Using ACA as Bridge to Retirement Health Coverage

For Americans who are interested in retiring but continue to work full-time to bridge their medical benefits to Medicare, the Affordable Care Act (ACA) offers new health insurance options, says Prudential Financial in a new white paper.

By taking advantage of the health insurance options made available through the ACA, individuals can enhance career flexibility later in life, Prudential says, “without having to worry about their health insurance in the same way as prior generations of early retirees.” There are some deep-seated and opposing opinions about what the ACA is doing to the American health care system, but Prudential says those who have left full-time jobs and are under age 65 might have the most to gain.

This is because generally Americans only become eligible for Medicare at age 65, which, according to Rodney Allain, head of sales and distribution for Prudential Annuities, leaves many people staying in a job “longer than they’d like just to keep the health insurance.” It may seem like an extreme choice to work longer than theoretically necessary to maintain health coverage, but given the potentially catastrophic financial impact of an uncovered-but-serious health event (think cancer or a car accident), for even affluent people, the strategy makes economic sense.

Under the ACA’s plethora of new insurance options and approaches, however, Prudential says individuals may now be able to retire early, work part-time or move on to a new career—still knowing there are more affordable healthcare coverage options available than just a few years ago. 

Allain notes the primary reason people are in search for a bridge to Medicare is the changing retirement picture in the United States. He says most Americans are now retiring in stages, rather than abruptly at the age of 65 or 66, moving into part-time jobs or becoming self–employed. The factors contributing to this trend include a lack of retirement savings, freezing and shuttering of defined benefit plans, and increasing health care costs.

NEXT: Encouraging trends 

“The guidelines in the ACA include a number of provisions aimed at making health insurance more accessible and affordable,” says Jim Mahaney, vice president of strategic initiatives for Prudential. “There’s no need to worry any longer over dangerous gaps in coverage or being turned down for coverage due to a pre-existing condition.”

Mahaney feels early retirees can also benefit from provisions that “limit the amount older individuals can be charged and prohibit insurers from charging women more than men.” The ACA also provides subsidies and tax credits for lower income individuals, he says, which could prove particularly valuable for early retirees. This group may have less taxable income than when they were employed in a full-time job, he explains, and can often control the amount of taxable income they take during the years just prior to turning 65 and becoming Medicare eligible.

Prudential finds people seem to be getting used to the idea of purchasing coverage through public and/or private health insurance exchanges, often known as marketplaces. They’re also increasingly willing to get and seek information directly from health insurance companies, from an agent or broker, or from an online seller.

The whitepaper continues: “The cost [of coverage for a given pre-retiree] will depend on the type of plan, with each plan designed to pay, on average, a range between 60% to 90% of covered expenses. A catastrophic plan can be purchased for much less, but these have very high deductibles and, for early retirees, are only available to those who qualify for a hardship exemption.”

“If you are thinking of retiring prior to age 65, you should review your health insurance options at the government’s website, www.HealthCare.gov,” Mahaney concludes.

The full white paper can be found here: Early Retirement and the Affordable Care Act.