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.
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
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.
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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.