By In Budgeting, Do the Math, Featured, Financial Independence, General Benefits Knowledge, Health Insurance

Congratulations, You’re FIRED! Health (and Health Coverage) Tips for Early Retirees

If you’re in the FIRE vanguard, retiring in your late 20s to mid-30s, you’re (hopefully) living the dream healthy enough to enjoy your retirement to its fullest. If you’ve planned your housing, transportation and other common living expenses well, they will be quite manageable within your budget until it’s time to shuffle off this mortal coil.

But keeping that coil tightly wrapped gets harder with each passing year. Don’t risk your financial health by compromising on your physical health — get insurance. And not just the cheapest insurance. Make sure it’s good enough that it doesn’t leave you with huge bills if something bad happens. Such decisions and expenses should all be part of your FI plan, even if it means a few extra years of saving to be fully prepared for a long, healthy life of early retirement freedom.

Here are some tips for that early retirement health care party…

Do the math on how much you will spend on health insurance alone up to age 65.

We’ve written before about how you’ll need almost $400,000 to pay for medical expenses in retirement if your retirement happens at age 65. If it happens earlier, that means even more expense.

Individual health coverage costs vary widely from state to state but for 40-year-old adult individual, it easily averages $500 per month (see map from the Kaiser Family Foundation) — and multiply that amount for a spouse if you’re retiring as a couple). Plus, the older you get, the higher the cost. Duh.

With that in mind, here’s a chart of how much you might pay in premium costs alone from your FIRE date to age 65, when you qualify for Medicare…if it’s still around when you get to 65.

This chart is a very conservative estimate of your health insurance costs as you get older. Remember, $400k is the magic number in retirement, with Medicare, not on your way to retirement. It could go way up by the time you get to 65 or 70.

Know your health needs.

There are basically two kinds of people in relation to health care: those who have a chronic condition and know how hard it is to figure out the system, and everyone else. If you are the former, then you have probably — dear god, hopefully — figured your medical needs and expenses into your FIRE plan and you’re relatively set to cover your expenses, along with a sizable emergency fund. This probably means that you’re retiring in your 40s or 50s, as opposed to your 20s or 30s, just out of necessity.

If you’re everyone else, especially if you’re everyone else and you’re in your 30s and haven’t had to visit a doctor much at all, you may have not figured medical expenses into your FIRE plans at all.

While there’s no science to figuring out what you’ll spend on health care because the costs keep going up and it’s not out of the question that you will get sick or hurt without warning, you can run some numbers on what you may need to plan to spend on your health in early retirement. Here are a few tips.

Run some cost models.

A little-known part of the ACA mandated that all health insurance plans include a “Summary of Benefits and Coverage,” which is a bureaucratic way of saying “plain-English explanations of what you get for what you’re paying.” We can debate how helpful SMBs are in reality, but there’s one part that can at least start to help you understand what things cost. The modeling shows what a “normal” year of health costs might look like compared to a year managing diabetes or having a baby.

There are also websites, including this great (and free) cost comparison tool, where you can plug in some basic numbers (premium, deductible, copays) and then choose various utilization models — typically light/low (you’re as strong as an ox), medium (maybe you have kids or you’re getting older), and heavy/high (you have a chronic condition of some kind, including pregnancy). If you’re in your late 30s and/or have kids, start from medium.

Modeling out your costs isn’t much different from making a budget for yourself, except that with your health you can never be certain what happens. If you have a “good” year, then you’ve saved yourself money. If you have a “bad” year, at least you were prepared for it.

Know your income and get it to its lowest taxable point.

If you are truly retired and your earnings are coming primarily from retirement account deductions, chances are that your income is lower than it was when still working. That may be to your advantage for finding affordable health insurance because of the ACA’s Advanced Premium Tax Credit (APTC), which uses your income to determine how much to give you toward paying for your health insurance premium (and some copay costs as well).

In a nutshell, if you earn somewhere between 200-400% of the Federal Poverty Level (FPL) for your filing status (single, married, dependents), then you get a tax credit that keeps you from paying more than 9% of your income on health insurance premiums. There are some catches to be mindful about. For example, if you or your spouse are eligible for any kind of employer-provided health insurance, and that health insurance meets ACA-mandated criteria for affordability and coverage types, the person who is eligible doesn’t qualify for an APTC even if that insurance costs more than you might pay for individual insurance after the subsidy. It’s possible and somewhat common to have one spouse, if they still work, get insurance through their employer while the other spouse gets individual coverage for themselves and any dependents. If you fall into this category, run the numbers for what you would pay to put the whole family on employer coverage vs. just having the eligible employee on that coverage and everyone else on an ACA plan.

