Jason Parker discusses COBRA with insurance expert Julie Toomey.
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Below is the full transcript:
Announcer: Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. Now here is your host, Jason Parker.
Jason: Seattle, Tacoma, Olympia, Gig Harbor, all the good people right here in Kitsap County, welcome back to another round of Sound Retirement Radio. I’m your host, Jason Parker. As always, I sure appreciate you tuning into this program. Excuse me. I seem to have a little bit of a hoarse voice this morning. As you know, I like to get started with something kind of fun. You’re listening to episode 053. The title of this episode is, is COBRA affordable health insurance for retirees? Episode 053, so if you’re driving down the road this morning and you can’t catch the whole program, visit us online at soundretirementplanning.com and you can listen to the full program commercial-free as a podcast, or if you’re tuning in from iTunes, thanks so much.
After I share with you this joke and this verse this morning, I’ve got a little piece of homework that I want to ask for you to participate in, so stick with me here. Just to start out with something kind of fun, I do have a joke here for us. Now listen close everybody. This is important. Here’s your joke. What do you call cheese that’s not yours? Nacho cheese. Nacho cheese, baby. All right. I know. You love it. You love it.
Then the verse that I have for you this morning, I want to take a minute and renew our minds. The verse is this. It comes to us from John 6:12. When they had all had enough to eat, he said to his disciples, “Gather the pieces that are left over. Let nothing be wasted.” That’s what Jesus said. Gather the pieces that are left over. Let nothing be wasted. Okay, so episode 053, is COBRA affordable health insurance for retirees?
Here’s the homework though before I bring out my guest. I’d like to give you guys an amazing gift, and in order for you to receive this gift, you have to participate. Here’s what you have to do. I want you to find somebody that you really care about. It could be your spouse or your kids or a close friend, and I want you to tell them that joke that I just told you. It’s what do you call cheese that’s not yours, nacho cheese. Here’s what you have to do. You have to watch extremely closely as you’re telling them this joke, because your homework assignment is this.
I want you to engage with us either on the comments on the website or the comments on our Facebook page, and I want you to share with me every detail from that interaction. I want you to tell me what their smile was. Did they get it right away or was it kind of a slow thing? Did they have an instant smile or was it one, just kind of a gradual smile? Did they have dimples on their face? Was the sun shining in their hair? Did they shake their head yes up and down, or did they nod no, like I can’t believe you’re telling me this joke? I just want you to capture this memory in your brain so vividly. I don’t want you to take any pictures. I don’t want you to take any video. I just want you to capture this person and what it looks like when they smile when you tell them that joke.
I’m telling you, this is going to be an amazing gift for you, because here’s what I’ve learned. Unfortunately one of the realities when you’re dealing or working with folks that are retirees, you tend to, I tend to experience death probably more than the average person. One of the things that I find really unique and unusual is that after people are gone, I seem to remember their laugh more than anything. I may have a hard time recalling what they looked like or what their voice sounded like, but for some reason, that laugh just sticks out in my head. I’m telling you, this is a wonderful gift. You will want to capture this and log it in your brain forever. It’s a really amazing thing. Then after you do it, I want you to share with me your experience.
Okay, so with that, let me bring on Julie Toomey. Julie is the owner of Toomey and Associates, alongside with her husband, Drew Toomey. They have health insurance agent, Lindsey Kent, and assistant, [Catherine Blount 00:04:33], on their team. They work out of Poulsbo. Julie’s been a health insurance agent for over 5 years, and she’s called Poulsbo her home for over 7 years. Drew and Julie have 3 beautiful daughters, ages 8, 5, and 4.
Julie keeps busy by volunteering in school, at church, in the finance committee for the school. When not working and volunteering, she loves being outdoors with the kids. Professionally Julie is pursuing her CLU designation, which stands for certified life underwriter. This designation and the education that she will receive will help her be a more valuable asset for an estate planning team. Julie Toomey, welcome back to Sound Retirement Radio.
