Illinois teacher’s retiree health insurance: TRIP or Obamacare?

One question I frequently get from Illinois teachers looking to retire is:

“What option is best for health insurance?”

The reason this question is so important is that many teachers are retiring well before the Medicare eligibility age of 65. If they retire at 60, they have five years to figure out how to get medical insurance and in a cost-effective manner. Thankfully, when teachers retire they have the option of opting into TRIP (Teacher’s Retiree Insurance Program) which offers health insurance. In all fairness, the premiums for this have been paid throughout a teacher’s career (find the “THIS” deduction on your paycheck – it’s subsidizing the premiums in the TRIP program), so many feel they need to sign up for this program to get their money’s worth.

But is it the best program to choose, given major insurers offer coverage as well as the recent addition of the ACA / Obamacare health care exchange? Let’s explore the options.

 

Retiring teachers and health insurance-

 

TRIP

Originally designed to be a supplemental insurance for teachers when they start collecting Medicare, the TRIP program does provide great coverage as it covers health insurance, prescriptions and “behavioral health”. It’s just expensive.

The default coverage, and one is that is priced quite low so many people choose it, is the HMO plan (called the “managed care plan”.) If you do not choose the HMO plan and one is available in your county, and you opt for the PPO plan, you will pay ~$500 in monthly premiums. (Find premium information here). Additionally if you need to add any dependents on this policy who are not eligible for Medicare and over 26, monthly premiums are ~$850/mo just for them.

Additionally, retirees who need to cover a spouse where neither of them are Medicare eligible and would prefer a PPO instead of an available HMO plan, will find themselves paying over $1,500 in premiums per month. While this plan would have a low deductible of $500 per person, it still has an out-of-pocket range of $1,200-$4,400 per person (depending on the medical procedure) and if it was in or out of network. For some teachers, this could be the majority of their pension.

One thing that should always be known is that TRIP is not a flexible program. While there are choices of HMO or PPO coverage, you are steered into which program to choose based on premium pricing. Additionally, if you decide to take coverage, but then switch to something else without being forced to, you’ll not be able to get into the program again for the remainder of your retirement.

 

Obamacare / Affordable Care Act

With the introduction of the health care exchange, shopping for health insurance from different companies got a lot easier. The levels of plans are easy to understand and there are subsidies available for people who meet certain family and income requirements. However, it should also be noted that if you approach an insurance company directly, pricing and coverage may be even better, but there won’t be subsidies.

For examples sake, let’s look at a single 60 year-old female teacher retiring with a pension of $65,000. In McHenry county, Illinois, there are 52 health plans available for this lady which an array of options. These choices can be narrowed down by premium, plan type (PPO/HMO), and carrier. When looking at the lowest premium PPO policy, it is far less than TRIP ($385/mo versus $500/mo) but it comes with a $6,000-$12,000 deductible and out of pocket maximum cost per year.

 

Comparing the Plans

When comparing TRIP and an Obamacare policy just on price, a TRIP policy is far cheaper in potential total annual costs ($7,200 versus $10,620, minimum), even though the premiums are higher each month. But the cost shouldn’t be the only thing that is compared. It’s important to look at what is covered under each of these plans to see if they are comparable. For example, if a dependent requires glasses, this is covered in the Obamacare policy while it is not under the TRIP plan.

However, there are more options on the health care exchange. Plans are rated from Bronze to Platinum with benefits and costs varying between four platforms. As you go from Bronze to Platinum (through Silver and Gold) the premiums go up, the deductibles and maximum out-of-pockets go down, but the coverage gets better.

In the previous example of the 60 year old retiree, if she didn’t choose a Bronze plan, but opted for a Gold plan, the premium would go from $385/mo to $569/mo. However, the coverage would get better with many services not costing anything (versus being subject to the deductible) and the deductible would go from $6,000 to $2,000. This would bring the total annual cost of the plan to be more in line with the TRIP coverage, but with a higher monhtly premium.

 

Which plan makes sense?

For our retiree, deciding which coverage to use becomes a break-even analysis. If she doesn’t use her insurance in the year, then she is better off paying the lower premium. However, if she is expecting to use her coverage – for expected surgery, or if there are imminent health problems – then she’ll want to look at how expensive these procedures are and what expenses are like in recovery. Knowing that she can switch plans every year in the exchange, she could time when to have certain procedures to keep costs down.

For teachers nearing retirement, TRIP may be the default option when it comes to selecting health insurance. However, knowing there are other options available and that there are some restrictions that come with TRIP, it’s always wise to evaluate this decision ahead of time.

If you’re nearing retirement and want help with this decision, use the green button at the top of the page to arrange an appointment with Dave. You can tell him about your situation and understand how he can help.