up at $21,000 annually).One can get an idea of individual costs based on some calculators that have come more recently. I’ve linked some here: https://physicianfinancebasics.com/healthcare-cost-in-retirement-the-basics-part-2/#future
As for LTC, that is not included in any of the studies or the calculators because it is such a wild card. Medicaid pays for LTC for 1 in 3 people.Another point to bring up is that as healthcare-related expenses rise with increasing age, the drop in discretionary spending more than offsets that- so overall spending usually goes down.
I think this point is important for retirement planning (how much one needs to save for retirement) because it doesn’t mean you need to save an extra $300-400k for healthcare. Most of it will be accounted for in the usual guidelines recommended for retirement savings (3-4% withdrawal rate). One can always tweak things based on individual health status, etc and the cushion you’d want for LTC, maybe by planning for a lower than higher withdrawal rate.
Those numbers do look scary, don’t they? The first estimate of $285k comes from Fidelity- which puts out the most quoted annual survey in this field. Here is their 2019 report: https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/press-release/healthcare-price-check-040219.pdf
This is a nationwide average. And it has a very wide range. The Vanguard Mercer analysis (https://pressroom.vanguard.com/nonindexed/Research-Planning-for-healthcare-costs-in-retirement_061918.pdf) breaks down retirees into low, medium and high risk. Their healthcare costs obviously tier up too ($3400-$3600-$7600/yr). What skews up the number even further is that for the high risk grp, the confidence interval is even bigger. The 90th percentile for the high-risk group is $21,000 annually.
Because of this huge variation, a better way to think about healthcare cost is not a lump sum but an annual line item expenditure. And Fidelity estimates that a retiree who turned 65 in 2018 would spend an avg of $5k/yr on healthcare. Far more doable.
You can use one of the bunch of calculators to estimate healthcare costs: https://physicianfinancebasics.com/healthcare-cost-in-retirement-the-basics-part-2/#future
And yes, LTC is a whole different story. It is not covered in either study or any of the calculators because its a wild care Medicaid covers 1 in 3 people with LTC costs.
Another point I should’ve added above is that as healthcare-related expenses rise with increasing age, the drop in discretionary spending more than offsets that- so overall spending usually goes down.
I think this point is important for retirement planning (how much one needs to save for retirement) because it doesn’t mean you need to save an extra $300-400k for healthcare. Most of it will be accounted for in the usual guidelines recommended for retirement savings (3-4% withdrawal rate). One can always tweak things based on individual health status, etc and the cushion you’d want for LTC, maybe by planning a lower withdrawal rate.
Another point I should’ve added above is that as healthcare-related expenses rise with increasing age, the drop in discretionary spending, such as travel, decreases- so overall spending usually goes down.
I think this point is important for retirement planning (how much one needs to save for retirement) because it doesn’t mean you need to save an extra $300-400k for healthcare. Most of it will be accounted for in the usual guidelines recommended for retirement savings (3-4% withdrawal rate). One can always tweak things based on individual health status, etc and the cushion you’d want for LTC.
I taught medical terminology at my local community college for 4 hours a week and they offered me health insurance. It can be done virtually or you can teach such health courses in person. They pay about $60/hour.
My whole career I was given a company car. I plan to retire. How will I get around?
Exactly.
I read this post with interest. I learn a lot from WCI and am educating myself about finance. Financial freedom and the option to retire early , even if i actually dont, is a goal. But health insurance is the kicker. I dnt think the ‘company car’ analogy actually applies. Even if you budget for purchasing insurance in the marketplace, many hospitals dont accept the plans. So it would be like you buy your own car, but it cant go to any of the places your company car could For example none of the major academic hospitals in New York City accept any of the aCA plans. I think this is the kicker . As physicians we know that we mainly need health insurance for the possibility of a catastrophe – a big surgery, cancer treatment – but if the major health centers dont accept market place plans, how does one plan around that ?
