Taking early retirement is a dream come true for many workers, but it can have one major drawback. Retiring before Medicare eligibility at age 65 could leave you without health insurance.
Since the 2013 implementation of the Affordable Care Act (more commonly known as ObamaCare), retiring workers under the age of 65 can purchase affordable health insurance coverage through the ACA’s health insurance exchange, to last until they enroll in Medicare.
However, before you sign up for coverage (open enrollment for 2017 begins on November 1), there are some essential items you should know about to do with pricing and coverage, to ensure you get the health insurance that’s best for you.
Understanding the Pricing Model
If you purchase a policy through the health insurance exchange, you cannot be denied coverage because of a pre-existing condition. This means that even retirees who had to leave their careers because of health issues can still get the insurance coverage they need.
The ACA also has limits on price variations for health care coverage. Assigning higher prices to certain groups — like the elderly and women of child-bearing age — has been a long-standing practice in the insurance industry, often pricing individuals out of coverage. However, under the ACA’s rules, the premiums for the most expensive coverage cannot exceed 4.5 times the cost of the least expensive plan. In addition, there are only two pricing factors that insurance companies can use: age and smoking.
Specifically, age-based price adjustments cannot exceed a ratio of 3:1, which means a 64-year-old will pay no more than three times the amount a healthy 21-year-old would for the same premium. A smoker’s premium price adjustment may not exceed 1.5 times the amount a non-smoker would pay. In addition, there are no annual or lifetime spending limits on any policies purchased through the health insurance exchange.
The Tier System of Insurance Coverage
Individuals shopping for coverage through the health insurance exchange have a choice of four different “tiers” of insurance coverage. The tiers are differentiated by their actuarial value (i.e., percentage of costs paid by the insurer, rather than the patient). The lower the actuarial value, the cheaper the premium. (However, the out-of-pocket costs are higher.)
The four tiers are: Bronze (insurance covers 60% of medical costs), Silver (insurance covers 70%), Gold (80%) and Platinum (90%). While there are differences between the tiers, even the lowest-cost plans in the Bronze tier conform with the minimum benefits required by the ACA:
- Ambulatory patient services
- Emergency services
- Hospitalization
- Maternity and newborn care
- Mental health and substance use disorder services
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care
Cost Assistance
For financially struggling individuals who make too much to be eligible for Medicaid, there are two types of cost assistance with the ACA: Premium Tax Credits and Cost Sharing Reduction subsidies.
Premium Tax Credits
These are available to anyone making between 100% and 400% of the federal poverty level, which corresponds to $11,700 – $47,080 for an individual in 2016. The tax credits cap your monthly premium to an amount between roughly 2-9.5% of your total household modified adjusted gross income. The credits are paid to your insurer in advance so that your monthly premium is lowered.
Cost Sharing Reduction
These subsidies are only available for those making below 250% of the federal poverty level, and who are enrolled in a Silver tier health insurance plan. The subsidy increases the actuarial value of your coverage, so you don’t have to pay the remaining 30% of the cost of services covered by your insurance.
When and How to Enroll for ObamaCare
The only time you can switch or enroll in a plan on the health insurance exchange is during open enrollment, which is typically set between October 15 and December 15 of the prior year (although there are often extensions of the open enrollment period).
The open enrollment for 2017 starts on November 1, 2016 and ends January 31,2017. You can learn more about the ObamaCare open enrollment period at obamacarefacts.com.
