At 54, Steven Eisen knows he's pretty lucky to be considering retirement from his Nashville law firm within the next year. But beyond the usual financial considerations, he has another advantage unavailable to most workers today: guaranteed employer-sponsored health benefits until he turns 65.
"Health coverage is extremely critical to my wife and me since we both have chronic illnesses," Eisen says. "We probably would have difficulty obtaining coverage elsewhere at a reasonable rate."
That is the big challenge facing early retirees such as Eisen and the larger number of older workers who might be facing retirement before they are ready. Workers 45 and older make up a disproportionate share of the long-term unemployed, according to the Bureau of Labor Statistics and they have a hard time finding affordable health insurance.
Employees who leave work before age 65 aren't eligible for Medicare, nor can they rely on receiving health benefits from former employers. In 2010, about 17 percent of workers were employed by firms offering health coverage to early retirees, according to the Employee Benefit Research Institute (EBRI), compared with 28 percent in 1997.
"People are forced to go out on to the open market and try to navigate an expensive, complicated landscape," says AARP's Nicole Duritz. "And there is no guarantee right now that they will find coverage, affordable or at all."
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Policyholders aged 55 to 64 will pay an average of $588 per month for comprehensive coverage for a single person in 2013, according to a survey by eHealth, Inc. That's more than double the $279 monthly premium that is average for all age groups.
Older people are charged more because they typically use more medical care and are more likely to have pre-existing conditions, said Duritz.
Some of these obstacles will go away under the Patient Protection and Affordable Care Act, as public health exchanges and new rules go into effect on January 1, 2014. That law will prohibit the use of pre-existing conditions as a basis for higher premiums or denial of coverage. And the amount of extra premium that can be charged based on age will be limited.
But for older people on their own, that still leaves nine months between now and then to fill with some kind of health insurance and the prospects of continuing to buy their own coverage next year. Here are some tips:
Analyze your actual needs. Newly emancipated employees might not be accustomed to choosing their own healthcare policies. Before buying a plan, consider a variety of factors, such as how often you go to the doctor, what medications you take and whether you are going to stay in the same geographic locale for the whole year, or live in more than one place.
"Most people are going to buy the cheapest, most bare-bones plan available, but that's rarely the best value for their money," says Bryce Williams, chief executive officer of Extend Health, a San Mateo health insurance exchange run by benefits consultancy Towers Watson.
Reduce costs with a healthcare savings account (HSA). Paired with high-deductible health plans, HSAs are the property of the employee and funds roll over year-to-year, even though employers will frequently make contributions to the account as well.
So, if you are still employed and planning early retirement, sock as much money as possible into your HSA, recommends Patrick Haraden, a Boston-based benefits consultant. You will be able to use that money to pay your premiums in the future.
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In 2013, individuals can save up to $3,250 in an HSA, with an extra $1,000 allowed for HSA holders who are now 55 or older. The HSA contribution limit for families is $6,450. "That takes a dent out of premiums down the road," Haraden said. A high-deductible plan typically will cost less than a low-deductible plan, so this option is worth investigating, even if you're buying your own coverage. You can save on premiums and put extra money into the HSA for current or future healthcare costs.
Investigate private exchanges . More and more employers are turning to what are known as private insurance exchanges to manage their retiree health benefits. Two of the largest private exchanges are operated by the human-resources consultancies Aon Hewitt and Towers Watson & Co. Both offer policy seekers dozens of plans to choose from in a retail experience not dissimilar to buying a airline ticket online from Travelocity or a book from Amazon.com, Inc.
The first step is to ask if your former employer has partnered with a private exchange and if you can use it. Some companies still pick up a portion of the cost of plans bought through private exchanges; others simply offer access to their former workers.
Get extra advice. "We've already logged some 18 million minutes of phone calls helping to enroll people in the right plan for them," said Williams.
Other health exchanges and Web comparison sites, such as ehealthinsurance.com will help consumers sift through plans. The AARP directs those 50 and older to personalized and local resources through its health law guide at healthlawguide.aarp.org.
Explore affinity groups . Some early retirees might be able to join a group plan as members of a trade or professional association such as the National Association of Female Executives, the Freelancers Union or the Small Business Service Bureau.
Take COBRA, if you can afford it . Most separated workers can fill in by paying privately for the coverage they used to have at work under the provisions described in the Combined Omnibus Budget Resolution Act of 1986. But it's not cheap. Without the employers' subsidy it can be quite costly. The average cost of employer-sponsored health plans in 2012 was $5,615 for singles and $15,745 for families, according to a survey by the Kaiser Family Foundation.
Fill gaps with short-term policies. On January 1, it's a whole new ballgame, so you might only have to fill the nine months between now and then. The most affordable fit might be a short term policy. These plans typically run for three-month increments and cost an average of $151 a month for people ages 55 to 64, according to eHealth data. But these policies are rarely comprehensive, warns eHealth's Carrie McLean.
"These plans will mean at least some out-of-pocket expenses, such as for a routine doctor's visit," McLean says. But, for most, she adds: "It will at least get them through this gap period."
