Retiree Health Insurance Options and Cobra

Basic Retiree Health Insurance Options and COBRA

Some employees decide to retire before they are eligible for Medicare. They may be forced to retire because they have lost their job or they might decide to stop their current job and start a new phase in their life. Either way, they will need health insurance.

Early retirees have several basic options for accessible and affordable health insurance:

• Continue any employer-sponsored health insurance that might be available
• Apply for an individual health insurance policy
• Take advantage of continued health insurance coverage offered under Federally-mandated programs:
  • COBRA - Consolidated Omnibus Budget Reconciliation Act of 1985
  • HIPPA - 1996 Health Insurance Portability and Accountability Act

Employer-sponsored

Some employers offer retirees the option to maintain their coverage on the employer's group insurance policy. This option usually provides the same level of coverage for the employee. The employer may agree to continue to pay part of the premium as a benefit to retirees or to those who are laid off due to job downsizing.

If the employer does not pay part of the premium, being part of the employer's group policy will still result in a lower premium than if the retiree applied for an individual policy with the same coverage from the same health insurance company.

Individual Policy

Employees can apply for individual policies offered through insurance companies. Many insurance companies offer individual policies, but you may find some surprises:

• They will not have the lower premiums offered with a group insurance policy.
• You may not be able to get the exact same coverage. For example, your co-payment may be more or you may not have the same coverage as a group policy.
• Coverage may not include preexisting conditions. Or, you may be denied insurance or offered an expensive policy if you have a preexisting condition.

Some options for more moderately-priced individual policies include:

• AARP offers a health insurance program with good coverage at reasonable prices to their members. AARP members are age fifty or older.
• HMO and PPO insurance is available from a variety of insurance companies. Be sure to compare benefits and prices. After you have reviewed the materials initially provided by the HMO or PPO, don't be afraid to ask for information on lower cost policies.

COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires employers in companies with 20 or more employees which have health insurance to offer retiring employees a continuation of their health benefits at 102% of the group insurance rate for 18 months.

HIPPA

Employees with COBRA coverage can purchase private individual policies after the 18 months if they have no preexisting conditions. This extended coverage is guaranteed under the 1996 Health Insurance Portability and Accountability Act (HIPAA).

HIPAA also guarantees that employees who work in companies with less than 20 employees can purchase health insurance as soon as they retire. The premiums are usually higher than they would have been pre-retirement or when the employee was covered under COBRA.

Plan Ahead

Be sure to start researching your health insurance options as soon as you start thinking about early retirement. By knowing your options you can make a smart, cost-effective health insurance decision and minimize any lapse in coverage.

Talk to Your Employer

Your employer's benefits coordinator can provide you with lots of information on post-retirement health insurance options. Ask about the coverage offered to retirees, being sure to ask:

• What services are covered?
• What is the deductible or co-payment?
• Is there a prescription benefit?
• Are there any limits on how much the premiums can be increased?
• How long will the coverage be available to you?

Call Your Insurance Company

The customer service or member benefits department of your insurance company can give you information on what you can expect if you extend your current insurance after you retire. Be sure to ask:

• What will be the insurance premium to maintain the same level of coverage that you current have?
• What other coverage options are available?
• What steps would you have to take to maintain the coverage after you retire?
• Is there a waiting period or would coverage switch over immediately?
• Would you have to prepay any premiums?

A Final Thought

Retiring early does not mean that you have to forego health insurance. There are many retiree health insurance options and COBRA benefits available to give you coverage until you decide to apply for your Medicare benefits. Your options may continue to change depending on your age and the coverage offered by your prior employer. So be sure to reevaluate your insurance options every year to make sure that you are getting the best coverage for your insurance dollar.