Julie: Thank you for having me back, Jason. I really appreciate it.
Jason: Yeah, so this is a big one, because health insurance is a big expense for people. A lot of people that are retiring early are looking at COBRA and they’re saying, “Is COBRA affordable health insurance for early retirees?” My first question to you is, when an individual retires, what should they consider when looking at their health insurance needs?
Julie: Oftentimes, when they first contact us, we go through a few questions to understand what they’re going through, but what they want to start looking at is, do they currently have any type of health insurance? Do they have group health insurance? Do they have individual health insurance? Are they on Medicaid? Those are the start of things that we look at. Then we start looking a little bit deeper. What’s their price point that they’re looking at for COBRA, if they’re offered it from their previous employer? What is that deductible and coinsurance? Is that going to be manageable? Have they used up any of that deductible for the year? Are they looking at major surgery? Those kinds of things.
Jason: Help our listeners understand. What exactly is COBRA?
Julie: COBRA technically is the Consolidated Omnibus Budget Reconciliation Act. That really doesn’t explain any of it, but COBRA …
Jason: I thought it was a snake all this time.
Julie: Yeah, so COBRA for the layperson is basically the continuation of their health insurance coverage after they’ve lost insurance from work, or whether it be divorce, if they had the individual who carried the health insurance in the family had passed away. They would be offered what’s called COBRA, the continuation of their health insurance plan. Depending on their circumstance, it’s between 18 and 36 months that they’re offered this continuation of their health insurance plan.
Jason: 18 to 36 months of coverage, depending on the plan, so it’s going to be different for everybody. If somebody’s retiring at 60, then that doesn’t get us all the way to 65 until Medicare.
Julie: Not at all. No.
Jason: Then the question becomes, should an individual take COBRA if it is offered by their previous employer?
Julie: Again, it depends on what the price point is. We’ve had couples come in where they’re looking at $1,700 a month for their insurance premium. That’s their insurance premium alone, whereas others are coming in with $800 a month. One is a little bit more affordable than the other. Then we also take into consideration, what does that deductible look like? For the couple that’s at a $1,700 deductible, if that deductible’s around $250 with an out-of-pocket max of $2,000, depending on what’s available on the individual market for them, they might have a good plan. They might not. We take into consideration their personal history, their personal medical history. What if they’re going through cancer treatment at that point in time? We don’t want to pull them off of a plan that they’ve already used their deductible and coinsurance max.
Jason: Wow. That’s amazing that premiums can vary so significantly from 1 COBRA plan to the next, so $800 to $1,700 is pretty significant. Then the fact is that if somebody has a health event that they’re currently going through, that’s another big determining factor on whether or not they should maybe switch to something different. That’s really fascinating.
Julie: Yes, that’s correct.
Jason: This is not easy to navigate either. I’ll tell you. If anything, I think health insurance has gotten more confusing over the years. It’s not easier to figure out. How long does somebody have to elect COBRA or to purchase an individual plan?
Julie: Again, that depends on the paperwork that they’re given with their COBRA plan. Sometimes we’ve seen folks that they have 45 days to get that paperwork back to HR. Others, they’ve got 60 days. The typical amount is 60 days.
Jason: 60 days. If you’re thinking of retirement, you definitely want to opt in. Then I’m assuming, is that guaranteed coverage? You can’t be declined as long as you opt in within those 60 days?
Julie: As long as you opt in within those first 60 days and you continue to pay, you can maintain your COBRA coverage for that 18 months.
Jason: Regardless of health.
Julie: [With your 00:09:45]. That’s correct.
Jason: From a cost standpoint, Julie, you’ve had the opportunity … For our folks just tuning in, you’re listening to episode 053 on Sound Retirement Radio. You can find us online at soundretirementradio.com or soundretirementplanning.com. I have Julie Toomey on the program. She’s the owner of Toomey and Associates, she and her husband Drew. She specializes in health insurance.
