Last month I wrote a column for FedSmith.com discussing the potential consequences of leaving federal employment early. Mostly we considered the lower pension one would receive in comparison to the hypothetical advantages of early retirement or working in the private sector. Part time hours, starting your own business or consultancy, change of scenery, higher income, stock options were among the potential advantages to name just a few.
Although the response to the article was significant as there are many people out there considering their career options after years, in many cases decades, with the federal government, the topic of health insurance was recurring.
How do I retire if I can’t take my health insurance with me? How will I afford health insurance? What if my new company doesn’t offer health insurance or only at a huge increase in cost?
With these concerns in mind, let’s walk through the typical options people have available to them when they leave federal service.
There are 5 listed below to consider, and Medicare is not one of them. If you are age 65 you are eligible to enroll in Medicare A and eligible to enroll in part B, whether you are working or not at this time. Doing so may or may not be a good idea depending on whether you are currently under the FEHB program. That is dependent on your health care needs and particular situation. These options below presume you are considering or have left federal employment prior to age 65.
Since the majority of employees now are FERS as opposed to CSRS, we will walk through the big gotcha affecting health insurance eligibility.
To have your federal health insurance continue into retirement for the rest of your life and have the bill come out of your pension, you have to retire on an immediate retirement. The requirements for this are either age 62 with 5 years in, age 60 with 20 years in, or your MRA with 30 years in. Your MRA is a schedule of ages based on your year of birth with most ages following in the category of an MRA of 56.
If you meet any one of these then you can begin to receive your pension, be assured of continued health insurance, and still move on to your next career opportunity if you would like. Or retire with your pension, kick your feet up, and let your private sector spouse grind it out if you can swing it. This is unless you are going to elect your immediate pension under the MRA + 10 years option which is possible however will come with a reduced pension for starting it early. Good luck with that strategy.
ACA is the Affordable Care Act. Despite its rocky start and political overtones, it doesn’t seem like it is going away anytime soon. It really does offer health insurance and offers all the major carrier’s plans. The website is http://www.healthcare.gov and it may direct you to a sub-site that is run by your state of residence.
There are qualifications to apply for this coverage outside of the annual open enrollment period. One of the qualifications is losing employment related health insurance, but check with your state’s exchange for specific rules. If this qualifies you then you can apply any time, or if you have to wait for open enrollment in November than you can coordinate your resignation to assure there isn’t a loss of coverage. How comprehensive the coverage is, whether your specific doctors participate and the cost are all subject to the plan you choose and your state’s available plans, but it’s an option and all things considered a viable one.
Leaving federal employment doesn’t always mean retirement. It may lead to working longer hours and harder than before, but for a new company.
Prior to accepting a position, there should be a benefit summary available that includes the health insurance and how much the employer will cover. The private employer marketplace is much more apt to have what is called high deductible health insurance plans. This isn’t necessarily a bad thing but it could lead to more out of pocket costs for health services until the deductible is met. However, to compensate for that, you are able to put away money, $7,650 for a family over age 55 or $4,350 for a single person over age 55, into an account on a tax favorable basis; $1,000 less per category if you are under age 55. This money is accessible for health care costs, or can be invested for growth later, and taken out for any reason at age 65. However, if not used for medical expenses it is considered income.
Another option might be to apply under your spouse’s insurance since leaving employment should count as a qualifying event. Again, if the spouse is in the private sector, the coverage may be drastically different or even a high deductible plan like explained above. And this option is good to look into long before any decisions are made regarding your resignation. When is your spouse’s annual enrollment period? At this time that employer might make major changes to the coverage or who is paying for it. Another question to ask: Does it cover all your doctors?
Believe it or not, major health insurance providers have areas of their websites that simply offer the opportunity to enroll. They are out to insure as many people as possible just like any business.
In the absence of all other options though, they will require you go through what is called an underwriting process to assess your health and potential future requirements for care. This process is more familiar to people with insurance protection like life coverage where there is a physical exam, including a blood draw and copies of doctor’s records. However, health insurance can do it too, so clearly this would only be an option for an individual (or perhaps a family) that has an impeccable health profile.
Whichever option you choose, keep in touch with all of your medical care providers and their office staff to make sure they participate in the plan you choose. And with that, good luck in your next step in life!
Securities offered through Triad Advisors, Member FINRA / SIPC. Advisory Services offered through Planning Solutions Group, LLC. Planning Solutions Group, LLC is not affiliated with Triad Advisors. PSG Clarity is a division of Planning Solutions Group, LLC.