Health Insurance in Early Retirement

And we're going to talk about health insurance in early retirement. And you know the first question I have anytime we talk about this is what's so freaking special about health insurance? Nothing, right? There's all this stuff you got to buy in early retirement. You got to have a place to live, you got to have food to eat. You may want to do some traveling. I ask you, what's so special about health insurance? But everybody gets all out of whack about health insurance because they're like, oh, I can't retire, I won't have any health insurance. Well, that might be true. You might not have enough money to retire unless somebody gives you health insurance. But the truth is it's just like any other expense, right? You go figure out how much it costs and you determine if you have enough money to retire, including paying for that expense, or you don't, in which case you got to keep working. I'm sorry, that's the way it works. So it's really not that different from your groceries and your housing and your gasoline and your cell phone bill. Yes, it's expensive. Don't get me wrong. This is part of the issue is people get sticker shock when they find out what health insurance actually cost. The issue is we screwed up. I think this actually started in around World War II, but I think it may have been an additional effect in the 60s or 70s. 70s. Most likely what happened in World War II is they put wage controls on employers so they couldn't pay people more than a certain amount. And of course, employers wanted to attract the best talent they can get, so they started offering lots of cool benefits, including health insurance. And since that time in the United States, health insurance has been kind of married to your employer. And there's all kinds of bad effects from this happening. It's really kind of a historical tragedy, actually. But the main one that we're talking about today is that you just don't know what health insurance costs because your employer's been paying 80% or 90% or 100% of the premiums for you for the last 10 or 20 or 30 years. And we do that here at the White Coat Investor for our employees as well. Right. I think our deal is we pay 80% of the premiums. And so people may not quite realize what it costs. But health insurance is expensive, folks. If you have to buy it, it costs a lot of money. Now I've been buying health insurance on the open market for the last 14 or 15 years. I've been self employed in that time Period. And guess what? You can just buy this like anything else, like any other kind of insurance. You can just go to a health insurance broker in your area and buy health insurance. That's all. You have to Google. Google your hometown health insurance broker, and there's probably a half dozen people ready to help you tomorrow with your health insurance. Our broker happens to be a neighbor, somebody we've been working with for many years. And we were just buying individual policies for a while. And then when the white coat investors started to have employees, we went to the same health insurance broker and they helped us buy a group policy for us and all of our employers, all of our employees. And it's not that complicated for us. For us and our four kids, Katie and I and our four kids, our health insurance is like 1200, 1300 bucks a month, something like that. Now we're actually in a pretty cheap state though. Utah, for whatever reason, has pretty low health insurance rates. I've talked to lots of couples in their 50s that buy health insurance on the open market in their state, and it's like $2,500. But my point is, if you're a high earner and you're not going to get any Affordable Care act subsidies or anything, you don't have to go to your Affordable Care act exchan in your state to buy health insurance. You can just go to a health insurance broker and buy it on the open market. And it's not complicated. It's pretty easy. You can compare everything out there and choose how much you want to spend on it and you know what kind of premiums you want to pay versus how high your deductible and max out of pocket is. It's just not that complicated. You can go buy it. Okay, so that's the first main point I want to make with this. Bear in mind that right now it's illegal to exclude preexisting conditions when you buy health insurance. So this wasn't the case a few years ago. It used to be a few years ago. It was really hard to do that. And this is one of the best things that came out of the Affordable Care Act. I mean, even if you had something simple, you had one urinary tract infection years ago, you might not be able to get health insurance. Well, now that's kind of gone away. And that's one of the really great things that came out of the patient protection Affordable Care Act. So kudos to the Obama administration for that particular move. If nothing else, you may not like anything else about the Affordable Care Act. But that was a good change and it's pretty hard to argue it was not. Okay, here's the deal. A lot of people are like, well, I just need something to get me to Medicare age. Well, you can get Medicare when you turn 65, okay. And make sure you apply for it when you're 65. That can be a mistake to not do that. But bear in mind Medicare isn't free. A lot of people think it's free. It's not. Okay? So keep this in mind. Not only have you been paying taxes for years and years and years to get Medicare, so it's not free in that respect. And people will continue paying taxes for you to have Medicare going forward, but it's not free. Okay? What you're thinking about what you get at 65 that you qualify for is Medicare Part