Wednesday, October 28, 2009

Early Retirement and Health Insurance Arrangements

“If you retire before age 65 when you become eligible for Medicare, you may face the most challenging health insurance period of your life,” says economist Paul Zane Pilzer, who offers the following information and advice from his book, The New Health Insurance Solution.

When employer-sponsored health insurance began, people often worked for the same employer for most of their lives—there was an unwritten contract between a corporation and its workers to provide health benefits, retirement benefits, and lifetime employment.

This contract was shattered during the past two decades as globalization forced employers to lower their labor costs in order to stay in business. So, keep your eyes open, and be prepared the condition changes any time, and in vast majority of the cases, for worse.
  • If you currently work for one of the few companies that provide retiree health benefits, don't expect your company to still be providing them when you retire.
  • If you are currently receiving retiree benefits, don't count on these benefits continuing unless your former employer is bound by an ironclad contract.
  • Even if your former employer is bound by a contract, unless the company is exceptionally strong, your retiree health benefits may be terminated through bankruptcy court. ERISA law protects pensions, but not retiree health benefits, against corporate bankruptcy.
  • If you work for a state or local government entity that provides free retiree health benefits, you might get to keep them. But I wouldn't count on getting any more such benefits once the taxpayers learn how they have been deceived into paying for something that they don't get themselves.
  • If you or a spouse work for a school district or are contemplating taking a teaching or government job for a few years, you should look into what type of retiree health benefits they offer, as this could be the health insurance deal of the century…for as long as it lasts.
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So, there are several recommendations, offered by Pilzer, for your review.

Health Insurance Solutions for Early Retirees—Ages 55 to 64
If you are very healthy, or if you already have an individual/family policy, you are in luck. No matter how many medical issues you have had, if you were healthy when you first applied, you are probably still paying the basic premium for a healthy individual of your age. Basic premiums on HSA-qualified health plans range from $158 to $252 a month from top name-brand carriers.

  • $$$ Tip: If you are over 50 and seeking individual/family health insurance, it might be better to separate your family when you apply, especially if your spouse is younger.
Health insurance for couples and families is sometimes based on the age of the oldest individual, and different carriers have different age-rating bands—one might be 55 to 59 and another 56 to 60—so shop around and try different combinations of family members to find the best deal. If you choose a family policy, put the policy in the name of the younger spouse so that person still has coverage when the older spouse switches to Medicare.

  • $$$ Tip: Premiums for individuals age 55 to 64 are so high that in some cases it may actually be cheaper to get state-guaranteed health insurance from a state risk pool as if you were unhealthy—check out the rates in your state.
To become eligible for a state risk pool you typically have to first apply and get rejected or uprated by a private carrier, although many state risk pools may accept you with just a letter from a licensed agent stating you would have been uprated or rejected if you had applied.

Negotiating with Your Employer for Early Retirement Health Insurance Expenses 
You are probably not the only one age 55 to 64 who would like to retire early and leave your employer-sponsored group health benefits plan—your employer and your coworkers have a great financial incentive for you to do this.

Even if you are not consuming a single dollar in annual medical expenses, based on your age alone, the premium for you is about three times the price of the premium for younger workers.

The total premium for an employer-sponsored group health plan is based on an annual census of the employees, with the premium for an older worker typically three times the premium for a younger one—even if they are both healthy.

Thus, you may have some bargaining power with your employer, who will save a significant amount of money if you leave the company's group plan.

  • $$$ Tip: Never ask your employer to do something for you alone related to its ERISA-governed employee benefits plan—employers are not allowed to do anything for you without offering the same benefit to everyone else. However, there are ways to ask for what you want without violating ERISA.
For example, suppose you are 62, want to retire early, and want your employer to pay the $250 per month premium on your individual policy until age 65. Go to your employer and offer to quit in return for a $9,000 termination bonus.

Don't mention that you want the money to pay your healthcare premium or anything connected with the fact that you getting a special deal for retirement.

  • $$$ Tip: Ask your benefits administrator whether your company will soon be offering a retiree medical Health Reimbursement Arrangement (HRA)…and if not, ask for one.

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