Individuals about to retire must face financial challenges such as increasing daily costs, rising required savings, declining buying power, and an increasing dependence on social security. This is compounded by the psychological adjustments to be made as the transition is made from a working life to retirement. With many financial concerns rooted in contemplating how to pay for health insurance, the available options for persons about to retire, but whom have not attained the age to qualify for Medicare is presented in the report below, after a brief exploration of the financial and emotional challenges faced in preparing for retirement. A list of websites where information can be founded regarding the provision of health insurance for seniors under the age of 65 is also included.
Financial and Emotional Challenges
1. Rising Recommended Savings
- The amount financial advisers recommend as a minimum for retirement is rising. During the 1990s the recommended figure was between $100,00 and $150,00 per couple. The recommended amount has increased to just under $1 million to $1.73 million per couple.
- As at February 2019, The Robin Report noted that Fidelity Investments states that the average couple needed $280,000 over their lifetime just to cover out-of-pocket health care costs. Facility based care or long-term costs, in-home health care, or dental care costs are not included in this figure.
- The serious nature of this issue is revealed by the fact that the Economic Policy Institute (EPI) reports average retirement savings for the age group 56-61 is $163.577, and the Government Accountability Office reports that 29% of household aged 55 and older have neither a pension of any kind or retirement savings. It is estimated that close to half of all American household have no retirement accounts, IRAs or 401(k)s.
2. Mortgage and Rental Costs
- In the past home mortgages were paid off prior to retirement, and retirees were able to age in place without the monthly overhead of payment for shelter. These retirees were also able to trade down their shelter if they desired, opting for a house that had fewer monthly overheads.
- After the Great Recession when housing values fell by close to 30%, the option to sell a home with a loss did not exist. Some homeowners with a mortgage lost their homes through foreclosures and were priced out of the home-owning market.
- Persons renting shelter increased, and according to the Metropolitan Housing and Communities Policy Center, during the period 2004 and 2014, persons aged 55 and older accounted for 42% of renter growth. Senor renters are predicted to increase to 12.2 million by 2030.
- Concurrent with the number of renters increasing, is an increase in rental prices with the average monthly cost of a standard 2- bedroom apartment increasing from approximately $800.00 to $1,350 nationwide, and close to $3,000 in larger metropolitan centers such as San Francisco and New York.
3. Interest Free Retirement Savings Accounts
- Interest paid on retiree savings account ranged from three percent to ten percent over the past century. During the previous decade and up to today, the interest paid on these low-risk investments is little to none.
- Whereas interest payments were substantial enough previously to use for living expenses, now with little or no interest paid, retirees are having to dip into their principal when unexpected expenses arise. The Robin Report states that Charles Schwab quantified the loss in interest payments at $58 billion annually.
4. Increasing Dependence on Social Security
- The Social Security Administration indicates that half of elderly American depend on Social Security to cover 50% of their income. Intended to supplement other income sources and to build a safety net, Social Security is not a main source of income.
- The number of companies offering defined benefit pension plans in 1998 was close to 50%, but that figure has declined to 7% in 2019, with 14% of American being covered presently.
5. Declining Buying Power
- Americans with retirement savings of $1 million or more represented 0.8% or less than one million Americans. According to the US Census Bureau, median annual household income for Americans aged 65 to 74 averages $40,000, while the figure declines to an average of $30,000 for American aged 75 and older.
- To equal the buying power of$20.00 in 2000, a retiree today requires $30.22. Food prices were 51% higher in 2018 compared to 2000. Price increases of 27% and 14% in the previous ten and three years respectively have been recorded.
6. Lack of Family Support for Care
- Two-wage households, rising costs for child care, distance, along with extended family home residence for adult children have all complicated the possibility of at home care from families for seniors.
- Long-term facility based care can cost as much as $100,000 annually, a cost that is not covered by Medicare, and f available at all in private health insurance, comes at a cost.
7. Scam Susceptibility
- The range of scams to which seniors are susceptible range from telemarketing scams to financial abuse from family members. It is estimated that as much as $3 billion is taken annually from seniors by scammers.
1. Considering Life’s Final Transition
- Retirement represents the final major life transition for a person after beginning formal education away from the home, and joining the working world, Individuals are asked to consider a life without the usual routine of getting up and leaving the home in the morning, before returning in the evening. The six stages of adjusting to retirement are outlined below.
