Early Retirement and Healthcare Coverage

Sep 16, 2024

I have a pre-existing condition called ‘being human’. It’s terminal.

I was just asked by a good friend (and reader of this Substack) about when I was going to write about early retirement and getting healthcare coverage. In truth, others who know me well and about my pre-existing conditions (not just being human!) have also asked me. So, I decided to use this space to answer the question. The net here is that healthcare in early retirement isn’t cheap, but there are options.

Understandably, most of us Gen Xers (and Boomers before us) entered the workforce at a different time when healthcare was so inextricably linked to full-time employment with an established company. Many of us who have been employed this whole time were simply taken care of by our companies with our human resource professionals and their benefits brokers. Even when taking breaks between jobs, COBRA coverage (while expensive) was easy for up to 18 months of eligibility in most cases!

The Affordable Care Act (also known as “Obamacare”) removed the dependence of good healthcare on employment back in 2014. This change is likely a familiar one to others who’ve procured their own insurance in this gig economy. With this post, I hope to demystify some of the points relevant for early retirement and share my own real-world experience, particularly as someone with pre-existing conditions.

The old world was rough out there

Prior to the Affordable Care Act going into effect ten years ago, getting individual insurance was fraught with challenges because insurers could deny coverage based on pre-existing conditions and would adjust rates based on risk factors. With my pre-existing conditions of Type 2 diabetes and chronic kidney disease, insurance could have been either unavailable, very expensive, or restricted by limited coverage options or lifetime caps. I would have had to consider early retirement very carefully.

The first time I got my own healthcare coverage before Obamacare back in 2004, I did so through a program at Costco. I was living in Washington state with a single-member LLC. Costco resold a HealthNet PPO plan for small businesses with 1-50 employees. Overall, I recall the program being straightforward, but it had a $1M lifetime cap, which in some sense defeated the purpose of having insurance to protect against catastrophic healthcare costs. The summary of the plan is linked here.

Enter Obamacare

Obamacare enabled individuals to get the protection of health insurance for people in my situation with pre-existing conditions. Some relevant elements included:

No denials of coverage or rate adjustments based on pre-existing conditions or any other risk factors, other than age!
No lifetime caps
Required “out-of-pocket maximums” to contain costs in a single year (my old HealthNet individual plan actually had one of these.). Out-of-pocket maximum limits include deductibles, copays, and coinsurance, but don't include premiums or costs for services that aren't covered or that are received out of network. Once a plan holder reaches their out-of-pocket maximum, their health insurance will pay 100% of covered health care costs for the rest of the plan year.
Mandatory coverage of “essential health benefits” which seem to cover everything I’ve encountered so far.
Purchase of insurance through an online healthcare marketplace. In Oregon, I use healthcare.gov. When I lived in Washington, they had a marketplace at a state level (wahealthplanfinder.org) where prices across insurance providers were transparent.

For this post, I’ll go ahead and share what I chose for my health plan, procured through healthcare.gov as a resident of Oregon.

Note: There are available subsidies associated with healthcare.gov to people of certain income levels, but I don’t have much personal experience with these.

Preference for HSAs while working

I preferred an HSA (Health Savings Account), along with an HDHP (high-deductible health plan) when I was working for companies, even before procuring my own individual insurance plans. I took advantage of the HDHP options with HSA when they were offered by past companies I worked for.

There are a number of advantages:

Tax advantages. Contributions to the HSA are tax-deductible, the funds grow tax free, and withdrawals for qualified medical expenses are also tax free. Because the contributions can reduce taxable income, there’s also the potential of lowering the overall tax burden.
Flexibility. The Optum Bank HSA fund I created is owned by me, and it worked across different employer health plans. Unlike Section 125 plans (or “Flexible Spending Account” plans), HSA plans aren’t “use or lose it”, and the value of the fund can accumulate over time.
Investment options. HSA funds can be invested in stocks, bonds, and mutual funds. My HSA fund through Optum Bank is invested in mutual funds.
Lower premiums. HSAs are tied to high-deductible health plans (HDHPs) which typically have lower premiums compared to traditional PPO or HMO health plans. There is a lot of flexibility in how HSA distributions can be used, as they can be used with any qualified medical expenses as classified by the IRS. As such, the lower premiums gave our family more choice of how we wanted to spend our healthcare dollars, rather than by relying on the insurance company coverage.