A. That just covers the cost of hospitalization. It doesn't cover doctor visits, it doesn't cover medications. Right. Almost surely the health insurance you had up until this point and the health insurance you want does cover doctor visits and does cover medications. So what do Medicare people do about this? Well, they buy Medicare Part B, which covers physician services and outpatient hospital services, and they buy Medicare Part D, okay? So last time I looked at the premiums and they go a little up a little bit each year, but the premiums for Part b varied from 145 bucks to 492 bucks, double that if you're married. That's monthly, right? What does that sound like? That sounds like health insurance. Right. Medicare Part B is not free. You got to pay for it. If you want to see doctors and not just be hospitalized, you got to have part B. And part D is quite a bit cheaper. Last time I looked this up and it's been a few years, the average monthly Premium was like 33 bucks. Range is probably going to be anywhere this year. 15 to 100 bucks or so is what you pay for Medicare Part D. There are also monthly co pays, amount varies by prescription or coinsurance. So keep that in mind. Right. And then there's Medicare Part C or Medicare Advantage as well you may want. Right. My point is Medicare is not free. So you're buying health insurance between early retirement and when you get to Medicare. And even once you get on Medicare, you're going to be paying something for your health insurance. So better get used to it, is my point. Health insurance is expensive stuff. A lot of people think it should be like their cell phone bill. In reality, it's more like at least your grocery bill, if not your mortgage. Right. It's expensive stuff. Okay, so what are your options between when you retire at 58 or whatever and when you actually qualify to go on Medicare at 65? Well, the first one's to go bare. You know, I don't recommend this. I don't think this is a very good option. I mean, I'm somebody who's used a heck of a lot of medical services this year. After I fell in the Tetons, I think I hit my max out of pocket before I even got to the hospital. Right? And those of you who work in the hospital taking care of trauma patients, you know that in about the first 10 minutes after arrival, we spend about 20 grand, you know, between labs and CT scans and so forth. So if I hadn't hit it before I got to the hospital, I certainly hit my max out of pocket in the emergency department. And of course, I've had at least one surgery since then. Might be two by the time you hear this. I'm not sure when it's going to run. And I've spent four days in an IC cheap. I just got my bill this week from the ICU. Remember, I wasn't intubated. I think the only IV medication I was getting was morphine. My ICU bill was $113,000. I think insurance knocked it down to $51,000, which is one great thing about insurance, Right? If nothing else, they've negotiated better prices for you. But that's not the sort of thing most of us have money sitting around our back pocket to pay. So don't go bare. Buy health insurance of some kind. Okay? So that's option two. And the option my family's chosen is to just go out and buy health insurance. You can go buy it from a health insurance broker. It works great. It's not cheap. But once you get over the sticker shock, it's really not that complicated. Go do this. There's another option. You can cobra, your employer's health insurance. And COBRA is cool. And COBRA is very nice, especially for short time periods, bridging gaps. Because the really cool thing about COBRA is that you can enact it somewhat retroactively, right? You don't have to buy it until you need it, at least for these really short time gaps. If you're just out of health insurance for two or three months, you can kind of sit there and go, do I actually have any healthcare expenses? And if you don't, you don't pay for cobra. If you do, well, you do pay for cobra. So what is cobra? COBRA is paying what your employer was paying for your health insurance. So instead of you paying 20% of the premium, you're now paying 100% of the premium. So when you tell people I'm on cobra, the first thing you say is, oh, I hear that's really expensive. Well, it's not really expensive. It's just the price of health insurance. That's what it is. So that's one option. And you can drag that out for a long, long time. You can cobra you retire at 62, you could cobra your employer's health insurance for three years if you wanted to. So that is one option. Chances are pretty good you can get a better deal if you go to a health insurance broker, especially if you qualify for ACA subsidies. So let's talk about this right here's another option is getting the taxpayer to pay for you or to pay for part of your health insurance. And the truth is, the vast majority of early retirees are going to qualify to have the government at least help them. There's lots of government programs out there that can assist you with your health insurance needs. Most of them are based primarily on taxable income. They don't ask why your taxable income is low. They don't care if it's low because you're disabled or because you're lazy or because you're caring for an ill family member or cause you're living off capital gains and Roth IRA withdrawals. They don't care. So early retiree millionaires usually qualify for these programs like Medicaid. You can even qualify for Medicaid. You might be surprised the rules change by state and oftentimes a lot of your assets might not be assets as far as Medicaid is concerned. Especially if you do some fancy Medicaid planning. That's probably