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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

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Pre-retirement Health Care Finances

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If in doubt, please send a new question or ask for an update.

Q: I will turn 63 on July 2nd, 2006. Both my wife and I are on Blue Cross Blue Shield of Texas through the state insurance pool and our rates just keep climbing. We have $5000 deductible each. I take four medications. Everything else is under control and with normal weight. My wife doesn't take medication but has a heart murmur. Can you recommend a policy that we could switch to? We are paying over $1100/month for the two of us.

A: Your question is posted here so that others can better appreciate the situation of health care expenses in Texas and a growing number of other states that use an assigned risk pool. Sorry that we cannot offer any other health insurance suggestions but sharing the financial details of your situation will help others with their pre-retirement planning for health care. The state of Texas requires commercial health insurance companies to accept applications that are assigned to them for applicants who would not normally meet the eligibility requirements for the health plan's normal rates. The rates for this assigned risk pool of applicants must be calculated separately based on the higher actual claims of that assigned risk class. State laws also require that the premiums be capped at (usually) 166% of the cost of regular health insurance rates, so, in effect, the cost of this health care is still financially subsidized by other healthier premium-paying residents of the state. On the positive side, you did find that high quality health insurance and you did apparently manage to find the financial resources to pay for it. The bad news is that you have at least $26,000 in health insurance premiums to pay and possibly another $10,000 in out-of-pocket medical costs until Medicare takes over as the primary payer. After that, costs will drop temporarily but will eventually climb to even higher amounts. Health care may be your largest expense over the rest of your life, just as it will be for a growing number of retired Americans. As a practical matter, the only way to avoid the high assigned-risk premiums would be to obtain insurance through a larger employer-sponsored group plan where the risk is averaged into a larger pool of premium payers. Unfortunately, this raised the rates for the other employees so employers have a financial incentive to keep unhealthy employees out of their business health plan. Texas officials caught onto this trend and recently took legal action to deny access to the state assigned-risk health insurance to applicants who might otherwise have obtained insurance through an employer plan - even if they were unaware of the law and their options. This is a long way of saying that it could be worse. In the long run, $15,000 to $20,000 (+/-) per year for your health care expense is about what you should budget in for total health care expense (premiums plus out-of-pocket costs) in retirement years ahead and you are not too far from that norm at this point.


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