On October 1, 2013, a change occurred that will affect those considering retirement before the age of 65. On this date, open enrollment began for individual health insurance on the new health insurance exchanges. Some people loathe it, others love it, but one of the most interesting aspects of the Affordable Care Act (ACA/Obamacare) is that individuals will have guaranteed access to health insurance without any health underwriting. We think this is very important from a financial planning perspective as it effectively separates health insurance decisions from employment decisions.
Over the years, we have seen many of our clients with health issues continue to work in careers they didn’t enjoy until they could qualify for Medicare at age 65. If they retired before 65, they risked being unable to qualify for individual health insurance due to pre-existing conditions or only being able to qualify for prohibitively expensive insurance through the state high-risk pool. Now, with the ACA, people with pre-existing conditions can make career and retirement decisions with confidence that they have guaranteed access to lower-cost health insurance.
To illustrate how this new flexibility could be valuable, let’s look at an example. Fred and Judy are 58 years old and have run a successful, small architectural firm for 25 years. Judy had breast cancer at age 54 and Fred had a knee replacement last year. Recently they received an offer to sell their firm. If they accept, they would have more than enough assets to retire comfortably. Previously, they would have had three likely choices with regard to health insurance: don’t sell the firm in order to maintain coverage through their company’s group health plan; sell the firm, but with conditions allowing access to the new firm’s group health plan; or get insurance through the state-run high-risk pool and pay very high annual premiums. Now, with ACA, their pre-existing conditions don’t limit their access to coverage and their premiums should be much lower than the high-risk pool policies. Essentially, health insurance becomes a non-issue in their decision to sell their business.
Individual health insurance is available “on” the new state health insurance exchanges or “off” the exchanges (sold directly through insurance companies). In most cases, those who may be eligible for federal premium assistance tax credits should buy insurance “on” the state health insurance exchanges. The federal assistance is based on income and family size. For example, a single person with annual income less than $45,960 or a married couple with an annual income below $62,040 may be eligible for a federal premium tax credit. The primary disadvantage to “on exchange” policies is they tend to have smaller physician networks. If you have a higher income and are not eligible for premium assistance, you should consider purchasing insurance “off” the exchange. The primary advantage to “off exchange” policies is they may have larger physician networks, but that flexibility could come with a higher premium. It is very important for you to make sure your doctors are in your network before purchasing insurance either “on” or “off” the exchange.
Applying for individual health insurance can be a complicated, frustrating process. Independent insurance agents still play an important role as specialists in this highly dynamic environment and can be used for purchases of individual insurance “on” or “off” the exchanges. A good agent can help you compare your alternatives and avoid pitfalls in this complicated area.
The ACA in general is very complex and politically charged. The initial rollout of the health insurance exchanges has been problematic, and we are just now finding some of the specifics of available health insurance policies. However, for people with pre-existing conditions, guaranteed access to lower-cost health insurance will have a major impact on retirement planning. Give us a call if you would like to discuss how this may impact your financial plan.