One of the issues we’re finding a lot is people that especially retire early, say you’re in your late 50s or early 60s, and you’re not eligible for Medicare yet, you’re looking to fill that health insurance gap until you get to Medicare. Julie, because you’ve had so much experience helping a lot of different people transition through this, what’s been your experience? Is COBRA usually more expensive than just buying an individual plan, or what, from a cost standpoint?
Julie: Sometimes. I know that’s not what you want to hear. We’ve had folks where they’re coming in at $2,400 a month, because it’s not only themselves but it’s also they’ve got 2 adult kids who are around 20 years old of age. They’re looking at a pretty significant cost, whereas we could look at the individual plans and potentially a tax subsidy that they could receive on the exchange and lower that out-of-pocket monthly expense on their premiums.
At times, we’ve got COBRA where an individual came to me and they’re looking at $400 a month for their COBRA coverage, and it was excellent coverage, so we told her to stay on that plan for 18 months. Then when she came back, we got her settled on to an individual plan that was about the same cost. However, she was also looking at an increased deductible at that point when she got off her COBRA plan.
It depends on the COBRA. It depends on how it’s priced. It depends on if the group insurance plan is age rating the individuals. If they’re age rating the individuals, folks who are in their upper 50s are going to see a pretty significant increase in their cost, potentially upwards of $700 a month per person for that COBRA that an individual if they were offered that COBRA at 30 might be looking at $400 to $500 a month.
Jason: It’s been a long time since I’ve had to look at COBRA for me personally, but when we moved down here from Alaska almost 18 years ago, I had been employed, had a great job up in Alaska. When I came down here, I decided to continue my COBRA health insurance coverage. It was to the tune of over $500 a month, which was a lot of money. Finally, by the time I got around to looking at individual health insurance, I found I was able to get individual health insurance for only about $100 a month. Now this was 18 years ago and obviously health insurance premiums have changed a lot since then, but I remember kicking myself for going with COBRA for as long as I did because I was just throwing money down the tubes when I could have had the individual coverage at a fraction of the cost.
Julie: We see a lot of folks who go through that process, and they just take COBRA, or they jump off of their COBRA and go directly to an individual plan, because they don’t know. They haven’t researched. That’s kind of where we come in. We take a look at their COBRA offering and then we take a look at what’s available.
Jason: Now, Julie, you may get swamped as a result of this interview, because as you probably know, Sound Retirement Radio is one of the top podcasts on iTunes under the category of retirement. We have people listening from all over the country, but I’m guessing that … Are you only eligible for being able to help people in the state of Washington right now, or can you help people outside of the state?
Julie: I’m licensed in Oregon and Idaho as well. However, I’m not appointed with any of their carriers for health insurance outside of Washington State. Typically I have … Washington State and Alaska, I’m licensed there for health insurance, but outside of that, I’m just a life insurance agent for those other states.
Jason: Okay, so for our listeners that are probably out there, they’re maybe driving down the road, and they’re thinking they’re getting ready to make this change, and they want some guidance on health insurance, go ahead and give our listeners your contact information, maybe your website, so they know how to find you after this program.
Julie: Okay, yes. Our website address is toomeyandassociates.com. Would you like me to spell that out?
Jason: Yeah, please.
Julie: Okay. Toomey is spelled T as in Thomas, O-O, M as in Michael, E-Y-A-N-D, and Associates is spelled out.
Jason: Okay. Just a minute ago, you talked about credits. What types of income count towards being offered or not being offered tax subsidies?
Julie: Typically what we tell folks is to take a look at their 1040, and at line 37, that’s their adjusted gross income. All that income that goes to filling out your 1040 goes towards your adjusted gross income. Then for tax credits, it’s actually your modified adjusted gross income that they’re looking at on the exchange to give you your tax subsidies or tax credits that are available to you. Some of the things that they want you to add back in are nontaxable Social Security benefits and foreign earned income and tax-exempt interest. Along with your adjusted gross income on your 1040, line 37, they want you to add a few other things in there.
