Navigating Employer-Sponsored Health Insurance for Soon-to-be Retirees

Navigating Employer-Sponsored Health Insurance for Soon-to-be Retirees

Employer-sponsored health insurance can significantly offset the cost of health care coverage, so if you're getting ready to retire, you may be concerned about how you'll cover health-related expenses once you no longer have access to your employer's group plan.

Health savings accounts (HSAs), COBRA and Medicare are among the options that may be available and could provide the coverage you need as you transition to retirement. Here's what you need to know.

Health Insurance Considerations as You Near Retirement

As you approach retirement, pay close attention to coverage levels in your employer's plans and the availability of HSAs.

Coverage Levels

Review your plan's explanation of benefits to make sure you clearly understand what's covered under your health plan and what isn't, including what providers are in-network, your potential out-of-pocket costs, monthly premiums and out-of-pocket maximum for the year — or the maximum amount you'll pay for covered services, including deductibles, copayments and coinsurance. Coinsurance determines the percentage you pay for covered services. Many plans set this percentage at 20%, meaning you pay 20% of the costs for covered services and your insurance provider pays the remaining 80%.

Understanding these factors is important because you do have the option of waiving employer-sponsored health insurance and signing up for an individual plan if what your company offers doesn't meet your needs. If you're relatively healthy, it may be more affordable to get an individual plan while you're still working and maintain the same plan in retirement.


HSAs also factor into considerations about health insurance in retirement. An HSA is an account that allows you to save pre-tax dollars — the money grows tax-free, and you can withdraw it tax-free as long as you use it to pay for qualified medical expenses. HSAs also roll over every year, offering another way to grow savings that could offset some of your health care costs in retirement.

Though you generally can't use money in an HSA to pay your monthly premiums, you can use it for deductibles or other qualified out-of-pocket healthcare expenses. To qualify for an HSA, you must have a high-deductible health plan (HDHP), which includes individual plans with at least $1,400s deductible and family plans with $2,800 minimum deductibles.

If your employer offers an HSA or you've already opened one of these accounts, consider increasing your contributions as you approach retirement. The maximum contribution limit is $3,600 in 2021 for individuals, so take advantage of this to save for future health care costs.

COBRA and Medicare

The Consolidated Omnibus Budget Reconciliation Act, or COBRA, can help bridge the health insurance gap if you plan to retire early. With COBRA, you can maintain employer-sponsored health insurance, but you'll have to pay the actual cost for this coverage, which is usually subsidized by your employer. The cost is likely much higher for your employer to provide coverage than your usual monthly premium.

COBRA can ensure you have coverage until you reach age 65 and qualify for Medicare. If you already collect Social Security benefits at age 65, then you'll be automatically enrolled. If not, then you'll have to sign up during the open enrollment period, which starts three months before you turn 65 and ends three months after. If you miss the sign-up period, you'll have to pay a monthly late enrollment penalty for as long as you have this coverage, so it's best to sign up even if you're still working and on an employer-based plan.

Keep in mind that Original Medicare doesn't include prescription drug coverage and has rules around which health insurer pays first based on the size of your company. If your employer has fewer than 20 employees, Medicare will pay first for your covered services. If your employer has 20 or more employees, your employer's plan will pay first.

If you'll turn 65 before you officially retire, make sure you understand the secondary insurance rules and coverage options around Medicare. Depending on your employer's plan and whether it offers limited coverage, you may decide to fully enroll in Medicare once you're eligible, which could ease the transition once you actually retire.

Navigating Health Insurance in Retirement

If you're planning to retire in a few years, it's important to understand all your health insurance options. Employer-sponsored health insurance can offset costs while you're still working, and in some cases, your employer may offer post-retirement benefits that allow you to maintain group plan benefits for a specified period of time, especially if you're close to the eligibility age for Medicare. An HSA can potentially reduce your future out-of-pocket healthcare expenses, while COBRA can fill coverage gaps if you decide to retire early.

Consider all these factors and use the run-up to retirement to create an effective plan for how you'll address your future health care needs. Being prepared can increase the chances you enjoy a healthy, fulfilling retirement and prevent health care costs from becoming overwhelming.

Satta Sarmah Hightower AuthorThumbnail

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