If you don’t have this scenario and are truly retired or self-employed, then by all means figure out how to legally (and morally) claim the lowest income rate you can in order to increase your APTC.

The Kaiser Family Foundation has a subsidy calculator that will let you know what you might be entitled to get based on your income.

Study your options FULLY.

The bad news is that, especially if you’re single and you remain a relatively high earner into early retirement, you probably won’t qualify for an APTC and therefore have to pay full-price for your health insurance. That price can run $500-2,000 per month, which, as Napoleon Dynamite would say, frickin’ sucks.

It sucks so badly that you may be enticed by much cheaper short-term insurance plans or healthshare ministries. We caution you to heavily scrutinize those types of plans, especially as you get older, because they are not governed in the same way as ACA-compliant health insurance plans. The main issue is that they don’t cover preexisting conditions, so if you have anything at all that might come up as a health cost — some kind of mental health treatment, a previous physical treatment like a back injury, or even a funny-looking mole — then you may end up paying full cash price for that coverage and getting nothing reimbursed from insurance. This scenario is especially true of prescription drugs. Short-term plans have even gotten in trouble for delaying payment while they do deep background on if a claim is for a preexisting condition, so they can avoid any payout at all.

Long story short: You may get sticker shock from the price of individual health insurance plans without a subsidy of some kind, but if you shop on price alone, then buyer beware.

Practice preventive care.

I avoid making analogies between personal health and automobile health as much as possible but the one about maintenance works pretty well. When your car is newer, you get tune-ups and oil changes less frequently than when they get over 100,000 miles. But if you are religious about proper maintenance while your car is newer, it will run a lot longer. So it is with your body if you practice preventive care.

One reason we really favor “real,” ACA-compliant health coverage is because it comes with essential health benefits including, as we’ve talked about before on The Benefits of FI, many screenings, vaccinations and physicals are free. Getting what doctors recommend helps you not only get more value out of your health plan but it will also go a long way toward helping you stay ahead of unplanned medical events.

When you compare plans, always make sure you understand what kinds of preventive care you get by reading the Summary of Benefits and coverage and asking your broker or the health plan directly what are the total benefits offered, especially the free preventive care benefits.

Think about other needs.

I don’t have any incentive to get you to buy more insurance than you need, and you should definitely not buy insurance you don’t need — identity theft protection or pet insurance, anyone? — but there are definitely more needs you have than just health insurance. Here are just a handful of examples.

  • Dental – So your teeth don’t rot.
  • Vision – My eyesight started going a year ago and I’m already at the point where reading glasses don’t feel strong enough.
  • Life Insurance – Because you may die before you should and you’ll want to leave your partner and/or children with some income replacement and/or a means to pay off any medical debt you’ve incurred if your cause of death was an expensive terminal illness.
  • Travel Insurance – In case you’re embarking on a long voyage to locations far and wide.
  • Prescription Discounts – Usually you won’t want to pay for this because you probably won’t get full value for it. But it’s good, no pun intended, to have the GoodRx app (I’m not paid to say this) on your phone just in case it’ll save you money if you get prescribed something your insurance won’t cover.
  • Long-Term Care Insurance – The jury is out on long-term care and I will be writing about it in the near future. In the meantime, it’s worth looking into because if you ever end up on a retirement home, it will cost you upwards of $60,000 per year, which most people can’t cover based on their retirement income.

Finally, there may be an additional level of coverage you may want that could help you save as well, and that’s a direct-pay provider arrangement. There are two main kinds of pre-paid arrangement out there right now for primary care: DPC, or direct primary care, and telemedicine. DPC is usually tied to a specific doctor or medical practice in and around your town. Telemedicine is coverage when you need it, available from anywhere you have an internet connection. One gives you the benefit of a local doctor for which you pay a flat annual fee. The other gives you access from anywhere when you’re in a pinch and need to see if you need to take your care to the next step, like an emergency room. You may see both as an unnecessary expense if you’re relatively healthy. But if you have the means, they may simplify your relationship with actual health care services. YMMV.

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