not going to work for most white coat investor early retirees, but many of them will qualify for an Affordable Care act or Obamacare subsidy and should look into that. Now if you want that, you got to buy your health insurance through the exchange. And that can be quite a bit more of a pain than it is just going through a health insurance broker. But you might be surprised by how big of a subsidy you qualify for. Just looking at when I wrote an article about this a few years ago, it's four times the federal poverty level, right? You get something until you're four times the federal poverty level. And the year I wrote this post, that was $135,000 in taxable income for a family of six. Even for a family of one, it was like $49,000. So remember, that's not everything you can spend because you can spend basis from your taxable account. You can spend Roth IRA withdrawals, right? They don't count toward that. And so there's a lot of money that you can spend that doesn't count toward that taxable income and still get a pretty substantial Obamacare subsidy. Okay. Another approach you can take is to get a job, right? Maybe not. Maybe this isn't retirement anymore. Right. The retirement police are going to stop by and tell you you're no longer retired, but you can get a job that provides health insurance. Right. Sometimes people leave a high, you know, stress job that's killing them. Maybe they're a doctor, maybe they're a lawyer, whatever, and they get kind of a encore job. You know, maybe you're a rafting guide now or something, I don't know. It doesn't pay you much, but it does provide health insurance. Well, there you go. There's your health insurance covered. Okay. Another option is a health sharing organization or a health sharing ministry. These are often Christian and may require you to agree in some way with the Christian faith, but often that's pretty minimal. You might be surprised how little of that there is with most of these. These ministries have some similarities to health insurance, but there's also substantial differences. But many early retirees have found them to be an acceptable and even a great deal compared to what they were doing before. Now the premiums are often called something else, like shares, but they're often half as much as what your health insurance premiums would be. So there's a huge savings there. And then basically what you do is you go out and you're paying cash for your health insurance and then you turn these expenses into the health sharing ministry to be shared with other people in the ministry. And so what you have to keep in mind with these though is they're not health insurance. And there are some health care costs that you might think are pretty routine that are not covered by these health sharing ministries. So you have to read the fine print of what's covered and what's not covered and be okay with what's not covered. Okay. It's a really important aspect. The other thing that happens is these ministries tend to self select a healthier population because what happens if you actually develop something expensive, you come down with Ms. Or something that's going to need expensive drugs, is you tend to, at least by the end of the year, go to the Affordable Care act exchange and get on an Obamacare policy. Without a subsidy. Right, because they can't exclude you now for pre existing conditions. And so this works while you're healthy. It may not work while you're not so healthy. The Trump administration passed a regulation that allowed you to buy a bare bones health insurance plan for up to one year. Those plans often excluded medications and maternity and some mental health expenses, and had high deductibles, but did have low premiums. So you can talk to your health insurance broker about whether anything like that is available. By the time you hear this, we're almost to the election. If it's not available right now, it might be soon if President Trump wins the reelection. So it generally only works for a short period of time, but might help you bridge the gap to Medicare. Another option, at least for fairly elective stuff, is that you can go to a foreign country and just pay cash. You might be surprised how much cheaper it is to go to Mexico and get some of your care done, or go to Thailand and get some of your care done. But it is an option that some people have taken at least to help supplement some of the things that they were dealing with in this country with their health care expenses. And maybe you'll even want to move. Maybe you'll go live in Costa Rica or something for retirement. Or less expensive, leave Guatemala and realize that, boy, you know, just paying full price at the hospital is very cheap there. And it might not be the exact same healthcare you're getting here, but the price is going to be right, I'll tell you that. But anyway, my point is that if you have enough assets that you can retire, you have enough to retire. You shouldn't feel like you can't because you need health insurance. You might need to work one more year until you have enough money that you can pay for health insurance out of that nest egg you've saved up. But this shouldn't be something that keeps you from retiring. You know, if you're 58 and want to retire but feel like you can't because you don't have health insurance, you need to look into all your options because there's a lot of options out there that likely one of them is going to work just fine for you and help you to have some sort of health insurance coverage between now and when you get onto the Medicare roles. Hope that's helpful to you. The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.