- While working, retirement is something that an individual plans for, but often rarely considers the actuality of it. The younger a person is and the further distant retirement is, daily concerns can supersede contemplating retirement beyond a basic plan for how retirement will be funded. When the actual day of retirement comes around it is the demarcation and a rite of passage between the life ahead of the retiree, and what is to come.
- Immediately after retirement in the honeymoon phase, new retirees fill their days with the activities they have planned. The duration of this phase varies according to the retiree and how many activities they have planned. As time goes on, and the high of being permanently on vacation wears off, retirees face feelings of letdown, loneliness, disillusionment, loneliness, and feelings of uselessness.
- When retirees overcome the disillusionment phase, they enter the phase of reorientation. During this difficult phase, self-examination takes place as retirees consider questions related to their new identity, purpose, and usefulness to their families and wider society. When the answers to these questions are found then the retiree can actively close off their working life and enter the final phase of routine within retirement.
- Financial planners advise that the focus be placed on how finances can maximize life during retirement rather than maximizing life to finance retirement. Ensuring a retirement plan is prepared that comprises a financial plan, a budget, and a fun plan which includes a list of the places they want to visit and the things they want to do, along with the budgeted funds to do so is important. Finally, new retirees are advised to have some patience with themselves as they adjust to their new reality.
- Nancy Schlossberg, author and lecturer in retirement and coping with transitions states that concern for the psychological portfolio is just as important as concerns about the financial portfolio. Ms. Schlossberg advises retiree to try on retirement first in a phased retirement program if it is an available option, and if it is not to ensure enough time is devoted to visioning the retirement years prior to the actual retirement. A retirement plan that allows for adaptation and for plans to evolve is also key, along with repeated reinvention for a comfortable, happy retirement.
2. Gender and Ethnicity
- In a study published in 2019, and using data from between 2010 and 2012 sourced from the Korea Longitudinal Study of Aging, depressive symptoms of an overall retired group was not different from that of their employed counterparts.
- However, for males depression rates were higher for retired males than for employed males and vice versa for females. The study concluded that depressive symptoms vary by gender and worsens with retirement. Depression rates for retired men in the study came in at 24% compared to 6% for employed men, while for women the rates were 29% for retired women compared to 16% for those currently employed.
- A study focused on gender differences in bridge employment during retirement conducted among American workers aged 50 and older, found that men and women with health benefits at work, and men with a lower overall family income were more likely to pursue bridge employment. Where the work compromised family life, the likelihood of bridge employment for both sexes is decreased while health variables showed no relation to bridge employment. Gender and marital status predicted engagement with bridge employment.
- The Report on the Economic Well-Being of US Household in 2019 published in May 2020 revealed that 51% of all retirees retired at age 61 or earlier, 23% between 62-64, and 24% over the age of 65. Sixty-five percent of Hispanics retired before the age of 61, compared to 56% of Blacks and 48% of Whites. Between the ages of 62 to 64, Whites citizens retired at a rate of 24%, Black citizens at a rate of 23%, and Hispanic citizens at a rate of 19%. White citizens constituted 27% of the persons retiring over 65, while Black and Hispanic citizens accounted for 17% and 15% respectively.
- The Transamerica Center for Retirement Studies published its Women and Retirement: Risks and Realities Amid COVID-19 report on 17 September 2020. The survey revealed that 24% of women currently employed has experienced declining confidence in their ability to retire comfortably, compared to the 17% that are very confident in their ability to retire comfortably.
- Seventy percent of women are saving for retirement, 54% expect to work past age 65 and have no plans to retire, while 56% plan to continue working part-time. The reasons given were financial (81%) and healthy aging (76%).
Health Insurance Options
1. Group Health
- Group health insurance refers to coverage provided to members of a group. These members are usually company employees, or the membership in an organization. For a plan to take effect, a threshold of 70% participation is usually required. Members of the insured’s immediate family along with dependents, up to age 26, can also access coverage under the plan at an additional cost.
- Due to the large amounts of members, insurer risk is spread across a larger group, allowing the insurer to offer coverage at a premium that is lower than what would otherwise be offered. The cost to the insured is further reduced due when premiums are split between the organization and its members.
- An example of how the transition from group health insurance to a customized health insurance plan works for retirees is provided by the insurer, Anthem. The Group Retiree strategy at Anthem is based on pricing stability and predictability, retiree-first practices, and smart, strategic execution.
