Health Insurance for the Early Retiree

When we bought our first house in San Francisco, we chose the homeowners insurance with the lowest deductible.  In the first year of home-ownership we experienced two losses.  The first winter in our house was an especially rainy one.  The skylight in one of the bathrooms leaked, ruining the drywall on the ceiling.  The insurance adjuster told us that repairing the leak was not covered but patching the drywall was.  My dad did that for us at a cost of less than our deductible.

Then one sunny weekend, Doug came back from golfing with a friend.  His friend dropped him off and Doug deposited his golf clubs in front of our garage door.  He came inside, told me about his day, and then went down to the garage to open the door and bring in the clubs.   The clubs were gone.  The cost of the clubs was more than our deductible, so we did get some reimbursement from the insurance company for that one.

And then we paid for it.

The premium went up the following year by more than the insurance claims.  They offered us an alternative:  absorb a smaller increase in premiums by significantly increasing our deductible.

I learned my lesson.  Don’t use your insurance.  It will cost you in the end.  It’s much better to use insurance as a safety net for catastrophic events.  A few hundred dollars of damage or theft can easily be covered in the normal course of your budget (with lessons learned to be more careful where you leave your stuff.)  What you really want insurance for is the big stuff, the events that would devastate your budget like a fire or an earthquake. 

Which is the same approach I now apply to medical coverage.  Pick up the tab yourself for the few hundred dollars a year you spend on your annual check ups, mammograms and dental cleanings.  What you really want coverage for is the cancer, heart attacks, and broken bones.  Especially if you are healthy, a high-deductible health-plan coupled with a tax-deductible health savings account is probably your most economical choice.  For those that are retiring (or out of a job) before being eligible for Medicare, my advice about securing health insurance is in my U.S. News post, How to Find Health Insurance in Retirement.

 

This is a post from Retirement:  A Full-Time Job.  

 

Comments

[Bill Birnbaum]

Hi, Syd... Over the years, I've opted for major medical insurance policies... for the very reasons which you discuss. But, these days, it's become darn near impossible to find such policies. Seems that all of the insurance companies want to toss in some coverage for the "nickel and dime" expenses. Bill

[Satisfyingretirement]

I should look into the HSA option for my wife. She still has 8 years until Medicare coverage starts. We may be better off. Thanks for the insight.

[deegee]

Health insurance was one of the last pieces to fit into my ER plan.

I actually went on COBRA while I was still working because I had become ineligible for my company's group health program when I voluntarily reduced my weekly hours worked from 20 (the minimum for GH eligibility) to 12 in June, 2007. In those 18 months I was on COBRA, I made sure to get some costly dental work done because I knew I was probably going to lose my dental coverage at the end of 2008 whether I kept working or left the company.

Also in those 18 months, I asked the HR folks to either extend COBRA beyond 18 months for me or to allow me to pay 100% of the GH premiums and let me reenroll into the GH program. They declined, stating that my reduced hours put me into a "high-risk" class along with other PT employees (mainly those in their early 60s, I was only 44 at the time) and claimed it was not cost-effective. I replied that the company already offered subsidized GH coverage to hundreds of people who did not even WORK for the company such as retirees and spouses and children of covered employees. I also told them I could gain GH coverage if I quit the company and simply married a coworker (not that I was going to do that, I just wanted to point out that irony).

I did not expect my pleadings to work, so at the end of 2008 I left the company. The remaining pieces of my ER plan had fallen into place. I also made sure to tell HR in my exit interview that their foolish (and unfair) policy on GH eligibility was a secondary reason for my leaving.

I had found an individual HI policy for $469 a month in 2009. But by 2011 the premiums had risen nearly 50% to $694 a month (no dental, but that doesn't matter much). I looked around for another policy and I have since chosen a hospital-only plan through Blue Cross. I consider this a catastrophic plan because it is a lengthy hospital stay which would break me, not a few thousand dollars for doctor bills. An Emergency Room visit would be partly covered (hospital services, not separate medical services). If I were to become injured in a car accident (the most hazardous thing I do regularly), my auto insurance policy would cover me.

The hospital-only plan saves me $500 a month, so as long as don't incur more than $6,000 a year in out-of-pocket medical costs which were covered under my old plan, I will come out ahead.

I am not married to this plan, so if Obamacare offers me a lower or subsidized premium for broader coverage, I can always take that instead.

[michael61]

I just retired at 49 (yay!) and signed up for a high deductible health plan and an HSA. We went for the maximum deductible and lowest rate. We definitely have the same view as you - pay for our normal health care expenses as we would any other expense and depend on the insurance only if something BAD happens.

