Introduction
One of the most vexing questions facing anyone planning to retire before the age of 65 is: “What do I do about health care coverage?” It is so difficult an issue to solve that it sometimes keeps people, who would otherwise retire early, working essentially for health care benefits. I’ve written several articles on Seeking Alpha to include retirement planning, retirement savings/investment, the public pension crisis, taking social security early versus late, and retiring early. In the comment string following every article, someone invariably asks about how I dealt with the issue of health care coverage. This article summarizes the options that are available to early retirees or anyone else under the age of 65 (not Medicare eligible) outside of a corporate or public employer health plan. Before getting into the meat of this article, readers should note that the Seeking Alpha editorial staff has graciously granted me approval to write this article sans the usually required actionable investment advice/recommendation because this topic is of sufficient interest to early retirees and those planning to retire early (before the age of 65).
Health Care Coverage Options
I used the term “Health Care Coverage” in the heading for this section as well as in the title because I will be discussing some non-traditional options outside of traditional health care insurance. However, before we get to the non-traditional options, I’ll cover the traditional options with which most people are already familiar.
Health Care Insurance Under The ACA
Most everyone should be familiar with the Affordable Care Act (ACA) also often referred to as Obamacare as this was one of President Obama’s signature accomplishments during his 8 years as President. The ACA was a legislative attempt to expand health care insurance coverage to essentially everyone not covered by an employer plan. ACA insurance plans were available to everyone and, initially, everyone who was not covered by either an employer plan, Medicare, Medicaid, or a ministry plan was required to purchase coverage through the healthcare.gov website. The ACA, as originally enacted, included a number of provisions to spread the cost of the plan across a wide base and to subsidize the cost of plans for lower income individuals and families.
The original legislation included a tax on high value insurance plans (i.e. Cadillac plans), a durable medical equipment tax, a 3.8% tax on net investment income for wealthier taxpayers, and a tax on individuals who failed to comply with the health care insurance mandate. The unions complained bitterly about the Cadillac tax on their health care plans and it wasn’t long before the tax was repealed. The individual mandate tax was repealed in 2017 effectively making the mandate moot. The House voted July 25, 2018 to repeal the durable medical equipment tax but the Senate has not yet taken up the legislation. The 3.8% tax on net investment income also remains in place. Because the original ACA legislation envisioned that younger and healthier members in the ACA plans would effectively subsidize the older and unhealthy members, the repeal of the individual mandate tax has caused and will cause the cost of ACA plans to continue to rise. ACA plans were already experiencing large cost increases because a larger portion of the members were older and sicker than originally estimated. The repeal of the individual mandate is very likely to accelerate the increase in costs for ACA-sponsored plans.
I retired at the age of 55 in 2014 and, for my first year of retirement, enrolled in an ACA sponsored plan. Technically, I had health insurance coverage, but the reality was that it was expensive at roughly $1000 per month, with a $12,000 deductible for a 20% co-insurance plan that didn’t really provide much in the way of costs reimbursed. The next year, the same plan would have cost 37% more. I quickly found another option. I’m happy with the decision I made as the costs have continued to increase every year. I visited the healthcare.gov site today to get an estimate for a decent plan with a reasonable deductible for the 2019 plan year. The table below provides a summary of a plan for a 60 year old head of household, spouse, and 18 year old dependent son (full time student).
Source: Author
The Gold level plan above is not comparable to the Silver level plan I had in 2014. But it is clear from the above table that ACA-sponsored plans are expensive. Very few retirees will have the financial resources necessary to pay out the roughly $44,000 per year for health care insurance offered under this example policy. If you qualify for Federal subsidies towards your ACA plan, this would significantly reduce the out-of-pocket cost for the plan. Based on one of the available ACA subsidy calculators on the internet, a household like mine would get a subsidy of $36,240 per year at a modified adjusted gross income (MAGI) level of $83,000 per year or less. A household with a MAGI above that level would not qualify for a subsidy. The subsidized insurance premium out-of-pocket cost would drop down to $7716 per year ($643/mo) at a MAGI of $83,000. While the $643/mo cost is certainly more affordable, I think few households with MAGI of $83,000 or less would be in a position to retire early.