So, the beauty of this is that I had a mutual fund account with healthcare funds already saved up that invested in mutual funds and grew with the market, tax-free!

Continued preference for HSAs in retirement

There are no income requirements to contribute to an HSA. Eligibility is just determined by being enrolled in only an HDHP, so retired people who are not yet eligible for Medicare can totally use this strategy.

In retirement, I continued my enrollment in an HDHP — the Moda Health Beacon HSA Bronze 7500 plan — through the Healthcare.gov marketplace for Oregon and continued to contribute to my Optum HSA.

In 2024, I am eligible to contribute $8,300 for my family. Because I’m over 55 years old, I am also eligible to contribute another $1,000 to my HSA as a “catch-up” contribution. It’s nice that I can deduct the HSA contributions from my consulting income for tax purposes.

Why I selected this HSA Plan

Similar to selecting health plans with a company, the important criterion for plan selection in retirement is the provider directory. For my own healthcare strategy, I wanted to use:

ZoomCare for primary care and urgent care. They are local here to Oregon, have an excellent capability for same-day appointments, and have clinics that are walking distance from my condo. They were also rated the “Best Health Care Clinic” in 2024 by readers of Willamette Week, a local newspaper.
OHSU for all my specialists (nephrology, endocrinology, ophthalmology, sleep medicine, etc.) OHSU is widely viewed as the top hospital in Oregon.
Support for Costco Pharmacy and Amazon Pharmacy (Navitus network). These are great because of free delivery, automatic refills, and convenient online support.

So, this is why I chose the “Moda Beacon” network, as opposed to some other healthcare alternatives in the Healthcare.gov marketplace.

What do I pay?

My premiums are $1,605 per month for me, my wife, and our 24-year old daughter. (Our 26 year-old has her own insurance through her university). The breakdown is $661 per month each for me and my wife and $283 per month for our 24-year old daughter.

For me personally, this HDHP has made for a good “cost containment” strategy.

For my own premiums, that’s $661 per month or $8,292 per year.
This year, I’ve had to pay my out-of-pocket maximum at $7,500.
The total cost for me this year is $15,792, or an average of $1,316 per month.

And that’s “all in”. No further deductibles, co-pays, or anything else.

Is this a good deal?

I think so.

For me, the primary purpose of healthcare coverage is to avoid catastrophic expenses, knowing that my expense was limited to $15,792 “all-in” is good. I am appreciative that Obamacare keeps me eligible to receive insurance coverage, even with my pre-existing conditions.

Of course, the level of this expense is more of a problem with our healthcare system. So far this year, my insurance has been billed $49,419.65 by the various providers,. Even with their negotiated discounting, the insurance company has already paid out $17,613.37 so far this year. As such, they have paid out more than I’ve paid (or will pay) this year. My cost for the rest of this year is predictable to just my remaining premiums for the rest of the year, and I appreciate this predictability.

There is also some upside now for the future, as I’m getting some care now that should avoid future expenses. For example, with the approval of a more expensive drug for my eyes, the frequency of my regular visits to the retina specialist has gone from monthly down to every 12 weeks. And, as total expenses go down, so hopefully will the amount that I have to pay out-of-pocket.

What about dental and vision?

Dental and vision plans are different from medical insurance. For me, the purpose of medical insurance is to contain costs in any worst-case scenario.

Dental plans are more like prepaid discount plans and offer very limited protection against high-cost procedures.

Vision plans are more like group discount plans and essentially rely on medical plans for protection against bad eye problems.

As such, I don’t buy either of these from insurance companies. (Our dentist basically just offers a discount plan that includes two cleanings for $330 annually and 20% off any additional work.).

Your mileage may vary

These decisions on healthcare were the ones I made personally, but I recognize that my family sits at two extremes.

For my wife and daughter, who are very healthy, the objective was to have the lowest premium and to give ourselves the maximum flexibility to spend our healthcare dollars as we want.

For me, I am trying to manage through treatment of pre-existing conditions, and the objective was the best cost containment (premiums + out-of-pocket maximum).

Your objectives may vary, so don’t at all take this post as gospel!

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