Retiring Before 65: How to Avoid Health Insurance Nightmares
Many people dream of retiring early but don’t realize that one of the biggest costs they’ll face is health insurance before becoming eligible for Medicare at age 65. I learned this the hard way while planning my own early retirement. Here’s what I discovered, along with some personal lessons that might help you avoid costly mistakes.
1. Coverage Through a Working Spouse or Domestic Partner
The best option—if available—is getting health insurance through a working spouse or domestic partner’s employer-sponsored plan. This often provides the most comprehensive coverage at the lowest cost.
Unfortunately, I didn’t have this option, so I had to explore alternatives.
2. COBRA (Consolidated Omnibus Budget Reconciliation Act)
COBRA allows you to continue your employer’s health insurance plan for up to 18 months after leaving your job. However, you’ll pay the entire premium yourself, including the portion your employer used to cover.
My Story:
I went with COBRA after I retired, and received the same insurance that I had when I was an employee. However, I made a costly mistake: I didn’t realize that whatever health plan I had during my last year of work would be the exact plan I’d have under COBRA. I unknowingly selected my employer’s most expensive health plan, so my COBRA premium was $600 a month. Had I picked a less expensive plan, I could’ve saved a lot of money.
Tip: If you’re considering COBRA, choose a lower-cost health plan in your final year of work if possible.
3. ACA (Affordable Care Act)Marketplace Plans aka Obamacare
When COBRA runs out, the next step is exploring ACA plans through Healthcare.gov or your state’s Healthcare marketplace. ACA plans are federal and state regulated, meaning they must meet specific coverage standards.
All plans cover the same set of essential health benefits and do not affect the quality of care you'll receive. The categories are based on how you and the plan will share the costs for health care services.
Key Benefits of ACA Plans:
Guaranteed Issue: You can’t be denied coverage because of pre-existing conditions.
Guaranteed Renewability: Coverage can’t be canceled unless you stop paying premiums.
Fair Premiums: Insurers can’t charge you more based on health conditions—only age, location, and tobacco use.
Preventative Services Covered: At no cost to you preventative services are covered when provided by in-network providers. This includes services like screenings, vaccinations, and counseling aimed at preventing illness or detecting health issues early
Subsidies available for low income: If you have low income in retirement you may be eligible for these subsidies but only if you purchase a plan through the ACA marketplace.
ACA Plan Categories:
Bronze, Silver, Gold, Platinum: Different coverage and cost levels.
Catastrophic Plans: Limited coverage for people under 30 or those facing specific hardships.
My Experience:
When my COBRA coverage ended, I looked into an ACA plan. It was reliable but expensive, costing over $1,000 per month. A friend suggested a cheaper, non-ACA plan for about $600, so I decided to look into it—but I’m glad I did my homework first.
4. Beware of Non-ACA Compliant Plans
Non-ACA Compliant plans can seem attractive because they’re cheaper, but many have serious limitations. They aren’t required to follow federal health insurance ACA rules, so they often exclude essential benefits like prescriptions, mental health services, preventative services, and pre-existing condition coverage. They have caps on coverage and provide skimpy coverage. Since there are no standards on what these plans must cover, you would need to read the fine print buried in the lengthy contracts to really understand what is covered.
What I Learned:
After researching these non ACA compliant plans, I realized the risks were too high. Insurers could cancel coverage, cap payouts, or deny claims due to pre-existing conditions—all things ACA plans can’t do.
Cautionary Tale from Propublica:
In 2019, 30-year-old Cory Dowd bought what he thought was decent insurance that was not listed on the ACA marketplace (Healthcare.gov). Monthly premiums for the two short-term plans he bought were surprisingly cheap at around $100 a month each, with reasonable co-pays for routine doctor visits and treatments. Best of all, the first plan he bought promised to cover up to $1 million in claims, the second up to $750,000.
After an emergency appendectomy, he received a $41,000 hospital bill. His insurance only paid $1,682 because of fine-print restrictions, leaving him responsible for over $33,600. When he dug into the fine print, he found out that all surgeries were capped at $2500. I can’t imagine what type of surgery only costs $2500.
Sam Bloechl, 31 was looking for inexpensive healthcare.
So when the broker told him a UnitedHealthcare Golden Rule plan would cover him for a year for less than his ACA marketplace plan he signed up.
A month later Bloechl was diagnosed with stage 4 non-Hodgkin's lymphoma after an MRI showed tumors on his spine.
To Bloechl's dismay, he soon learned that none of the expensive care he needed would be covered by his new health plan. Instead of a comprehensive plan that complied with the ACA, he had purchased a bundle of four short-term plans (with three-month terms) that provided only limited benefits and didn't cover preexisting conditions.
The reason he wasn’t covered: He had visited a chiropractor for back pain before he bought the plan. Bloechl had blamed his pain on the heavy lifting that came with running his landscaping business. But UnitedHealthcare Golden Rule argued that he had sought medical treatment for what turned out to be a preexisting condition — cancer — so the plan didn't have to cover it. It didn't matter that he hadn't been diagnosed with cancer when he purchased the plan.
The insurer didn't cover any of his other cancer-linked bills for chemo and radiation either. Bloechl appealed the decision, but his appeals failed. He had more than $800,000 in bills for his care.
These nightmare scenarios convinced me to avoid non-ACA compliant plans entirely.
What I Ultimately Chose
Fortunately, I discovered my former employer offered a retiree health plan regulated by the ACA and ERISA. It had a high deductible, but the coverage was solid, and it followed ACA federal health insurance rules. The premium was about $1,100 per month—expensive, but worth the peace of mind.
Key Takeaway:
Navigating health insurance before age 65 can be confusing and expensive. Do your research, read the fine print, and avoid plans that are not listed on Healthcare.gov
Health insurance is complicated—don’t let surprise medical bills catch you off guard. Make informed choices now for peace of mind later.
Feel free to contact me or reply back to this email with questions about this or any topic.
NOT FINANCIAL ADVICE
The information contained in this article is for informational purposes only and shall not be understood or construed as financial advice. I am not an attorney, accountant, or financial advisor, nor am I holding myself out to be. I do not accept any fees or commissions from anyone or any financial institution.
