Previously, we’ve posted about the importance of giving health care costs and the plan decisions on the open market appropriate context when considering your ability to retire. Today, we want to discuss what may previously have been deemed a “too expensive” option: COBRA – because at least at Intel, it may no longer be the most expensive.
Selecting an option for health insurance in retirement or during a gap in employment is always a concern for our clients that leave Intel, or any company for that matter. The concern is magnified prior to Age 65 (the age of Medicare eligibility) as clients face the challenge of selecting a plan on the open market. In retirement, or during a gap in employment, the same or similar insurance you had while working shifts from a small amount that was deducted from your paycheck to a much larger amount that comes out of your bank account.
The plan that may have cost you and your spouse $200-$300/month (and was deducted from your paycheck) while working may now cost you upwards of $1,500/month on the open market (and will come out of your bank account).
COBRA is the acronym for the Consolidated Omnibus Budget Reconciliation Act of 1985, and the relevant piece of the Act for health care is this:
As long as you are covered on the last day of your employment, you have up to 60 days to opt to stay on your employer’s plan for up to 18 months — or up to 36 months in case of disability or a second qualifying incident.
The Benefits Of COBRA
COBRA can be seen as a really useful option because when you retire, you are leaving a job that provided you with health insurance at a low cost and which provided options to which you are likely accustomed. There are so many decisions to make as you approach and finally transition into retirement that there is a real benefit to being able to put-off one decision for 18 months by remaining on the same plan you had while working.
There are three main benefits to COBRA:
- You can delay making a decision at a time when you may have to make many decisions
- You can bridge the gap until your next employment or until Medicare eligibility (if you are at least 63.5)
- You can maintain the same type of coverage you had while employed (a similar plan and network of doctors may not be available on the open market)
The Downside May No Longer Be The Downside
The downside of COBRA in years past has always been the cost. Previously, with retiring clients we would weigh the benefits listed above against a plan that often cost a few hundred dollars more per month. The cost difference usually drove clients away from COBRA. However, recently the gap between the cost of plans we see on the open market and the cost of COBRA has narrowed. In some cases, the COBRA option is actually cheaper than what is available on the open market.
At Intel, for example, the current COBRA premium for a High Deductible Plan with an HSA is between $100 and $300 cheaper than comparable plans with the same insurance providers on the open market (this was based on a couple in their early 60s).
This is not to say that there may not be cheaper plans that fit your needs on the open market, as there are many options available that won’t be available through COBRA. However, the cost difference is not what it used to be.
Evaluate Your Options
As with any financial decision, when evaluating whether or not to use COBRA be sure you are equipped to evaluate the options based on the best information. And by that, I mean don’t settle for making decisions based on stale data.
If you need help understanding which options will make sense given your financial situation, please don’t hesitate to reach out.