Column 102 - Retirement Planning: can I afford it?

Retirement Planning: can I afford it?  Column 102 6/20/2015

 

One of the biggest surprises retirees experience is the cost of health care.  I caution all of our clients to be very careful with that segment of the budget.  It can make or break their retirement plans.  The ACA (Affordable Care Act aka Obamacare) has taken some of the fear out of retirement since there is guaranteed issue coverage in the individual market.  But timing is key!

First, look at your retirement options from your current employer.  Do you have a retiree plan?  What are the costs to continue?  Just because you are paying only a few hundred dollars per month out of your paycheck, does not mean those are the retiree rates.  Once you leave that plan, may you return?  More than likely, no!

If your plan does not offer retiree benefits, COBRA is an option.  COBRA stands for Consolidated Omnibus Budget Reconciliation Act. This is the federal law that provides most workers with the right to continue coverage in a group health plan. This federal law applies to employers with 20 or more employees, including self-insured employers.     Typically benefits are offered for terminated employees for up to 18 month or until the person is Medicare Eligible, whichever is less.   

If the company is domiciled in California and fully insured, CALCOBRA is a required option to extend benefits for all eligible recipients for up to 36 months.   Self-insured groups may not choose to comply with state mandates and not include this option.

You are then treated as a "similarly situated" active employee and can continue the same benefit plan at a cost of up to 102% of the employer's full premium for COBRA and 110% for CALCOBRA.

When you lose group coverage you have a SEP (Special Enrollment Period) for 60 days that allows you to buy an individual plan.  Once you elect COBRA, that SEP is gone and you have to wait for open enrollment in the fall or another SEP to buy individual coverage.

Age differences can become an important factor. Once the retiree reaches age 65 and is eligible for Medicare, s/he may want to consider dropping the retiree coverage and purchase a Medicare Supplement and Plan D Coverage.

Remember if your spouse is under age 65, you want to be sure how this impacts them.

For example if the spouse is 62 at your age 65, and CALCOBRA is available, your spouse may continue the group plan for up to 36 months.  If the plan does NOT offer CALCOBRA, your spouse would need to buy a policy in the individual market after 18 months.  

As the individual market stands now, the loss of group coverage is a qualifying event and the spouse would be guaranteed coverage with no pre-existing condition limitation.  But the individual plans' networks and/or Rx formularies may not be acceptable. Further, if this is mid-year, your spouse will have to satisfy a new deductible.

The age 65 retiree should be very careful to review the Rx options under Part D.  Since Medicare Part D has a "donut hole", it's critical to review your options before you retire.  You can see how each of the plans in our area would cover your current Rx at www.medicare.gov

Click on Drug Coverage Part D and go to Find Health and Drug plans.  Input your zip code and answer a couple of questions, input your drugs and then look at the options. I suggestion you look at only the Part D plans.  There is one Medicare Advantage plan available in our area and it is very weak.  In fact, we refuse to market it.

Even with insurance Rx costs can be very high for some retirees.  That can make the retiree plan or COBRA more attractive than a supplement and separate Rx plan.  So it is very important to do a thorough analysis before you make your choice.  Also, remember we are all one doctor visit away from a new Rx!  The good news is that Medicare Rx plans have an open enrollment period every fall, so worst case scenario is that if you get a new medication, you are only stuck for a year!

Medical costs are a huge part of retirement planning.  So it's important to be careful and considered in your decision.