While the F.I.R.E. movement (financial independence, retire early) has given rise to many millennials and Gen-Zer's attempting to break free from their 9-5's and retire before 45, it has led to one major question: how to handle health insurance in early retirement? After all, the ever rising cost of healthcare can stress anyone out.
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I started working for myself back in 2015 and “what am I going to do for health insurance?” was the number one question even then. Over the years, I've met SO many people who want to become self employed but don't because of health insurance. I'd venture to guess wondering how to get health coverage is the reason why so many people don't attempt the FIRE life.
7 Ways To Handle Health Insurance Under F.I.R.E (Early Retirement):
Affordable Care Act (marketplace):
This is what I've done since 2015. I've had insurance cost me as little as $200 a month and as much as $1,100 a month through it.
In my opinion, if you choose to go through the marketplace you need to fully understand what you're getting and be thinking ahead. You can read more about understanding health insurance here.
As far as thinking ahead when purchasing insurance through ACA this is what I mean:
Open enrollment is at the end of each year so coverage starts in the new year. However, under a small set of circumstances you can qualify for special open enrollment periods at any time of the year.
When I knew I was going off birth control, but not pregnant, I still opted for a low monthly premium ($400 / month) and super high deductible. Having a baby on that plan was going to cost me over $10,000.
I felt comfortable and confident going forward with this plan for one major reason: our lease ended March 15. From the time you qualify for a special enrollment period (such as from a move) you have 60 days to enroll in a new plan.
Now our lease ended in March… meaning that I was rolling the dice and playing it a little risky. If we chose to stay, and I did get pregnant in March there was a chance I'd still have a baby in that calendar year. So when we made the decision to stay in our lease, I was extremely careful to not get pregnant before March… Thank goodness I got pregnant in April.
I knew this baby had to stay inside of me through the end of the year in order to not get hit with a massive bill and fortunately that worked out. My husband was fully prepared to get a job so I could get better health coverage if we needed come November. However, I felt confident that she was staying put until January.
At some point during my pregnancy, we made the decision to not stay in our lease. So when it came time to enroll in the health insurance plan that I'd deliver under, I opted for an extremely high premium ($1,100 / month) but having a baby only cost $750 under the plan. My daughter came in January so this was a no brainer.
I had my daughter, we were all healthy, kept the insurance for an extra month just in case, then cancelled it and went without insurance until we moved. I qualified for the special enrollment period after our move and my daughter went on my husband's insurance plan which leads me too…
Coverage through a former employer
My husband still receives health coverage from his former employer. We were able to add our daughter to his plan. He has a pre-existing condition, and fortunately his extremely expensive medications are fully covered. His monthly premium is around $1,500 for the two of them. In addition, his coverage ends this summer so he's been working on finding a new job while continuing to work on his startup.
Get a job
A lot of people choosing to retire early are also choosing to continue working; it's called semi-FIRE (read more about different FIRE's here).
With semi-FIRE you can either work full time or part-time in order to qualify for health insurance through an employer. It's an opportunity to choose a job that still supports your lifestyle, gets benefits, and keep up socialization. I talk more about the benefits of semi-FIRE here.
Subsidized plans from the Affordable Care Act
When I mentioned my premiums earlier through the Affordable Care Act, how many paused when they saw $200?!
Yep, I qualified for a subsidized plan my first year being self-employed and it was glorious.
Keep in mind: That premium was 5 years ago. Health care costs increase faster than standard inflation. Today I think I would've paid more. Subsidized plans vary from state to state and based on your income level within the qualifying range.
With FIRE and health coverage “income” becomes the key phrase as Pete Adeney, a.k.a., Mr. Money Mustache, has pointed out: “If you are truly retired with, say, a $1 million portfolio and choosing to live off $25,000 of annual dividends, that is your only taxable income, and you would qualify for very low health insurance premiums.”
With that said, it does bring up an ethical and moral dilemma: you can technically afford more, so should you be leaving those plans for the people who actually need them rather than driving up the costs by opting into them?
Lastly, I wouldn't count on subsidized plans forever. If you accidentally make too much, you won't qualify come tax time and will have to settle up a hefty outstanding bill. Plus, our political climate is unstable and we really don't know the future of ACA. These plans could change at any time.
Spend time outside the U.S.
If you plan to spend most of the year outside of the country, you have a couple of options:
Travel medical insurance covers the cost of temporary medical care outside of the country and typically includes evacuation insurance if you need to be brought back to the U.S.
Expat insurance is another option that has countless options within it. It covers medical costs both inside the US and outside of it. Some allow you to pay a flat insurance rate and go month to month. However, others limit the amount of time you can spend in the U.S. – if you go even a day over that limit, you'll lose coverage.
If you've already been spending most of your time outside of the U.S. and you haven't checked in on your credit profile in a while, consider this your friendly reminder. Time overseas and military leave can make you a prime candidate for identity theft. If you find any unfair, inaccurate, or unsubstantiated negative items on your credit report, click here to receive your free credit repair consultation today from Lexington Law!
Health care co-ops (sharing programs)
When I first heard about health care cooperatives, or sharing programs, from my midwife I was aghast. The insurance premiums were wildly affordable for a family of four with much lower out-of-pocket caps compared to high-deductible plans found in the marketplace.
With health care co-ops families share medical costs. Members pay their monthly “premium” which goes into a pool of money to cover the group's health costs.
However they aren't widely accessible. Many of these are faith-based programs where you belong to a certain church. Sometimes they won't cover pre-existing conditions for the first few years, others don't offer coverage to smokers, and some deny medical costs (like substance abuse treatment or unwed pregnancies) if they don't align with the program's values.
Catastrophic plans cover the bare-bones of medical emergencies. Unlike plans through the marketplace, these usually won't cover routine check-ups, pre-existing conditions, maternity, mental health, and even most (if not all) prescriptions.
These plans come with low premiums and extremely high deductibles.
I had looked into these plans per my FIL's suggestion (he's a doctor) and honestly don't know why anyone would get it unless you need very short term coverage. In my opinion, the only benefit of these plans: they cap the out-of-pocket expenses in truly catastrophic situations. Which to put things in perspective for you, had I had one of these plans and had my baby (without complications) in a hospital, I would've paid less by telling the hospital I was uninsured and doing their out-of-pocket rates.
If you have gotten a catastrophic plan in the past and are paying for it now with negative items from medical debt on your credit profile, Lexington Law may be able to help, click here for more information.
Remember, the best way to avoid costly health care costs is to take preventative measures. Eat whole real foods (not processed), go for a walk in nature for 30 minutes a day, and sweat at least 5 days a week.
Another important part in planning early retirement is to research. Get acquainted with all of your options, compare them to one another that year, but then again the next year, and the one after that so you can begin understanding any trends or projections for 10 years from now, or 20 years from now.
When it comes to health insurance, you really need to take into account that health care costs outpace inflation. If you want to be extra safe, project a 7% increase annually.
The good news in all of this?
While it's great to be cautious and covered with your medical expenses, it turns out that the average American greatly overestimates several health care expenses. So again, do your research, take preventative measures, and just know that you can adjust coverage annually, and in some cases sooner.
For more tips on picking the best health insurance plan for your finances, check out this post from Lexington Law.