A Bitter Pill to Swallow

The rising cost of health-insurance coverage is forcing many baby boomers to rethink retirement.

by Audrey Hingley, Contributing Writer

Alice Haithcock of New Kent County and Ron Faulconer, who lives in Hanover County, both plan to retire at the end of 2008. They�ve worked, saved and planned. But like other baby boomers, they must face another retirement reality: rising health-insurance costs.

Retirees must reach age 65 to be eligible for Medicare. Haithcock, 61, will retire after 30 years with the Virginia, Maryland & Delaware Association of Electric Coopera�tives. She can keep current coverage for herself and her husband by paying the full premium of nearly $1,200 monthly. Faulconer, 60, who has spent nearly 32 years with the Richmond City Fire Department, can continue his group plan for himself and his wife by paying $642 monthly. Both say they are fortunate.

�I hope to work part-time, not necessarily due to medical insurance, but to bring in spending money ... plus I cannot envision sitting around doing nothing. I�ve been so accustomed to setting goals,� Faulconer says. Haithcock says, �Health insurance was part of retirement planning, but the fact that it has escalated like it has was not planned ... it will not stop me from retiring, but it will cause me to look for other options.�

Lil Robertson, 63 and single, retired from the University of Virginia with 36 years of service in 2004, but returned to a part-time administrator job at the university in 2005. �I can�t complain about the benefits,� Robertson says. �My health insurance is around $200 per month because of a credit I receive due to length of service.�  Robertson says she likes her job, her work environment and contact with people. She plans to work �as long as I can.� 

She�s not alone: A 2006 study reported that 79 percent of baby boomers expect to work in their later years. But those who retire before age 65 need to be able to build a health-care bridge between early retirement and Medicare eligibility, says Bill Kallio, AARP state director for Virginia. And for most people, that bridge will likely be found in the private health-insurance market.

A four-legged Stool

�We used to say retirement was a three-legged stool: pensions, savings and part-time work,� Kallio explains. �That has shifted completely, with a four-legged stool for everyone, with health insurance added to it, because health insurance is consuming more and more of people�s income.�

He adds, �Most don�t understand what their health insurance really costs. Many have not been prepared for the real cost ... they have been buffered by their employers� contribution. You have to think about your health status and your ability to find affordable health insurance.�

Those who buy individual insurance plans often face higher costs because risks aren�t spread across a group, as in employer-based coverage. Insurers evaluate those seeking individual health insurance on a case-by-case basis, meaning that existing health conditions can affect availability and premium prices.

The need for health insurance is a huge issue: Currently, one million Virginians are uninsured. But it can be particularly worrisome for the over-50 crowd, who face spiraling age-related insurance costs and the possibility of health challenges.

�Health-insurance plans have to cover their own risks, so they have underwriting qualifications. You could be deemed uninsurable; each company has its own criteria. Once you move into the private market, premiums will not be stable,� Kallio says. �An increasing driver for the return to work is the cost of health insurance and, historically, it takes longer for an older person to find work. All of this is a planning factor. Before you leave the workplace, do your homework.�

Some early retirees can take advantage of federal laws like the Consolidated Omnibus Budget Reconciliation Act (COBRA), which allows workers at firms with 20 or more employees to keep employer-provided coverage for 18 months after both voluntary and involuntary terminations. Workers have 60 days to apply for COBRA and must pay their entire premium (employee/employer share) plus a 2 percent administrative fee. The Health Insurance Portability and Accountability Act (HIPAA) guarantees that enrollees with at least 18 months of prior coverage who exhaust COBRA coverage can buy individual insurance without restrictions due to pre-existing conditions, but HIPAA doesn�t set any cost limits on individual insurance premiums, meaning these plans can be even more expensive than COBRA.

Lloyd Leitstein, a membership representative for the National Federation of Indepen�dent Business (NFIB), a small-business-advocacy organization, says health-insurance costs are prohibitive for many small businesses. NFIB says health-insurance premiums have increased 129 percent in the past eight years for small business. �It�s not that they don�t want to offer health insurance [to employees], they just cannot do it,� Leitstein explains. �We feel they [small businesses] should have access to competitive rates just as big employers do.�

An Act of Congress

To that end, a bipartisan congressional group introduced the Small Business Health Options Act (SHOP), H.R. 6210, in June 2008; endorsed by NFIB, the National Asso�ciation of Realtors and Service Employees International Union, the proposed legislation is aimed at making health insurance more available and affordable for businesses of under 100 employees. NFIB is also partnering with AARP in its �Divided We Fail� campaign, which Kallio says is �a call to politicians to face the twin problems of health insurance and lifelong financial security.�

If you want to retire before you are Medicare-eligible, health insurance is crucial. You risk losing everything without it. Begin your research at www.healthinsuranceinfo.net; maintained by the Georgetown Health Policy Institute, this site offers health-insurance consumer guides in an easy-to-understand format.  

