The bridge to Medicare

Americans have a list of important ages. At 16, it’s time for a driver’s license in most states. At 18, it’s time to register to vote. At 21, people can buy alcohol. At 25, auto insurance usually gets cheaper. The next watershed date in a person’s life after that is probably age 65—the minimum age most people sign up for Medicare. 

Thanks to Medicare, millions of American seniors have access to health care. And while the program seems to go through an annual game of political pingpong every time Democrats and Republicans spar over the budget on Capitol Hill, Medicare is a vital part of the American social safety net.

Let’s say an employee starts saving for his golden years early in his career. He makes wise financial choices. He lives within his means and gets a little luck along the way. Then, he just might be in a position to retire before that watershed age of 65.

For many, that’s the goal. But it also means that that millions of early retirees will face some tough decisions when it comes to paying for their health care. A 2010 AARP study says that more than 58 million American adults— approximately 19 percent of the population—are in their 50s and early 60s. The aging of the baby boomers will add another 4.5 million to this age group by 2015.

Known as “pre-retirees,” people who retire between ages 50 and 64 face a limited set of health care options after they work their last day. A select number of pre-retirees retain benefits through their employers. Other pre-retirees will have to start shopping for an individual plan, while others may have access to another provider based on the sector in which they work. Some folks even stay in their jobs until they can qualify for Medicare. And, of course, the Patient Protection and Affordable Care Act will have an impact on pre-retirees as state and federal governments enact the law’s provisions during the next few years.

“Some become uninsured, but some people just stay working so they can keep the insurance,” says Gerry Smolka, a senior strategic policy advisor for the AARP’s Public Policy Institute. “If you care about being insured—which people at older ages do care about—then they need to figure out what they’re going to do before they leave the workforce.”

Employer plans

Pre-retirees can’t depend on employer plans to help with health insurance. The number of large employers offering retirement health care benefits has declined over the past 30 years. Smaller employers almost never offer retiree health care as a benefit and, according to AARP findings, no business formed in the past 20 years offers retiree benefits.

It’s easy to see why employers don’t offer pre-retirees benefits any more. It’s expensive. And with the ever-increasing cost of health care in the United States, companies are looking for any way to lessen the effect of health care costs on the bottom line.

One of the first places a pre-retiree looks for health insurance is at a spouse’s or partner’s private insurance plan. While it may increase premiums for the spouse, it’s often much cheaper than paying the entire cost of an individual plan.

Another strategy pre-retirees use is to take advantage of COBRA, which allows employees to stay on an employer’s group plan after they leave a job. If a worker retires within 18 months of turning 65, he may be eligible to pay for COBRA until he qualifies for Medicare.

Some employees—mainly those who work in the public sector—have access to  state programs that allow retirees to retain health-care benefits after retirement. These programs usually are offered to employees working in government-related areas including law enforcement, first response, higher education or city, county or state administration.

The New Mexico Retiree Health Care Authority is one example. Pre-retirees make up about 40 percent of the authority’s 19,000 members. New Mexico public-sector workers pay a contribution as a benefit throughout their career and make payments into the system once they retire. About 75 percent of New Mexico public employees take part in the authority’s program. By signing up with the authority, employees shield themselves from paying for an individual plan.

“It’s a scary world out there, and there are some scary numbers floating around,” says Mark Tyndall, executive director of the authority. “We’re part of a larger collective, so it’s good to be in a bigger boat.”

Individual plans

Millions of pre-retirees who opt to purchase individual health plans suffer from a bit of sticker shock. For starters, an employer no longer pays part or all of the monthly premiums—pre-retirees foot the entire bill.

Most individual health insurance companies will qualify pre-retirees for their plans—from large companies such as Aetna, Humana and Blue Cross/Blue Shield all the way down to local health insurance companies that are only active in a single state. Some even have special offerings for pre-retirees. For instance, the AARP offers its members a health insurance plan with Aetna called AARP Essential Premier Health Insurance. The age group for the plan? Individuals age 50–64¾.

But individual plans are expensive. Pre-retirees with chronic conditions should expect to pay hundreds more dollars per month for their plan. And that’s if the health insurance company extends coverage.

Within plans, pre-retirees can offset the cost of individual health insurance by paying higher deductibles and saving on monthly premiums. But it’s a balancing act. Most plans will cover certain conditions or prescriptions differently.

John Gaglione, owner of GBSA Insurance Inc. in Aurora, Ill., works with a number of pre-retirees and stays abreast of the health insurance options available in his state so he can present his clients with a number of options.  

“Typically, I try to determine what they’re looking for,” Gaglione says. “Usually someone comes to me and I can say ‘I can take a higher deductible’ I can usually narrow the choices down. The fact is, this industry is so highly regulated, most of the carriers are what are what you call the familiar brands like Aetna, Humana and Blue Cross Blue Shield. Frankly, they’re all pretty good, but the devil is in the details. You have to find out what the limitations are and let (clients) choose.”

Staying healthy and flexible

Most pre-retirees need to keep their health insurance going. There aren’t many people ages 50–64 without some sort of medical condition. Industry sources say the most common conditions they see in pre-retirees are high cholesterol, high blood pressure, diabetes and acid reflux.

“They’re pretty active—we’re talking about the baby boomer generation,” says Wayne Sackamoto, president of Health Insurance Interactive in Naples, Fla. He says though for the most part, they’re pretty healthy, most still take a couple of medications.

Most industry insiders say PPACA is going to have an impact on pre-retirees. For one, there will be no more denials based on pre-existing conditions. While the act means everyone will be able to get health insurance, it also means health insurance will cost more.

“Everyone will be able to get it,” Gaglione says. “But will everyone be able to afford it?”

Nathan Solheim is a Denver-based writer. He can be reached at

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