Husband and wife both work full time. Wife’s job does not offer benefits but she is covered under husband’s work benefits. Husband is 2 years older than wife.
Husband reaches Medicare age and wants to retire. What are wife’s options for continuing healthcare coverage for the 2-year period until she becomes eligible for Medicare?
Is this “gap” insurance that I hear about? How pricey is it (I’m sure it varies, just looking for a rough estimate)? How do folks retire under these circumstances?
Does husband’s employer provide health insurance as a retirement benefit? My wife’s former employer still covers our medigap plans, and includes an option for continued coverage for non-medicare eligible spouses.
Disclosure: my primary client is a health insurance company, so I pay way too much attention to this topic.
No; "Medigap" insurance is optional Medicare coverage, offered by private insurance companies, which covers the “gap” in payment that base Medicare doesn’t cover, like co-pays and deductibles. It doesn’t allow you to “bend the rules” on being eligible for Medicare or not; you can only get a Medigap policy when you’re on base Medicare.
In this situation, the younger spouse will need to get an insurance policy to cover herself until she reaches 65, and can begin to receive Medicare.
This article from AARP discusses this very topic, though it’s from 2011, and only mentions the Affordable Care Act (“Obamacare”) policies at the very end, since those policies weren’t yet on the market at that time. By extension, the article also talks about difficulties in getting an “individual” policy if you have a pre-existing condition, but with the ACA, insurers can no longer blackball you from buying an individual policy due to your health history or pre-existing conditions.
As the article notes, the primary options are:
Under COBRA, the younger spouse would be eligible to continue to be covered under the retired spouse’s employer-based coverage, for up to 18 months, but would be required to pay the full cost of the premium
An “individual” policy, under the Affordable Care Act
If the couple have a very low income, the spouse may be eligible for Medicaid.
Note that both COBRA and an ACA policy can be very expensive – when I was on COBRA coverage for a year (in 2015), then bought an ACA plan (in 2016), my monthly premiums, for coverage for my wife and myself, were in the range of $1200 a month. There are ACA plans with lower monthly premiums, but they tend to have high deductibles and out-of-pocket costs, and often don’t have great networks (i.e., the doctors and hospitals that are on the plan, and at which you get lower fees).
Also don’t forget there is GAP (Guaranteed Asset Protection) insurance, usually for new automobiles. I got it when I bought my current car. When I hear “gap insurance” I usually assume that’s what is meant. (As kenobi 65 pointed out, health insurance called Medigap exists, probably to avoid confusion with GAP.)
We did almost exactly this. I schedule my retirement for 18 months before my wife turned 65 so that she could be covered by COBRA for the interim. It wasn’t cheap, but it was far better than ACA coverage. So, delay for six months and check out COBRA.
Yeah, this particular situation is probably not uncommon, and it kind of sucks.
You may want to have a conversation with your benefits/HR department, and lay out this particular situation, to see if they will tell you what you’d be looking at as far as a COBRA payment to keep your wife covered under your current policy once you retire and go onto Medicare. It’ll likely be more expensive than you’d like, but it’s an important data point.
And, then, I’d also suggest taking a look at what the ACA policies which are available in your state look like. You can go to Healthcare.gov, put in your state, and that you (well, technically, your wife) would be eligible for a “Special Enrollment Period*;” this should let you browse the plans. The plans are organized by “metal level” – Gold, Silver, Bronze – and, as you would expect, the more valuable the “metal,” the more comprehensive the plan, and the more it costs.
Now, all that said, you may well decide that those options are too expensive (and you’d be right). But, at least you’d know what sort of costs you’d be looking at, as you’re deciding on when you can retire.
normally, one can only sign up for an ACA plan during the “Open Enrollment Period,” which runs roughly from November through mid-December. But, if you have a “Qualifying Life Event” (and losing the employer-based coverage you previously had is a qualifying event), it opens up an enrollment window for you.
One of the ideas the democrats are floating to reform the ACA and upgrade it is to eliminate the cap. Rather than eliminate the subsidy at 400% of FPL, the subsidy will apply to all income levels but be capped at 8-10% of AGI.
So even if you make 200k a year, if your premiums come to more than 20k a year you will get a subsidy.
Its a good idea and I hope they do it. It’ll make retirement easier for people like OP who may have household income above 400% of FPL.
My former employer offered me an early retirement option. One of the benefits was that they would continue to pay their portion of health insurance until I turned 65. I took the offer and retired just shy of my 64th birthday.
Mrs. Railer is 13 months younger than me, so when I went on Medicare, we had to find insurance for her. I did this through the Exchange. We decided on a BC/BS policy which cost about 400 a month. It had a high deductible ($3500) which we didn’t come close to meeting. In fact, in the 13 months before she turned 65, she only had a couple of doctor appointments and had just one inexpensive prescription. We could have survived without this insurance, but we did not want to take the chance.
I’m asking what your combined household income would be after you retire and she is still working. If its higher than about 68k, getting ACA subisides goes away.
FPL - federal poverty level. MAGI - modified adjusted gross income. The ACA has subsidies if your MAGI is between 133-400% of the FPL. The FPL for a 2 person household (I’m assuming you guys have no dependent children) in 2019 is $16,910. That works out to about 67,640 a year.
If your modified adjusted gross income (MAGI) goes above $67,640 a year, you don’t get ACA subsidies. If it is below that, you get subsidies to ensure your premiums are capped at about 10% of your gross income (about $500/month) for a silver level plan. Not the greatest plan, but enough to get you thorugh the 1-2 years until medicare kicks in for your wife.
However MAGI is your income after factoring in retirement investment. So if you and your wife are making 80k a year but dumped 20k a year into an IRA and 401k, your MAGI would only be 60k a year. You’d still qualify for the subsidy. From the sounds of it, unless you guys are high earners, I’d assume you can keep your MAGI below 68k a year after you retire, especially if your wife dumps a lot of money into IRAs and 401ks to get your MAGI down.
Depends on your employer. When I retire next year, both my wife and I will transition over the the company’s retirement medical plan. When I turn 65, I will be required to go on Medicare. My wife will remain on the retiree policy till she turns 65.
That’s seems really really cheap. My wife and I are 58 and I’m considering whether I should retire in the next year or two so I’ve shopped around, and to get a decent plan that covers both of us, the premiums would be about $30k/year. What did you get for $400 a month?
Also, we still have two kids who are 18 and 22, and those “retirement” plans that my employer offers don’t cover dependents other than a spouse. So we’d need to pay even more to cover them.
Pretty much all of them - any taxable percentage of SS, probably pension. Certainly 401k withdrawals, wife’s income & anything you earn. (Assuming you file jointly)
IRA contributions are limited, so not as much of an effect on MAGI as you might wish.