Check with an insurance broker (not just the PPACA exchange) for all plans available in your area. There’s no way you can’t buy a plan that hospitals in your area will accept, although it’s possible you might not be able to get it on the PPACA exchange, which is unfortunate if your income is low enough to get a subsidy.
Wow, that was a very rude tone in your reply – your every sentence is dripping with a condescending tone. I think i was very courteous in my question . Your blog is meant for an audience of physicians who may not be as savvy as you are – if i was as savvy as you, then you would not have an audience right – is there a need to be condescending in your reply to someone who is making their way through the maze of planning ? Did you read my comment ? Major referral centers in this country dont accept these market place plans. If you live in a small town and maybe need a major surgery or major cancer care , you may want to go to the major referral hospital in your state. Did you read my whole comment before you replied – i specified the geographic area too . major academic centers in New York do not accept market place plans. We most need health care insurance when serious things happen and we may want to travel from our small town to a major center for a serious cancer diagnosis, if such a thing were to happen. I am sorry that i commented on your blog if you are going to be so condescending – i was very taken aback and i will refrain from further engaging. I will go elsewhere with these very real concerns. Thank you
Not just New York State, also texas. Many institutions do not accept individual market place plans, only commercial plans. If there are health care plans sold by brokers for individuals that are not market place plans that are accepted by major medical centers of excellence in the US , then i was not aware such a thing existed. I thought all that existed were the marketplace plans. If there are such plans that exist for individuals outside the marketplace that are accepted by places like md anderson, you can have just stated that matter of factly rather than drip with condescension at someone who is starting out with planning, setting goals, and was trying to learn from your blog . Thank you https://www.takecommandhealth.com/blog/md-anderson-health-insurance
You’re right. I’m sorry. I’ll edit it and fix it.
I think we’re using the phrase “market place plan” differently. I think you’re referring to a plan bought through the state PPACA exchange, not “on the open market” from an insurance broker.
Thank you for your response . I appreciate it and i appreciate the info. I will do this ! Yes we used the word marketplace differently – Thanks for clarifying. This is very practical advice.
Great analogy!
Another point I should’ve added above is that as healthcare-related expenses rise with increasing age, the drop in discretionary spending, such as travel, decreases- so overall spending usually goes down.
I think this point is important for retirement planning (how much one needs to save for retirement) because it doesn’t mean you need to save an extra $300-400k for healthcare. Most of it will be accounted for in the usual guidelines recommended for retirement savings (3-4% withdrawal rate). One can always tweak things based on individual health status, etc and the cushion you’d want for LTC.
I disagree with “you just buy it” – like all things, especially big ticket items, you have to do the math and weigh risks.
Unless you are already very sick or on extremely expensive therapies/medications, I advocate for going bare / no insurance. The purpose of insurance is to avoid financial disaster right? Keep in mind under the current structure, you are never more than 12 months away from being able to sign up for an ACA plan. So what is the risk? Really the only risk to your nest egg is an extremely serious, time-sensitive health issue. Anything not time-sensitive and you can wait to sign up for the ACA during the next open-enrollment. Paying $15-20k/year in premiums and then still having to pay a high deductible/out of pocket, which is sometimes also in the 5 figures, is not cost-effective. You could be uninsured and go to the emergency room every year and still come out ahead at those prices. Even if you have a heart attack or stroke every other year you may still come out ahead going uninsured. If you get diagnosed with cancer, start treatment and sign up for the ACA at the next open enrollment. Other scenarios I am missing?
This is ONE of the reasons why health insurance is so expensive, people like you try to game the system and take advantage from the rest of us who pay every month. I hope universal healthcare comes one day
Agreed and Agreed
I agree with you in spirit – but MoneyRx is doing what the law allows, and I can’t fault him/her for taking advantage of it. Perhaps if Congressional Democrats hadn’t been in such a hurry to pass the ACA, this and other loopholes could have been removed.
Have you ever seen the price difference between the billed cost and the insurance contracted cost? My wife has a blood test every 3 months. Insurance is billed nearly $300, but the contract price is about $30. I’m not sure what happens if you try to negotiate a cash price.