ACA-sponsored health care insurance plans have several benefits.
- Mandated minimum coverage is very broad.
- ACA plans can only be offered through state regulated insurance companies.
- Pre-existing conditions are covered.
- Prescription medications are covered.
Clearly, for those that can afford this level of insurance coverage, ACA sponsored plans are a viable option for early retirees.
Short-Term Health Care Insurance Plans
President Trump recently signed an executive order extending the allowable duration for short-term health care insurance plans to 12 months duration renewable up to a maximum of 36 months. Prior to the “formal” extension, there were (and still are) ways to work around the previous 12 month maximum duration so Trump’s executive action was, in reality, not an earth shattering event. I looked into short term health care insurance back in 2015 (for CY 2016) and came very close to going that route. The cost of a short term insurance plan is much lower than for an ACA sponsored plan but you won’t get the same level of coverage. Short term plans are regulated by the states so, presumably, you are dealing with known reputable insurance companies.
There is a high degree of variability in short term plan coverage. In most cases, short term plans to not cover pre-existing conditions, do not cover maternity care, do not cover prescription medications, and have a lifetime maximum payout. In the short term plan example I will use in this article, the lifetime maximum payout is limited to $1M. With all of these limitations, it is pretty clear that short term health care insurance policies are not suitable for people with chronic conditions or who need expensive prescription medications. Short term plans are more suitable as coverage for unforeseen acute illnesses or emergency care. The table below summarizes the example short term plan I chose as an example for this article compared to the previous ACA-sponsored plan.
Source: Author
With all the limitations on coverage, short-term plans might be a viable option for the healthiest of early retirees that don’t need much in the way of prescriptions medication. Even with the limitations inherent in short-term plans, the cost of such plans is not what I consider a bargain. At $1276 per month, this example short term plan is pretty expensive especially given the limited coverage you would be getting.
Health Sharing Ministries
Health sharing ministries are allowable alternatives to ACA sponsored insurance plans. As I understand the original ACA legislation, there were three existing health sharing ministries that were grandfathered at the time the ACA legislation was passed. The ACA allowed these health sharing ministries to operate as alternatives to the individual mandate in the original legislation. Since the individual mandate has effectively been neutered by repealing the tax for failing to secure health care insurance coverage, I believe the door is now open for other health sharing ministries to operate.
So, what is a health sharing ministry? While the question is simple, the answer is a bit complex. Health sharing ministries are non-profit religious based entities that facilitate the sharing of health care costs amongst the membership of the ministry. Health share ministries do not fall under the regulatory authority of state insurance commissions, have no minimum coverage requirements like those in ACA-sponsored plans, and have the ability to set membership standards for prospective members. The three health sharing ministries I am familiar with are Liberty HealthShare, Medi-Share, and Samaritan. I believe that Medi-Share and Samaritan restrict their membership to those of the Christian faith. Liberty HealthShare (Liberty), I believe, accepts members of other religious affiliations as long as the prospective member can attest to a set of shared beliefs held by the ministry. The health sharing ministries have been very successful since the ACA legislation was passed and membership has grown significantly for all three of these ministries. The health sharing ministry has been so successful that I understand that a relatively new health sharing ministry has opened specifically for those following Judaism.
Why have these health sharing ministries been so successful? I think the short answer is the low cost for health care coverage tailored to meet the needs of people with a similar set of shared beliefs. While there are differences in the membership standards set by the Liberty, Medi-Share, and Samaritan ministries, there are a set of “standards” similar to all three that filter down into the health care coverage exclusions. Generally, medical treatment for illicit drug use, alcohol abuse, out-of-wedlock births, and high risk activities are not covered. In addition, members are expected to live a healthy lifestyle to help minimize the need for medical treatment. Prescription medications are also limited in coverage particularly for chronic long term conditions. The benefit to the membership of these ministries is that, as long as the member can live with the coverage exclusions, the costs of health care for these like minded members is much lower. Costs are also lowered because the ministries are not for profit entities. The table below shows a summary comparison for the three health sharing ministries, short term insurance, and ACA sponsored insurance plans.