- In its customizable plans, existing coverage can be matched, and policy holders will continue access to the insurer’s network of over 600,000 hospitals, specialists, and doctors.
- Features of the plan include options to seamlessly transition to the company’s Medicare Advantage plan with features such as lower fixed premiums with reduced OPEB (Other Post-Employment Benefits) liability, tailored medical and prescription plans, and holistic care programs.
- Retirees are also able to access the First Impressions Welcome Line call center at Anthem which is designed to provide educational material on the coverage along with customer support. Retirees are offered tiered programs that are designed to transition coverage as health needs change, access to the 24/7 LiveHealth Online service, and digital resources for use in health management.
- Converting group coverage for retiring workers into an individual plan is at the discretion of the employer. The major advantage of this option aside from the cost, is the opportunity to remain in a network with a physician that the retiree is accustomed to. Major disadvantages are that the cost of the plan may still be prohibitive for the retiree, there is the potential to lose some benefits when lower cost options are chosen, and if the person has retired very early, the time frame to pay the premium before Medicare applies, can be very long.
- As a private insurer product, this option differs primarily from the federally sponsored option of Medicaid. The resulting plan is an extension of group cover that incorporates features of the previous group coverage. The main differences emanate from the lack of a premium under Medicaid, the fact that this option provides continuity from group coverage to the insurers group Medicare product, and the length of the coverage available compared to the short term nature of the option under COBRA.
2. Federal Exchange (Health Insurance Marketplace)
- The Health Insurance Marketplace is a federally operated marketplace where US citizens can review and purchase health insurance in person, or via a website or call center. The federally operated service is available for most states; however, some states have opted to run their own marketplaces.
- An applicant for individual health insurance is required to provide information regarding their income and household. This is necessary to determine the applicant’s qualification for coverage for Medicaid, premium tax credits, or other savings.
- Individuals must submit their application for coverage during a calendar year during the enrollment period consisting of the last two months of the previous year. Once approved for coverage, the applicant is given the opportunity to review the offers before a plan is purchased. Insurance coverage becomes effective on January 1 of the year immediately following the enrollment period.
- If an applicant requires insurance after the enrollment period for a year has closed, they can still qualify for the Special Enrollment Period coverage if they have experienced a life event. Losing health coverage within the previous 60 days or within the upcoming 60 days, qualifies an individual for a Special Enrollment Period.
- Benefits covered under all plans offered in the Marketplace include the essential services listed below.
- Ambulatory patient services.
- Emergency services.
- Pregnancy, maternity, and newborn care.
- Mental health and substance use disorder services.
- Prescription drugs.
- Rehabilitative and habilitative services and devices.
- Laboratory services.
- Preventative and wellness services.
- Pediatric services.
- Birth control coverage.
- Breastfeeding coverage.
- Dental, vision, and medical management programs are offered as add-ons.
- Applicants that already possess retiree coverage and wish to purchase a Marketplace plan would not be able to access premium tax credits and other income-based savings. Applicants who have voluntarily dropped their retiree coverage is barred from qualification for a Special Enrollment Period and cannot access coverage in the marketplace until the next Open Enrollment period.
- This is an attractive option for retirees and pre-retirees preferring to purchase a longer term of coverage than what is available under COBRA. If cost is a factor, it also offers the opportunity to compare prices from a number of different options.
- The plans offered in the Marketplace are provided by private insurers. Applicants have the comfort of knowing prior to purchase the exact primary benefits that are available, regardless of the company making the offer, unlike potential variations under wholly private plans.
- Plans purchased in the marketplace provide coverage up to when the applicant become eligible for Medicare, but cannot be continued once the insured attains coverage under Medicare.
3. Consolidated Omnibus Budget Reconciliation Act (COBRA)
- COBRA refers to the federal law that allows an individual to temporarily keep health coverage when employment ends. Under COBRA the individual assumes 100% of the premium in addition to an administrative fee. In addition to the employee, coverage must also be offered to any spouses, former spouses, and dependent children.
- For an employer to be mandated to offer COBRA coverage, they usually must have more than 20 full-time employees. Post employment the coverage extends for a period ranging from 18 to 36 months.
