Investing in Retirement

Some Relief from the High Cost of Health Insurance


The rise in corporate layoffs over the last 15 months is leaving more people, especially those close to retirement age, scrambling to find health insurance they can afford. "It's the early baby boomers, in the 58- to 64-age bracket, who are the ones getting downsized," says financial planner Charles Auerbach, co-founder of Wealth Strategies Group in Cordova, Tenn. Not only do they lose their last years of income when they get laid off, the "insult to injury is they're going to see their health-insurance payments double or triple," he says.

Most people are elible to keep the health insurance they had with their former employer through COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) for 18 months after losing their jobs. But the premiums can be very expensive. Even so, terminated employees who have pre-existing health conditions will find that other individual plans may reject them or command an even higher premium with less coverage, making COBRA their best option.

Relief for millions of unemployed workers came on Feb. 17 with the American Recovery and Reinvestment Act of 2009 as part of the government's economic stimulus package. The new rule says eligible terminated employees will pay 35% of the premium to their former employer's health plan. The employer will subsidize 65% of COBRA premiums for up to nine months; in return the employer will receive a tax credit.

A Good Deal

This new rule applies to workers who lose their jobs between Sept. 1, 2008, and Dec. 31, 2009. Workers are not eligible for the premium reduction if they can get other group health coverage (such as a spouse's plan) or Medicare. Individuals must have maximum adjusted gross income of $125,000 (or $250,000 for married couples filing jointly; for more information check the Employee Benefits Security Administration's site at www.dol.gov/COBRA). "For the laid-off regular guy, it's a good deal," says Bart Zandbergen at Financial Management Network in Mission Viejo, Calif.

Rising costs have been at the center of the debate about health-care reform for the last few years. Many older adults can't afford health insurance. As of 2007, 7.1 million people (13% of the U.S. population) in the 50-64 age group were uninsured, up 37% from 2000, according to a report released by the AARP on Mar. 9. This number of uninsured older adults is expected to rise to 8.2 million by 2015. The average spending on premiums and services for individual insurance was $8,457 per year, vs. $4,103 for an employer plan (2005 data). Average out-of-pocket spending for those with individual insurance plans was more than twice as much as those with employer coverage. People with public coverage through Medicaid or Medicare also face high out-of-pocket expenses.

One in four adults aged 50-64 spends at least 10% of their disposable income on health care, says AARP. "These include insured adults for whom premiums are a stretch as well as insured and uninsured adults for whom the overall cost of care is a burden," says the AARP report. Some people in this age group are cutting back on prescription drugs and doctor visits, says AARP spokesman Jim Dau. "Eventually they can increase their health-care costs when they're older because they cut back on preventative care," he says.

In turn, health insurance has "become a much bigger part of someone's financial plan than in years past," says financial adviser Mark Kenison, president of Turning Point Financial in Charlotte, N.C., and Turning Point Benefits Group , which helps people living in North Carolina and South Carolina find health insurance plans.

A couple of Kenison's clients in their early 60s recently left or lost their jobs, so they needed to find health insurance to cover them until they qualify qualify for Medicare at age 65. "I just helped a guy, aged 62, who left his job—they offered COBRA at $1,700 a month for him, his wife, and daughter. I found the same coverage from Blue Cross Blue Shield for $900," Kenison says. You can lower your cost by finding an individual plan with higher deductibles and co-pays, as well as a separate annual deductible for prescription drugs, he says. (If you choose a plan with a higher deductible, make sure you have enough money socked away to pay for health expenses until you meet the deductible.) Kenison has found lower-cost alternatives from Humana, Blue Cross Blue Shield, and Coventry Wellpath.

Pre-existing Conditions

If someone already has medical trouble, such as high blood pressure or heart conditions, they're going to find it much more difficult and expensive to get health insurance. One of Kenison's clients who has diabetes chose a limited benefits plan from AIM Health, which will cost less than the $1,200 a month policy quoted from Blue Cross Blue Shield, he says. But not all limited health plans are alike, and some may not cover you for emergency services or surgery, so make sure you evaluate what the plan covers for the lower price.

If you're not eligible for COBRA or can't find an individual plan that fits into your budget, check your local or state government to see if they have a group health plan. Some professional organizations also offer group plans.

Older people still working can also check to see if their employer is one of the 51 companies (including UPS (UPS), DTE Energy (DTE) and Lowe's (LOW)) that offers Retiree Health Access (RHA). This is an Aetna (AET) health plan launched in January 2008 by the HR Policy Assn., a human resources group that represents 260 large employers. The RHA plan is available for pre-retirees as well as people over 65, and it cannot reject early retirees for coverage regardless of health problems. Premiums do not rise for older retirees or retirees who are sick. Premiums for an individual policy range from $400 to $1,000 per month, depending on whether an employer is subsidizing the premium and the type of policy chosen.

The association is developing a new version of RHA called "RHA Connector," in which employers will be able to offer all of the coverage options available from Aetna, with additional coverage options offered by other insurers for retirees who are eligible for Medicare. The association plans to launch this new alternative in 2011.

McCormack is senior producer for BusinessWeek.com's Investing channel.

Karyn_mccormack
McCormack is senior producer for BusinessWeek.com's Investing channel.

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