I'm retiring. What should I know about choosing a health insurance plan?

You may be considering retirement, or perhaps you are already retired. One thing that you realize as your employment situation changes is that you’re no longer going to be covered by your employee group benefits plan (if you have one), and you are therefore going to be responsible for procuring your own insurance benefits. You no longer have an employer who is providing these insurance benefits for you.

Often the employee group benefits plan that you may have had previously would include such benefits as; life insurance, accidental death and dismemberment (AD&D), disability insurance (LTD), health and dental insurance, perhaps some critical illness insurance, and maybe even a health spending account (HSA).

These are all insurances you should be aware of and understand. Some of these insurances become less relevant in retirement (disability being the primary example), but one that is foundational throughout life regardless of what age and stage you're at, is health insurance – this article will focus on health insurance for now.

Two different scenarios

There are two different scenarios and depending on which one applies to you will determine the best approach.

Scenario #1: You are in the midst of transitioning to retirement

At some point when you leave your employer, your employee group benefits will terminate, leaving you uninsured. From a best practices standpoint, it's important that you try to minimize any “gap” in coverage.

How do you do this?

The sooner that you seek to replace your health insurance benefits, the more choices you will have available to you. There is some time sensitivity here. This is because some options that are available to you initially may not be available after a period of time. This is particularly important if you have “pre-existing conditions” - that is a health condition for which you are (or have been) treated for or are taking medication for. By waiting too long you may find that the only options remaining will either exclude your pre-existing conditions (i.e. not cover them), or offer minimal coverage at a relatively high cost - neither of which are ideal.

There are three main types of health care plans that you should be aware of, you can read more about those in another blog post we’ve written here. To briefly summarize the three types there are: Medically Underwritten plans, Guaranteed Issue plans, and Guaranteed Acceptance plans.

If you are transitioning from an employee group benefits plan, you have the option to apply for any of these three types. In other words, you have the most choices available to you at this stage.

Ok, so which plant type is the most appropriate?

Best practice would be to first apply for a Guaranteed Issue health care plan. Depending on the insurance company you can apply for this type of within 60-90 days of your employee group benefits terminating. By applying within 60-90 days, you can transition seamlessly without needing to answer medical questions that may result in “exclusions” for any pre-existing conditions that you may already have.

Once you have a Guaranteed Issue plan in place, you can then at your convenience apply for a Medically Underwritten plan. A Medically Underwritten plan will offer the most coverage at the lowest relative cost, and is therefore the ideal plan type for a person to be on long term but it is also the most difficult to get.

Scenario #2: You've been retired for a while already

If you've been retired for a while already, it means you are probably already outside of the 60-90 day window that we've discussed. This means that you will be unable to transition seamlessly to a Guaranteed Issue plan without first answering medical questions. At this stage there is no advantage to applying for a Guaranteed Issue plan, therefore this leaves you with two options that makes sense: Medically Underwritten plans, and Guaranteed Acceptance plans.

If you've been declined coverage in the past due to your health history, then a Guaranteed Acceptance plan will be most appropriate. Otherwise, you will be better off applying for a Medically Underwritten plan as this will offer you the best coverage and value, but it means you will need to answer some medical questions, and any pre-existing conditions you may have will likely be excluded from coverage.

Senior's drug benefits at 65:

As you may be aware, upon turning 65, and depending on the province or territory in which you reside, there may be seniors drug benefits available to you to help cover the costs of prescription medications. These seniors drug benefit programs can vary from one province to the next, so it is worth checking with your local provincial government health insurance plan to confirm exactly what benefits you are eligible for.

A common question is “why should a person continue to maintain a private health insurance plan beyond age 65, when they are covered for prescription drugs by their provincial government health care plan”. This is a reasonable question. The answer is that there is a difference in the formularies.

What's a formulary?

A formulary is really just a fancy term for “list of drugs” that are covered by an insurance plan.

With your provincial government healthcare plan the formulary will include thousands of drugs at age 65+, whereas a private health insurance plan will cover potentially tens of thousands.

In other words, a private health insurance plan will simply offer coverage for a more comprehensive list of potential prescription medications than your provincial healthcare plan upon turning 65.

Plan benefits can change in senior years:

Another thing to be aware of is that many private health insurance plans will have plan design changes that occur age 65. these are often labeled as ‘seniors adjustments’.

Certain benefits included on a health insurance plan can increase or decrease at age 65, or in some cases may terminate altogether.

It's also not uncommon to see travel benefits (if included on your plan) to terminate at age 70 - though this can certainly vary from one plan to the next. Travel benefits included in a health insurance plan will almost universally terminate at age 80 at the latest.

Premium adjustment at 65:

Premiums for private health insurance plans will often (but not always) decrease at age 65. This is in recognition of the fact that your seniors drug benefits provided by your provincial government healthcare plan begin at age 65. Because private health insurance plans are designed to supplement or extend your provincial government healthcare plan, and because your provincial/territorial government healthcare plan is covering a greater share of potential expenses at age 65, the insurance companies often adjust premiums downward accordingly.

So, it is not uncommon to see premiums decrease at least temporarily for the 65-69 age bracket. You can expect premiums to resume incrementing pretty much universally again thereafter at age 70-74, and 75-79 etc. After a couple of increments in your 70's, premiums typically remain level for the rest of your lifetime.

Summary

To recap;

• As someone who is transitioning to retirement it's incumbent on you to get health insurance benefits for yourself. No employer to do this for you.
• If you're currently an employee (or recently left employment): consider starting with a Guaranteed Issue Plan. There is time sensitivity (60-90 days) to make this transition.
• If you've been self-employed for a while: consider starting with a Medically Underwritten Plan. Or, if you've been declined coverage in the past (or you've received an offer with more exclusions than you're comfortable with) then consider a Guaranteed Acceptance Plan.
• Many plans have 'seniors adjustments' that occur at age 65 to reflect the fact that your provincial government healthcare plan is covering more. This results in changes to some plan benefits, but also often a temporary reduction in premium.

Next steps

Trying to understand all the different plan types and figuring out which plan is most appropriate for your unique personal circumstances can be time consuming and difficult. This is why we have built Aeva.

We've designed Aeva to make this process easy and save you time by asking you specific questions to understand your unique personal circumstances and then providing a curated list of plan choices for you to choose from that are most appropriate for you. Aeva is your guide.

You can get started with Aeva today by clicking here.

Want to chat? Professional advisors are available to help you.

We look forward to assisting you with your health insurance needs.

Thanks for reading!