For many public workers, health coverage is the biggest unknown in retirement. A pension may be ready at 55 or 60, but Medicare does not begin until 65. What you pay for coverage in between, and how your plan works with Medicare after, can change the age at which retiring makes sense.
Who provides retiree coverage
Retiree health coverage comes from different places depending on your job and state.
- Statewide retiree programs. Some teacher systems run their own, such as TRS-Care in Texas.
- The state health plan. Many state and local retirees can stay in the same health plan they had while working, sometimes with an employer contribution.
- Your former employer. Many school districts and cities offer retirees access to their group plan, often at full cost.
- None. In some places, retirees must buy coverage on their own.
Coverage is not part of the pension promise in most states. Legislatures and employers can change premiums and benefits, and many have.
The gap before 65
If you retire before 65, you need coverage until Medicare starts. Options include:
- Staying on your employer’s or the state’s retiree plan, if offered.
- Your spouse’s employer plan, if your spouse still works.
- COBRA, usually for up to 18 months at full cost plus a small fee.
- A plan from the Affordable Care Act marketplace. Premium tax credits are based on income, so a modest pension can still qualify for help.
Price this before choosing a retirement date. Coverage for a couple in their early sixties can easily cost $1,500 a month or more without help, which can wipe out the gain from retiring a few years earlier.
Medicare Part A
Most teachers and public workers hired after March 31, 1986 paid the Medicare tax, even in jobs that did not pay into Social Security. Ten years of Medicare-taxed work, or a spouse’s record, qualifies you for premium-free Part A hospital coverage. If you were hired before April 1986 and stayed with the same employer, check your record, because you may need to buy Part A or qualify through a spouse.
Medicare Part B and enrollment
Part B covers doctor visits and outpatient care and has a monthly premium for everyone. Enroll during the seven-month window around your 65th birthday unless you have coverage from active work. Late enrollment brings a permanent penalty. Retiree coverage from a former employer does not count as active work coverage for this purpose.
How retiree plans work with Medicare
Once you are on Medicare, most public retiree plans either become a supplement that pays after Medicare, or move retirees into a group Medicare Advantage plan. Many systems require you to enroll in Parts A and B to keep retiree coverage, and will stop paying claims Medicare would have covered if you do not.
Planning steps
- Ask your plan what retiree coverage you can keep, what it costs before and after 65, and whether your spouse is covered.
- Check your Medicare record at ssa.gov for Part A eligibility.
- Add the health premium to your budget at each retirement age you are weighing, then compare with your pension estimate.
- If you choose a pension payout option, confirm whether your spouse keeps health coverage after your death. See payout options.