Three health insurance options for retiring teachers

One of the big problems I hear soon-to-be retiring teachers talk about is how are they are going to retain health insurance coverage.

They have been covered under a group policy for their entire career, paying different amounts based on their coverage choice and district contract, but now they face the hurdle of health insurance post-employment.

For teachers in Illinois, they have been paying into the THIS program (Teacher’s Health Insurance Security fund) each paycheck. This allows their premiums in the TRIP program (Teacher’s Retirement Insurance Program) to be reduced due to all members subsidizing them throughout their career. However, the THIS program is not meant to be a fully-fledged health insurance offering – it is meant to be an add-on to Medicare.

But what about teachers retiring before they hit Medicare eligibility?

For most people, Medicare eligibility starts at age 65. However, most teachers will retire before that age, even as soon as in their 50’s. So what are the options?


Retiree health care

Image by 401(k) 2013 (Flickr)

1. Go on a spouse’s insurance plan – For teachers who are married, chances are their spouses may still be employed when they retire. If there is a group health insurance plan available through their spouse’s employer, then they can add themselves to it and receive coverage.

One thing to note is when this retired teacher reaches age 65, they will need to apply for Medicare regardless of if they stay on this group plan. If there is a delay in filing, there may be permanent penalties assessed to monthly premiums.

2. Find employment that offers health care – Many teachers that I talk to don’t want to stop working when they retire from teaching. Some want to continue teaching in some form or another, while others want to try something different. Whatever their “encore career” might be, I encourage them to find jobs that offer health care, even if it comes with a salary that is lower than other jobs.

3. Purchase an individual policy – If the option of working for health care is not appealing and there is no spousal plan available, then it would be wise to purchase an individual health policy. While the TRIP plan will be available from the onset of retirement, it is not meant to be a primary form of coverage.

When looking at policies, most people would look at an HMO or PPO policy. However, it may be wise to look at a Health Savings Account (HSA) policy. This is coverage is comprised of a high-deductible HMO policy and a savings account. The savings account is provided to pay for out-of-pocket expenses (either directly or through reimbursement), ranging from doctor’s visits to meeting the high deductible on the plan, and these savings are tax-deductible. The distributions from this account, if used for qualified medical expenses, are tax-free.

Tax savings all around!

The benefit with using this account is that it can be invested in the stock market, doesn’t disappear if you can’t use it, and can also be used for non-medical expenses when the account holder reaches age 65.

But what should you do? That will be a personal decision and one that is dependent on your situation. This is one of the areas I discuss with my retiring clients – give me a call if you’d like to become one of them.

Note: This does not take into consideration upcoming “Obamacare” provisions. We will explore that in a future post.