[Sightings]

I agree in theory -- but I've found that the insurance company negotiates a better price than you can get on your own. So for example, when I recently went to the doctor for an office visit, the bill was $185, out of which I paid my $35 copay. But when my daughter (who has only a catastrophic plan) went for an office visit, the insurance company did not get involved and she was charged $325, out of which she paid ... $325.

Anyway, my insurance company just forced me to do what you're suggesting. They changed my policy so that I pay about $40 less per month. But they raised my annual deductible from $0 to $2000. So, we'll see ...

[Retired Syd]

@Sightings: By being part of a high-deductible health plan, you do get the carrier's negotiated prices (as long as you stay in-network). A catastrophic plan is actually a different animal all together, and is often the only plan available to those that cannot otherwise get individual coverage (either because they never had it, or because they let coverage lapse).

@michael61: Congratulations and welcome to the club!

@deegee: It will be interesting to see what other options will be open to you when the health reform act is fully enacted.

@SatisfyingRetirement: It's definitely worth a look!

@Bill: Actually, it's not really the insurance company's fault -- the new health care reform requires certain preventive care be covered now (with a low co-pay). The idea is that it will save money in the long run to provide the extra incentive to encourage preventive care.

[Barb]

The problem as I see it is the way billing departments treat insured vs uninsured folks. My daughter has catastropic insurance and is a pay patient for everything else. she and I go to the same dr. The amount she pays is higher than the amount my health insurance is billed for. As long as this is true, im not willing to leave my regular health insurance.

[Retired Syd]

@Barb: Seems I might have to do a post introducing high deductible plans. A high deductible plan is not the same as catastrophic coverage. I think I may need to bring a little more information to my readers here . . . (you're not the only one, I've been getting emails on the subject too.)

[dgpcolorado]

I've had a High Deductible Health Plan (HDHP) and Health Savings Account (HSA) for a half dozen years now. The philosophy is the same as you mentioned: insurance is for catastrophic expenses that would break me, not the little stuff that I can budget for. Same with house and car insurance, I take the highest deductible they offer and try never to file a claim.

The downside of my current health plan is that the company (Aetna) has decided to drop coverage in my state and I have to find a new plan, which will be more expensive. Oh well.

As an early retiree, I think it is important to choose an HSA qualified HDHP (not all of them are). The money contributed to an HSA each year is deductible even against unearned income (unlike with a traditional IRA) and if the money is used for health care expenses it can be withdrawn tax free. So, tax deductible in, tax free out. Hard to beat that.

The main problem with an HSA is finding a trustee (usually a bank) that doesn't charge high fees and pays decent interest. (One can find banks that allow investment accounts but the fees usually make that too expensive to bother with.) At the time I set mine up in 2005, the best deal was the "No Bull" HSA at Cattle National Bank in Nebraska, of all places. Once one gets over the $500 account minimum, there are no fees at all and the variable interest rate is decent for a savings account in this low interest rate environment (currently 1.26%). There may be better deals elsewhere nowadays but I've been happy with Cattle Bank so I haven't shopped around.

For more info about HSAs see IRS publication 969:
http://www.irs.gov/publications/p969/index.html

[Retired Syd]

@dgpcolorado: We've found the same frustration with the HSA account. Previously ours was housed at a major bank which charged $14/qtr to house the money. We switched it to a local credit union and now pay $2/month, but that even seems high to me, given the current earnings environment. Let me know if you find a better deal, I should look around too.

[dgpcolorado]

Syd, My Cattle National Bank HSA seems to be a better deal than your credit union one (I hate, hate, hate monthly fees!). As long as one keeps a $500 balance there are no fees (save for $20 to set up the account). The first book of checks and a debit card are free (I have zero interest in debit cards, however, and didn't get one). The interest rate is tiered, I believe; my 1.26% current yield is on a fairly high balance.
http://cattlebank.com/HSAbrochure.pdf

I've been with Cattle Bank for almost six years now and am quite satisfied. So I am disinclined to wade through all the fine print of myriad other HSA trustees looking for a better deal. (Interest rates aside, it was the fees charged by nearly all HSA trustees that got my hackles up back when I was researching HSA options.)

[ralph sampson]

I agree, but, have you priced a high deductible plan? I did, and the price is exorbitant, and it excludeds pre-existing conditions. A high deductible plan is no answer today. We need health care reform, and we need it now, not in 2014.

[Retired Syd]

@ralph: A quick search at ehealthinsurance.com shows high-deductible plans coming in about $3k/year less than the low-deductible alternatives in my state (California). What plan do you have that is even cheaper than a high-deductible one--I don't see anything cheaper than that!

[Sarah Mitchell]

I think it is of great help if health insurance is given to the early retirees. My mother retired in an early age and received health insurance. She is still paying the hospital bills for minor injuries happened and just depending the insurance if her health is endangered and/or if an illness needed to be cured as soon as possible.