While it varies, you should expect to pay $150-225 for that particular test if you’re paying cash. That’s one big benefit of buying health insurance, even if you never hit the deductible.
Let’s say you are diagnosed with cancer immediately after the open enrollment period…how are you going to be able to great treatment and then sign up for ACA? Frankly, I doubt many docs and hospitals may give you the care you would want in a crisis. Yes, I realize you said the only risk to your nest egg is an extremely serious, time-sensitive health issue. I guess I know of too many friends and family that have experienced it.
In my case, my husband was diagnosed with an atypical presentation of acute myeloid leukemia…took over 2 months from the onset of symptoms (including a week in a research hospital and multiple doctors) before we got a diagnosis. There is no way that I want to be in a major medical crisis and have major financial concerns at the same time. Amounts billed to our insurance company were in excess of $1.5 million dollars…
I personally want health insurance to cover major unplanned medical issues. Life happens-car accidents, etc. to very healthy people. It is like term life insurance–I read the rate of death payout is probably less than 2 percent…but it sure is great to have if you need it!
The major problem is the lack of customization to your health plan – you are either all in or all out. A plan for only catastrophic coverage doesn’t exist anymore (although there are some slight workarounds as mentioned in the TrumpCare section). So you are faced with either:
1. Paying $15-20k in premiums every year, and paying another ~$5k-20k when you get hit with a high bill depending on benefits
OR
2. Saving/Investing the $15-20k/year and paying cash/delaying when/if you get hit with something, and that something would by definition need to be a bill of >$15-20k + $5-20k for it to even outweigh what you would have paid with insurance
Both options aren’t good, but I am advocating #2 will be the better option for nearly all young/healthy people and also most older/riskier people too.
Do you actually order medical care? I do. $20K is just the ER bill in a trauma, add on that much more for the flight in and we haven’t even admitted you yet. By the time get out of the ICU it could be $500K+. That’s worth insuring against.
I think lack of customization is a good thing. It’s like going to a buffet. Everyone might use different options, but the price of entry is the same for everyone.
For the men who say “i won’t get pregnant” or the women who say “i’ll never have prostate cancer,” that’s the point.
Nobody’s going to use every service. I’m glad the ACA forced a certain level of care for all. Customization would just make a bad system even worse.
But if all you want is a burger, you’re going to spend 1/5th as much at In and Out as going to the Bellagio Buffett to get that burger.
I wanted to fill in the survey, but the option we chose isn’t listed: “Continue on previous employer’s group plan.”
Yes, we have to pay the entire premium. It’s better than what’s available on the ACA. It’s like COBRA, but lasts until we’re 65. For 2020 it’s $980/month for QHDP with $2800 annual deductable per person or $5000 per family. After that we pay 20% copay. It’s a decent plan for a decent price and better than anything on the ACA.
This made it alot easier to retire at 50 and 53. (previous employer was a school district and by contract, they cannot take the benefit away unless we fail to pay the premium).
Not sure why “Use a Health Sharing Organization” was not one of the options. I’ve used Samaritan Ministries for two years since retiring at 58 and it’s worked out great.
Yes if only I had written something like this in the post 🙂
I know this is an older post now but, recently, when I called a broker for options (as I consider not working for my employer soon, being only 49) for insurance, he recommended staying on COBRA for the full amount of time vs. buying an individual plan.
He said the hidden and dangerous piece of info here is that the individual plans (often with very similar names, deductibles, OOP maximums, etc.) often have much smaller physician networks (can be a bummer, I suppose). But, the dangerous piece is that the reason the network is smaller is because the plans tend to reimburse hospitals and physicians much less, thereby providing a disincentive for physicians and hospitals to participate. Now, that seems a bit dangerous because are the best docs signing up to participate in these plans?
Is he wrong about that? Any other thoughts?
I suppose it’s possible. I really don’t know. Certainly COBRA is a reasonable option but you might miss out on a PPACA subsidy.
Thanks. I will ask our local hospital admin if they perceive a difference in individual vs. employer plans and report back here if I find anything out.