Recs

4

Will You Be Covered?

The costs of medical care have risen dramatically over the past several decades. Employer-provided health benefits gained popularity during World War II, as strong labor unions bargained for better compensation, while employers faced a shortage of laborers. When medical costs skyrocketed in the 1980s and 1990s, having health insurance became less like a fringe benefit and more like a necessity for most workers, especially those who weren't in excellent health. Now, the threat of an illness or injury poses the risk of expensive medical care that could potentially wipe out most Americans' entire life savings.

A recent study from the Employee Benefit Research Institute took a look at how people in the final years leading up to their retirement are doing in terms of having health insurance. In general, while people aged 55 to 64 have done a good job overall in finding and retaining health insurance coverage, trends in the way companies provide employee benefits may pose a threat to some people in this age group.

Staying insured
One of the study's main findings was that people between 55 and 64 years old are more likely to have health insurance than any other age group of adults. Just one out of every seven people in this age group, which the study refers to as the "near elderly," don't have health insurance, compared to one in three adults aged 21 to 24 and one in four aged 25 to 34. Over the years, the near elderly have done a better job retaining their health insurance coverage; while other adult age groups had marked increases in the percentage of people who were uninsured over the past five years, the near elderly kept their uninsured percentage flat.

While insurance levels have remained stable, the way in which the near elderly get their health insurance has shifted somewhat in recent years. The study noticed a significant decrease in the number of people aged 55 to 64 who bought their health insurance directly from private insurance companies rather than obtaining it from an employer plan. This suggests that people in this age group are delaying retirement and continuing to work longer, in part to hold onto the health insurance plans their employers provide.

Another interesting issue the study looked at was the difference in coverage levels for the near elderly between those who were still working and those who had already retired. While figures on the health insurance of working people in this age group have stayed relatively constant over the years, the study found that those who had retired early were more likely not to have health insurance now than their counterparts 10 years ago.

What, me worry?
On their face, most of the conclusions the study reached make things sound relatively good for today's near elderly. In an environment in which people of all ages are struggling to find and keep good medical coverage, the statistics suggest that people between 55 and 64 are doing better than some other age groups in holding their own.

However, even though the study's current findings weren't particularly alarming, the author notes a number of troubling factors that probably haven't yet found their way into the numbers. First, with a large number of employers taking steps to limit the availability of health insurance for retirees, it's likely that more early retirees will lose access to affordable insurance. According to an AP story, large companies like J.C. Penney (NYSE: JCP  ) , TXU (NYSE: TXU  ) , and Motorola (NYSE: MOT  ) are among those that have cut back health insurance access for future retirees. Second, the current numbers likely reflect changes in the timing of retirement among the near elderly; however, as the baby boom generation works its way into this age group, it may be more difficult for a larger population of workers to find or keep jobs.

In addition, the study noted that insurance issues for the near elderly also affect prospects for medical programs that serve people 65 and over, such as Medicare. If fewer people enter retirement with retiree benefits from former employers, then a greater number of Medicare recipients will rely entirely on Medicare for their coverage. This will increase Medicare's overall costs, further worsening what many already foresee as a huge potential problem down the road. A previous study by the EBRI found that even with Medicare, people who are now 55 years old will need between $200,000 and $400,000 to pay their medical expenses after age 65.

Making your own decision
If you're between 55 and 64, health insurance is probably near the top of your worry list, especially if you currently rely on your coverage to address health problems. In considering whether or not to retire early, many people look closely at how they'll be able to make a smooth transition from private insurance coverage to Medicare. One obvious option is simply not to retire early, waiting until your Medicare eligibility begins on your 65th birthday.

However, if you want to retire early, one option is to use your right to remain within your employer's health plan under COBRA. For most people, the time limit for this extended coverage is 18 months, so this would allow you to retire at 63 1/2. It's important to remember, however, that you'll be responsible for paying the entire cost of your health insurance, so you may need to set aside additional funds to help cover your insurance expenses during that final year and a half. For those who wish to retire earlier, private insurance may be the best option, although it can be extremely expensive and difficult to find.

Related articles:

Are you spending too much for your basic living expenses? For ideas on cutting costs and getting more from your money, try out our personal-finance service, Motley Fool Green Light, free for 30 days. You'll get the information you need to save more and spend less.

Fool contributor Dan Caplinger never had retiree medical benefits to lose. He doesn't own shares of the companies mentioned in this article. TXU is an Income Investor pick. The Fool's disclosure policy keeps you in good health.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 520871, ~/Articles/ArticleHandler.aspx, 10/24/2014 2:06:26 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated Moments ago Sponsored by:
DOW 16,769.50 91.60 0.55%
S&P 500 1,959.41 8.59 0.44%
NASD 4,472.17 19.38 0.44%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2014 1:50 PM
JCP $7.69 Down -0.04 -0.57%
J.C. Penney Compan… CAPS Rating: *
MSI $62.25 Down +0.00 +0.00%
Motorola Solutions… CAPS Rating: **

Advertisement