Simon and his wife are in good health in their early 60s, but worry about what their health care may cost them in the next few years.
They’re too young for Medicare, which kicks in around 65. But paying for private insurance in the gap years between their planned retirement and their 65th birthdays seems like a big financial burden.
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Simon plans to retire at 63, when he’ll get $36,000 a year in Social Security benefits. He will also withdraw $14,000 a year from his 401(k), bringing his total retirement income to $50,000 a year.
The couple’s home is paid off, and they have $80,000 in emergency savings. But they know that money could evaporate with just one health emergency.
The pair have weighed their options. Simon could extend coverage under his existing employer’s plan if he qualifies under the federal COBRA (Consolidated Omnibus Budget Reconciliation Act) plan, but COBRA premiums hover between $400–$700/month per person, or up to $1,400 per household. [1]
There are also Affordable Care Act (ACA) options, which could lower the couple’s premiums to about $500 per month, but the typical range is $800–$1,200 per month without subsidies. [2]
So even ACA options would see them shelling out up to $9,600-$14,400 a year — a big hit on a fixed budget.
Risks & realities: What’s at stake
It’s understandable if Simon and his wife are worried about health-care options at this stage in their life. On average, health care for those 60 and older in the U.S. costs $12,000 a year. And that’s just for routine care. [3]
Without coverage, Simon and his wife would bear the full financial brunt of emergency care. For example, the Agency for Healthcare Research and Quality reports that hospital stays for dysrhythmia and heart attacks can cost upwards of $18,931. [4] Add to that the cost of follow-up care.
The quick math: Insurance vs. catastrophe
To illustrate, here’s a comparison of what Simon and his wife might pay for two years’ worth of health premiums under COBRA and ACA versus out-of-pocket costs for a medical emergency.
Estimated cost over 2 years:
ACA (subsidized): $11,880 ($495/month x 12 x 2)
COBRA: $16,800 ($700/month x 12 x 2)
Versus
Major medical event: $10,000 to $30,000-plus [5]
In other words, a single medical crisis could cost the couple far more than two years of health insurance.
For Simon and his wife, paying for insurance with COBRA or ACA support is worth it for peace of mind. The payments would be predictable and manageable within Simon’s income.
If costs still seem too high, Simon could delay his retirement briefly to qualify for ongoing employer coverage — with the added benefit of delaying Social Security benefits, which would grow in the meantime.
Or the couple could consider supplemental options like a high-deductible plan paired with a tax-sheltered HSA (health savings account) to buffer costs. [6]
Regardless, it might be wise to consult a financial advisor to work out what insurance strategy might ensure they’re covered for any medical eventuality and protect their savings at the same time.
Article sources
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[1]. National Plan Administrators “Breaking Down the Cost of COBRA Insurance”
[2]. Boldin “Retiring at 62 or Before? Average Early Retirement Health Costs + 9 Ways to Afford Insurance”
[3]. Peterson-KFF Health Care Tracker “How do health expenditures vary across the population?”
[4]. Agency for Healthcare Research and Quality "Healthcare Cost and Utilization Project (HCUP) Fast Stats"
[5]. Debt.org “Hospital and surgery costs”
[6]. Healthcare.gov “Health Savings Account”
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