- Under COBRA ,coverage is offered for prescription drug costs, dental treatments, vision care, and health insurance. Life insurance and disability insurance is not covered. The benefits offered must exactly match what is available under the current group plan offered to employees.
- For coverage to be eligible to be extended under COBRA, the employee must have been enrolled in the company group plan on the day before the qualifying event occurs, the group plan must be effective for over half of the employers typical business days in the previous year, employers must continue the coverage to their existing employees. A qualifying event occurs when an employee experiences voluntary or involuntary job loss, or there is a decrease in the employment hours which results in loss of coverage from the employer.
- Coverage under COBRA is seen as a last resort for retirees under 65 because the individual is required to assume the full cost of the coverage, and due to the truncated term of the coverage. If someone retires at age 55, then they will have to access coverage under another retiree health coverage option within a maximum of 36 months after retirement.
- Regarding the transition to Medicare, this option is only feasible for a retiree who will attain the age of 65 within the 18-month maximum term of the COBRA coverage. If they do not attain age 65 within that time, the options available are to access Medicaid (if qualified) or private health insurance.
- The primary difference between COBRA and the other options available to retirees and pre-retirees resides in the truncated nature of the coverage and the fact that the coverage offered exactly matches what the employee was entitled to under the group plan.
- Medicaid refers to a federal and state insurance program designed to provide health care coverage at a low cost to low income people, families and children, people with disabilities, pregnant women, and the elderly. An application can be made at any time, and once approved, coverage begins immediately regardless the time of year.
- Retirees under the age of 65 can access Medicaid provided they earn below the income threshold. The actual figure varies from state to state, but common questions asked to determine eligibility revolve around the number of persons in a household, the states, and the estimated household income for the year.
- Applications can be submitted via the Health Insurance Marketplace or through a state Medicaid agency. Contact information for each state is provided on the healthcare.gov website.
- If an application is being submitted via the Health Insurance Marketplace, the applicant’s information will be sent to the state agency, with enrollment information being returned to the applicant from the state agency. Upon submission through the Marketplace, the applicant will be informed if they qualify for an individual insurance plan.
- In 2020, over 8.5 million American between the ages of 50 to 64 received their health insurance from Medicaid. This figure represents a 40% decline in uninsured rates for this age group between 2013 and 2016 resulting from the expansion of Medicaid coverage to low-income adults.
- The primary difference between Medicaid and the other options available to pre-retirees and retirees, is that it caps entry based on an income threshold, and that is not a privately run health insurance product.
- Transitioning to Medicare from Medicaid coverage occurs once the insured attains the age of eligibility. Medicaid coverage can be transitioned to the traditional Medicaid for the aged, blind, and disabled (ABD Medicare), or to the Medicare Savings Program (MSP). A retiree’s income and assets may disqualify them for ABD Medicare, in which instance a MSP program will be practical. The National Council on Aging issue brief expands on state specific practices and challenges on this issue.
5. American Association of Retired Persons (AARP)
- The AARP offers healthcare insurance coverage as part of its member benefits. Plans are offered for long-term care, short-term care, dental, and vision.
- Long-term care insurance is offered in partnership with New York Life for families, individuals, retirees, and pre-retirees. The plan seeks to supplement coverage offered under the federal Medicare and Medicaid programs. Interested members can download a guide for further information of request consultation with an agent.
- Short-term coverage for up to 360 days is provided in partnership with Medico to members of the AARP. The types of care covered are home healthcare, adult daycare, assisted living, nursing home, and a hospice care facility. Plans can be customized, and household discounts are available, along with survivorship benefits, and an inflation protection rider. Applicants can fill in their personal information on the website for an instant quote.
- Dental Insurance is offered in conjunction with Delta Dental. The minimum enrollment period is 12 months and the plan offers a grace period of 30 days. Quotations for coverage is available on the website, or it can be requested by mail or by phone.
- Vision care is offered in conjunction with EyeMed in three options ranging from $31.38 monthly for Plan A, to $19.38 for Plan B, and $4.38 for Plan C. Details on the plans can be accessed via a link.
- The primary disadvantage of this option for retirees and pre-retirees to access this plan they must be a member of AARP, and coverage is the benefits accruing from membership can only be accessed from the partnerships the organization has formed with appointed insurers, Membership advantages regarding benefits and cost are the primary advantages for a retiree or pre-retiree.