Source: Author
The table above does not provide enough information to truly compare one health sharing ministry to the others. There is variability in what is covered, at what levels, members’ responsibilities, and how billing and payments are handled. For those readers who might have interest in one of the health sharing ministries, it is imperative to spend some quality time on each of the respective websites to get a full understanding of how each operates.
When discussing health sharing ministries, the two questions most often asked of me are “Do health sharing ministries really work?” and “How do you know your bills will be covered?”. I think the best way for me to answer this is to provide a real life example. I mentioned earlier in this article that I had considered a short term insurance plan in 2015 but decided to take an alternative route. I, and my family, chose to become members of Liberty HealthShare in October 2015. The application and enrollment process went smoothly and our membership started November 1, 2015. In 2016, after a routine 2.5 mile run, I went into complete cardiac arrest in my home office while preparing to help my son with his math homework. My son opened the window and yelled to my wife who was across the street at the neighbor’s house. My wife found me already turning blue and immediately started CPR while my son called 911. The EMTs arrived 15 minutes later and, after 3 defib attempts, got a weak erratic heartbeat. Because my heartbeat was not stable, the EMTs took me to the closest regional hospital. At this regional hospital, I was placed into an induced coma and my body temperature was lowered to 87-88 degrees. Thirty six hours later I was warmed back up and brought out of the induced coma. The doctors at the regional hospital could not figure out what caused my heart to stop and the hospital was not equipped to deal with me in my current condition. So, I got another ride in the ambulance into Charlotte, NC to a large hospital system with a large cardiac unit. A heart catheterization clearly showed that I had 95% and 90% blockages in my left and right coronary arteries which surprised the cardiologist as much as it did me. I had been living a fairly healthy lifestyle without alcohol and tobacco and with regular exercise. I’ve always had low blood pressure and at least a reasonably healthy diet. This kind of blockage was not supposed to happen. Twelve hours later I was in surgery for a double bypass and 3 days later I was released from the hospital.
In summary, I was admitted and treated in two hospitals and treated by a half dozen different medical professionals. The original total for this ordeal amounted to $304,097. Liberty and their patient advocacy group negotiated the original billed amounts down to a reasonable cost and covered all but my Annual Unshared Amount (AUA) of $1500 at the time. The AUA is equivalent to the annual deductible for traditional insurance policies. Most of the medical providers accepted Liberty’s payment schedule for the services provided (150% – 170% of Medicare Schedule). While one of the medical provider’s bills took over a year to get resolved, Liberty took care of this very professionally and diligently. In the end, my out of pocket cost for this medical event was $1500.
I can personally answer the question of “Do health sharing ministries really work?” with a firm yes. To the question of “How do you know your bills will be covered?” I would offer the following answer. The sole reason that health sharing ministries exist is to facilitate the sharing of medical costs among its members. Failing in that regard really is not an option. Liberty members know that, if necessary, the monthly membership rate can be adjusted upwards or the AUA can be adjusted upward to ensure all members’ eligible medical costs are covered. I believe both Medi-Share and Samaritan have similar policies.
For those that can accept the membership standards and the coverage exclusions, the health sharing ministry alternative to traditional health care insurance is a viable option for those planning for an early retirement.
Conclusion
There are viable health care coverage options for those planning on early retirement and the loss of their employer plan. The ACA sponsored plans offer a range of plans and coverage options for those looking for traditional health care insurance but at a cost that many retirees would find unacceptable. President Trump recently made short-term health care insurance plans more legitimate by extending the maximum duration of those plans out to 36 months. Short-term plans may be an option for those early retirees who are healthy, close to retirement, and looking to bridge the gap between their employer plan and Medicare. Finally, for those early retirees who can accept the membership standards and coverage limitations, health sharing ministries are a lower cost alternative to more traditional health care insurance.
In closing, I would implore anyone considering any of the insurance products or ministry membership alternatives discussed in this article to do your own due diligence to find the best option for your situation. The information provided in this article only scratches the surface of what you need to know in order to make an informed decision about a critical aspect of your early retirement. I am not licensed to sell insurance products or to make recommendations for or against any particular insurance product or insurance alternative. This article is intended only to inform interested readers about the available options for health care coverage.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Article source: https://seekingalpha.com/article/4222396-health-care-coverage-options-early-retirement