A Bit Too Young for Medicare, but Losing Your Health Insurance? Here Are 3 Options

It would be hard to find a podcast-hosting duo more totally invested in answering your financial questions than Alison Southwick and Robert Brokamp -- they put "Answers" in the show's name, for goodness' sake! And this week, they're at it again, combing through the Motley Fool Answers mailbag in search of conundrums to address for their listeners. But because three heads are better than two, for this episode, they've enlisted the help of Sean Gates, a financial planner with Motley Fool Wealth Management.

In this segment, they weigh in on a problem that more and more retirees are grappling with: They've left the work force before 65, and now, they need some kind of health insurance to bridge the gap until Medicare kicks in. None of the three choices they have are perfect: One is relatively short term, one is likely to be pricey, and the third...well, you may never have heard about it before. Good news: It's not overpriced. Bad news: It comes with an unusual set of caveats and gaps.

Sean Gates is an employee of Motley Fool Wealth Management, a separate, sister company of The Motley Fool, LLC. The views of Sean Gates and Motley Fool Wealth Management are not the views of The Motley Fool, LLC and should not be taken as such.

A full transcript follows the video.

This video was recorded on June 26, 2018.

Alison Southwick: Next question comes from Diane. "I plan to retire soon, and my husband and I need health insurance until we are old enough for Medicare -- three years for me and eight for him. He is on my health insurance now since he is running a small business out of our home."

Sean Gates: The first thing I would say is that Alison is modest in that the first seven sentences of that question were love for Alison. Just, for what it's worth.

Robert Brokamp: [laughs] It's true.

Southwick: [laughs] Diane was kind enough to say that she loves to hear my voice because I sound so wonderfully happy. And I am! How could I not be wonderfully happy with you guys? Come on! Thank you, Diane! That's very sweet of you to say.

Gates: I run into this question in my day-to-day all the time now. There's a huge swath of retirees who are getting to the point where they're not quite Medicare age, but the clock has punched its last card, so to speak, and they need options for healthcare. Of what I know of, there are really three options that you can do.

You can do COBRA, which is an extension of your existing health insurance, but that has a time delay on it. You can only have that for about 18 months, and you have to pay the equivalent amount of premiums that you would have while you were employed to get a similar level of coverage to your employer. That'll gap you some of whatever, if you're 60 and you need to make it to 65, that gets you to 61.5. That's part of the way there, and usually a good option.

For the rest of the time period, there are really two ways: the Obamacare exchanges, which everyone hates, until they need it.

I won't lie, they're getting more expensive. It's very difficult. You used to be able to find plans that had nice benefits like HSAs, and those are becoming less and less common on the exchanges. The selection is worse and worse. But it's still one of the only options.

The second option, which I will make you aware of, but is risky in its own right, is something called health share ministries. It's basically not health insurance as codified by law, but it is something that's snuck in as a loophole. Religious organizations, because they didn't want to pay for abortions or things like that in the premium coverage, were allowed to create this almost separate entity. It's basically a cost-sharing pool, which almost all insurance is, but it's relegated to particular organizations. In this case, you might see, an example is Christian Healthcare Ministries. If you went to their website, it's a group of like-minded Christians. You can sign up, and basically, you pay a monthly contribution to a pool of dollars that then covers every person who's in that group's cost of coverage.

The tricks here are, prescription drugs are not included. You have to pay those out of pocket. There's really no coverage at all. Then, you have to wonder, is that organization managing the funds well? If 50% of the people got cancer and needed tremendous amounts of healthcare costs, is that going to support it? Again, this is not classified as health insurance, so it's not regulated the same way as a traditional health insurance option.

The reason that I mention it with the caveat of all those risks is that, again, Obamacare exchange programs are expensive. I've been in situations where people are like, "I want health insurance, but it's going to cost me $4,000 a month. That's more than my mortgage, I can't do it." Yeah. It's just too much. In that case, this option is a fair one. To put dollars to it, if you had that $4,000 monthly payment, you might be able to find a healthcare sharing account that would cost you around $500-700, and I've heard some pretty good success stories on having those things covered.

Southwick: Huh! I had never heard of that. Now, are they going to card you make sure that you're a Christian?

Gates: That is an excellent question. I'm secular myself. I recommend this to all people. They do not card you. This is becoming a larger phenomenon, so other affinity groups, so to speak, are starting to enter this market.