The Trickiest Part of Retiring Early

Think you have enough cash to stop working before age 65? You'd better have a separate treasure chest for health insurance

Even if you have enough income to take early retirement, you can't say good-bye to your co-workers unless you've secured health insurance that will bridge the gap between the day you leave work and the day you turn 65 and qualify for Medicare.

That coverage does not come cheap. A 2002 study by the Health Insurance Association of America, a trade group, collected data on more than 220,000 individual health insurance policies for people age 50 through 64. The average annual premium ranged from $2,749 for one person in the 50-to-54 age group to $3,642 for those in the 60-to-64 range.

Why so much? A big reason is that most private insurance is "age-rated," says Mila Kofman, an assistant research professor at Georgetown University's Institute for Health Care Research & Policy in Washington. "As you get older, even if you are healthy, you are still rated based on whatever the insurance company determines the risk to be if your age is 50 or 55 or 60," she says.

THE FINE PRINT. It's even worse if you have a preexisting condition, as Gwen Bridgeford, 59, a senior human-resources specialist for a research foundation in San Antonio, found out. A breast-cancer survivor, Bridgeford would like to retire soon but hasn't been able to find acceptable insurance. "If you ever had a stroke, heart attack, or cancer -- that just rules you out" of many policies, she says.

The first place to check for coverage for early retirement is with your employer. One form of employer insurance is COBRA (which stands for the Consolidated Omnibus Budget Reconciliation Act that provides for this sort of protection). Under COBRA, retirees can continue their employee plans for 18 months. But they have to pay the full cost -- including the share their employers previously picked up -- not just what they paid as employees.

Policies that employers offer specifically to retirees are becoming a less viable option as more companies quash them. The Employee Benefit Research Institute reports that in 2000, only 12% of private employers were offering coverage to retirees younger than 65, down from 22% in 1997.

If employer-related coverage doesn't work for you, start searching. Most of your options -- except some group policies -- will be offered by companies that are licensed within your state, and the type of coverage and cost can vary widely. What's more, each state has its own rules on issues such as preexisting conditions and how premiums are calculated. To learn what applies to you, go to healthinsuranceinfo.net, a consumer Web site.

Next, scope out the universe of available plans. You'll save time by contacting an agent or broker who represents many insurers. Or you can go to www.naic.org, the Web site of the National Association of Insurance Commissioners. There, you can locate your state insurance office and contact it directly for a list of licensed companies. Also, click on the NAIC Consumer Information Source to read about the type and number of complaints that have been filed against insurance companies in each state. Other sources are the nonprofit State Health Insurance Counseling & Assistance Programs (SHIP) in every state, which you can find through www.medicare.gov; and ehealthinsurance.com, a commercial Web site that acts as an agent for many insurance companies.

The ehealthinsurance site is easy to use. Enter your age, sex, and zip code, and you'll get a list of insurance policies for which you might qualify. In each case, you can see the amount of the premium, the type of coverage -- a regular indemnity plan, a preferred-provider network, a health maintenance organization -- and basic deductibles and co-payments. Want to know more about a plan? Contact a local agent or broker for that company. The Web site sells insurance, but consumer advocates say that it's better to buy a policy from someone you can talk to directly and hold accountable if something ends up going wrong.

Another route is to pursue group policies, which are sold to residents of a number of states. They're available through what are broadly referred to as "associations," such as a professional or trade organization, or an alumni group. However, Gail Shearer, director of health-policy analysis for Consumers Union, suggests that you tread carefully, because many of the multistate association plans are chartered in states with the least regulation -- which could be less than what you would get in your home state.

Since the hunt for early- retiree health insurance can be difficult, allow yourself ample time. You may be stuck at work a little longer, but it's better than entering into retirement exposed to today's exorbitant medical costs.

By Ellen Hoffman

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