Early Retirees: Don't Fear Losing Your Health Insurance

Health insurance has long been one of the biggest obstacles to early retirement. Few employers offer coverage -- just 18% of current private-sector workers are eligible for pre-65 retiree benefits, vs. 29% in 1997, according to EBRI.

And buying a policy on the private market before you qualify for Medicare at 65 has been a challenge: A condition like diabetes or heart disease can leave you uninsurable, while even healthy 50- and 60-year-olds pay far more than young people for the same coverage.

A recent Center for Retirement Research study found that the spike in retirement at 65 is due in large part to Medicare eligibility.

Under health reform, all that is poised to change. Regardless of your health, you can buy a comprehensive insurance policy through the state online exchanges that went live Oct. 1. Your age will still push up your premium, but a 60-year-old can't be charged more than three times what a 20-year-old pays, down from today's typical 5-to-1 ratio.

"Early retirees will be the biggest beneficiaries of the exchanges," says Caroline Pearson, vice president at the consulting group Avalere Health.

What to do

Put a price tag on it. Obamacare means you can't be turned down or charged more for health reasons, but it doesn't necessarily mean a policy will be cheap. In the 36 states where the federal government is operating exchanges, monthly premiums for mid-level plans are averaging $432 for a 55-year-old and $526 for a 60-year-old, says Carrie McLean, head of customer care at eHealthInsurance.com; rates for a 55- to 64-year-old on the private market today average $329.

But that price difference reflects more robust coverage. A bare-bones policy you could buy this year might carry a $10,000 deductible or omit prescription-drug coverage -- required for policies sold on the exchanges. Your combined deductible and out-of-pocket costs will also be capped, at $6,350 for an individual and $12,700 for a family.

"The insurance market is pretty scary for early retirees right now," says Karen Pollitz, a senior fellow at the Kaiser Family Foundation. "It won't be so scary anymore."

Start at healthcare.gov to find options in your state. Heavy traffic and tech glitches made applying a headache right after enrollment opened, but you have until Dec. 15 to sign up for coverage starting on Jan. 1.

Check for price cuts. The premium is just the sticker price. About half of those who buy insurance on their own today will qualify for a subsidy, estimates Kaiser. And since that help is based on how much of your income must go toward insurance, an early retiree with a high premium has a good chance of qualifying for a break, especially if retirement means living on less.

A 60-year-old couple making $62,000, for example, would qualify for a subsidy that would bring a $1,140 monthly payment down to $491, according to the Kaiser Family Foundation subsidy calculator (available at kff.org). For a single person, the annual income cutoff to qualify for a subsidy is $45,000; for a family of four, it's $94,000.

All that is good news for 62-year-old Sheri Pyle, who retired to Henry, Tenn., last year with her husband, Bill, 18 months after he left his job at a family-owned heating and plumbing firm at 62. Weary of Chicago winters and 60-hour workweeks, the couple dreamed of spending their days in warmer climes, camping, fishing, and volunteering. They now pitch in at the county search and rescue.

"We wanted to quit working while we're still young enough to enjoy our lives and give back," says Sheri, who managed the accounting department for a food manufacturer. Bill, now 65, qualifies for Medicare. But Sheri, who has arthritis, has been worried about her insurance costs once her former employer's $400-a-month COBRA coverage ends in December. On the Tennessee exchange her monthly premium would run $593 for a midlevel plan. But she'll qualify for a subsidy that will knock it down to $345.