6. Private Health Insurance
- Private Health Insurance refers to any health insurance coverage offered by anyone other than a state or federal government. Potential applicants can enroll in plans via licensed agents, via health insurance offered by employers under group plans, and via federal or state marketplaces.
- The benefits offered under private health plans vary and some insurer’s baseline coverage to meet the minimum essential coverage under the Affordable Care Act.
- Private Insurer Cigna offers a plan specifically designed for early retirees via the Special Enrollment Period in the Health Marketplace. The company offers individual health insurance plans in Arizona, Colorado, Florida, Illinois, Kansas, Missouri, North Carolina, Tennessee, Utah, and Virginia.
- Features of the plan include qualification for federal premium subsidies resulting in lower monthly premiums, no payments required for in-network preventative care, and 24/7/365 customer service,
- Eligibility is the primary difference between private and public health insurance, with qualifying criteria for public health insurance rooted in age and income. Access to the myCigna website to identify the closest in-network provider, estimate costs, and view claims. Cigna also offers dental and supplemental insurance and offers a health insurance checklist on the website.
- Coverage under private health plans can extend until Medicare eligibility provided the insured can cover the premium cost.
Health Insurance Resources
- Paid for by the U.S. Centers for Medicare and Medicaid, HealthCare.gov is a federal government website that provides resources about the Affordable Care Act and regulatory and policy information.
- HealthCare.gov provides information regarding enrolling in health insurance, how to make changes to federal health plans, avenues to save money under the plans, practical advice on how to use the health coverage, and the taxes, fees, and exemptions to be paid under health insurance.
- Specific to retirees, information and advice is provided specific to persons who retire without health coverage before the age of 65, for those that have health benefits, and retirees without Medicare.
- Medicare.gov is a website of the federal government that is funded by the U.S. Centers for Medicare & Medicaid Services.
- General services offered on the Medicare website include information on costs and coverage for Medicare, how to join or change plans, how Medicare works with supplements or other insurance, and the claims and appeal process.
- Medicaid.gov is a federal website managed by the Centers for Medicare & Medicaid Services.
- Services offered on the website include information on how to apply for coverage, data on Medicaid, information on policy and program topics ranging from State Plan Amendments, access to care, cost sharing, enrollment strategies, eligibility, financial management, benefits, and managed care, among others. State profiles are also provided.
4. Office of Personnel Management (OPM)
- The OPM is the major human resources agency for the US federal government. It is also the personnel policy manager.
- This agency directs human resources and employee management services, administers retirement benefits, manages healthcare and insurance programs, provides a secure employment process, and oversees hiring into the civil service.
- Specific to retirees, the OPM offers information how eligibility for enrollment into health, dental, vision, and life insurance. Common questions from retirees related to health insurance are also answered on the website.
5. US Department of Labor
- The US Department of Labor published a brief regarding retiree health benefits. Information included in the brief address how and when an employee should review plan documents, what to look for in the policy documentation, what to do if language used is ambiguous or conflicting, and advice for retiring early.
6. American Association of Retired Persons (AARP)
- The AARP is a nonpartisan, nonprofit organization dedicated to the empowerment of persons as they age.
- With 38 million members, the AARP provides benefits in 14 consumer categories, as well as information on COVID-19, overall health, family care giving, job opportunities, information on cams and fraud, retirement, social security, travel, money, home and family, entertainment, politics and society, food, automobiles, and entertainment.
- Specific to health coverage for seniors the AARP provides advocacy, and general information regarding health insurance for all seniors.
- Debt.org is an organization that provides the public with information regarding financial well-being.
- On the Debt.org website, information is provided on health care options and costs for seniors. Aside from information on Medicare and Medicaid, information is provided on supplemental health insurance, sometimes referred to as Medigap, options for senior veterans, military retirees and their spouses, assisted living, hospice and end-of-life medical care, and nursing homes.
8. Seniors Resource Guide
- Seniors Resource Guide is an online repository for information on the services that can be accessed by seniors.
- Information is provided for 76 topics in senior housing, health services, professional services, community resources, and health at home categories.
- Specific to health insurance, links are provided to the Affordable Care Act, the Castle Senior Benefits website that assist users of Medicare in understanding the program, as well as Medicare Supplements and other insurance.
9. Alliance for Retired Americans
- The Alliance for Retired Americans is an organization formed to ensure social and economic justice and to improve the lives of retirees and older Americans.