Jackie Walters, supervisor in the Life & Health Consumer Services/State Corporation Commission Bureau of Insurance, says many trade and professional associations offer members insurance. Other experts suggest checking local chambers of commerce for possible group-rate plans. AARP recently began offering health-insurance plans for those 50 and over, via United Health Care Insurance Company, and a quick check of the Bureau of Insurance Web site lists 24 companies who provide individual health insurance in Virginia.

But just because you apply for health insurance doesn�t mean you�ll get it. One Virginia broker says about 40 percent of people in the 55-to-64 age group are getting turned down due to pre-existing conditions. For those unable to obtain health insurance, Waters advises contacting Anthem Blue Cross Blue Shield Individual Health Plans (see sidebar on pg. 17). Anthem�s Richard White says the company�s Virginia Standard plan offers open enrollment at any time, but there�s a one-year waiting period for pre-existing conditions.  White says individual plans vary, based on individual underwriting, in terms of costs and choices. Many are looking at high-deductible HSA (health savings accounts) plans.

�Our Key Care Flexible Choice plan has co-payments like people are used to in the group-health world. If in good health, the Level 1 (premium) rate for a $5,000-deductible Key Care Flexible Choice plan for a 60-year-old male is $240 per month,� he explains.

Do your Homework

When shopping for health insurance, Waters says, �Consumers should call their state insurance department and make sure the agent and company are legitimate and licensed in the state. Consumers need to know what their insurance needs are and educate themselves on the different plans available. When comparing plans, check plan �exclusions� first.�

She also suggests getting information about insurance companies and checking their ratings. Waters says the National Association of Insurance Commissioners has a consumer-service source that provides information consumers can use before buying insurance, including closed complaints, licensing information and financial data.

When you contact insurers, ask about renewal and premium increases and out-of-pocket costs. Pay particular attention to fine-print exclusions. �Consumers have a 10-day free-look period in which they can return an individual health-insurance policy for any reason, or no reason at all, and receive a full refund of premium paid,� she adds. �Always pay by check, money order or credit card and make the check payable to the company, not to the agent or anyone else.�

Haithcock, who has been working since she was a teenager, is looking forward to retirement. Because she drives 66 miles a day round-trip to her job, she figures she�ll save �a huge amount� on gas costs alone, and her auto insurance costs will decrease due to less driving. �My husband and I decided a long time ago we wanted to be able to retire (early). We consulted a financial planner. He said to free yourself of debt and we had a choice: we chose to do that,� she adds. �Both of us are fortunate to be relatively healthy and we get reasonable amounts of exercise. We�ve seen the outcomes of those who have chosen not to be physically active, and it is not pretty.�

Sound Advice

Faulconer said he�s developed a simple guideline for life: work, pray, plan and save. He thinks if you leave any of these things out, you�ll be less than successful. He advises others to set goals, work to achieve those goals and try to become debt-free: �Some people say to keep a mortgage for the tax deduction. Would it pay to make $15,000 a year in mortgage payments to get back $2,000 on your taxes?� He adds, �Plan, but at the same time don�t sacrifice everything now to the extreme where you are a miserable pauper, waiting for some magical day of retirement. No matter how much planning you do, you have to be flexible and not be bitter about any changes you might have to make.�

Some helpful resources

Virginia AARP

(formerly the American Association of Retired Persons)

Web site: www.aarp.org/states/va; 1-866-542-8164

Membership organization for those 50 and older and dedicated to their needs/interests.

www.healthinsuranceinfo.net

Informational Web site maintained by Georgetown Health Policy Institute, including helpful articles, information and health-insurance consumer guides.

The National Federation of Independent Business

www.nfib.com; (804) 377-3661

also: www.fixedforamerica.com (NFIB�s call for health-care reform)

Small-business advocacy organization.

Anthem Blue Cross Blue Shield

Individual Health Plans of Virginia

www.anthem.com; 1-800-334-7676 or

CareFirst Blue Cross Blue Shield Individual Health Plans

1-800-544-8703

Individuals may qualify for an open-enrollment program where they cannot be denied insurance, but a waiting period for pre-existing conditions may apply.

Virginia State Corporation Commission

Bureau of Insurance

www.scc.virginia.gov/division/boi

Ombudsman and Consumer Service Hotline toll-free:

1-877-310-6560

Listing of authorized insurers and licensed HMOs from the Bureau of Insurance, as well as other insurance information.

National Association of Insurance Commissioners (NAIC)

www.naic.org/cis/index.do

This group has a consumer-information source that individuals can use before buying insurance. You can find information here about insurance companies including closed complaints, licensing information and financial data.

There are several organizations that publish insurance

company ratings, available in your public library or on the Internet, such as: www.ambest.com, www.moodys.com,