Jason: What about Roth IRA income? Is that something that you saw that needs to be added back in?
Julie: [If a 00:15:42] Roth IRA, if I’m remembering correctly, that is tax-free income coming back to you. Is that correct, Jason?
Jason: Yeah. Yeah [crosstalk 00:15:53]. I just wanted to run it by you, because I was just working with a CPA recently. We were working on a client’s retirement plan and trying to figure out this health insurance issue. I’ll tell you what, understanding where your income’s coming from can really make a big difference. It’s my understanding that Roth IRA income does not count against your modified adjusted gross income, and so if you need to help use your Roth IRA to supplement your income heading into retirement, that may be 1 strategy for helping you reduce your out-of-pocket insurance premiums.
Julie: Yes. Exactly. That is an excellent point for sure.
Jason: Just to go into this a little bit deeper, just because you and I also talked on this, I was talking with you and I was talking with the CPAs, and trying to help these folks. It was amazing to me, after our conversation, if this particular person, they’re in their late 50s, were to have income, modified adjusted gross income that was $55,000 per year, then they’d get a $704 per month tax credit toward their premiums. If their modified adjusted gross income jumped from $55,000 to $63,000, then they didn’t get any tax credit and then they were looking at a $920 per month of health insurance costs versus $219 per month of health insurance. That’s some real significant planning opportunities for people to be thinking about if they’re going to retire early.
Julie: Yeah, and oftentimes, when we do have an individual coming in here, and they’re not really sure what their income’s looking like, we’re sending them back to their CPAs and their financial advisors to plan for what their income’s going to look like, so they can either have access to those tax subsidies, or if they’re going to be well above that $63,000 mark, that they’ve got the cash flow to pay that $12,000 to $15,000 in health insurance premiums on a yearly basis until they’re ready for Medicare.
Jason: Yeah. Great strategy to be thinking about is, let’s say you need $75,000 a year of income. You have $55,000 of modified adjusted gross income, maybe pulling $20,000 a year of Roth IRA, and now you’ve found a little bit of a loophole there in the tax credits. It’s helping people reduce their premiums every month. That’s significant, premiums of $219 per month versus $920 per month in the particular example. If people want to read more about that, I’ll just let you know. I wrote an article recently on Sound Retirement Planning called Before You Retire: 3 Important Considerations. You can find that online and go into a little bit more depth there on some of these tax credits. Julie, talk to us for a minute about the exchange. What’s the purpose of that?
Julie: Okay, the exchange here in Washington State is wahealthplanfinder.org, but across the country, most states are using healthcare.gov. The purpose of the exchange is it’s mandated by the Affordable Care Act. Basically it’s a website where insurance carriers put to market their individual insurance plans, but not only that. An individual now comes to that marketplace and can apply for the different coverages and their tax subsidies. This is the only place that an individual can receive their tax subsidies is through their exchange in their state.
In Washington, it’s the wahealthplanfinder.org, whereas everywhere else, or for the most part everywhere else, it’s healthcare.gov. They can go on there, apply, and put in their income information, and their Social Security. Everyone who’s a tax dependent in their household is placed on that application. Then at the end, it gives them a rundown of, this is what you’re eligible for, in terms of tax subsidies, or you are not eligible for tax subsidies. You will be paying the full brunt of the health insurance premium. Then it gives them a list of all of the insurance plans that are available. At that time, they also have access to asking a producer or a broker or a navigator for some help.
Jason: A couple of things, I think, are really important about this. Number 1, if you have health insurance through an employer plan or former employer plan, you’re not eligible for tax credits, or if you buy it privately as an individual plan, there’s no tax credit to be had. Actually you have to buy it through the exchange, but in talking with you, Julie, one of the things I’m really grateful for is that people can get someone like your expert advice on how to navigate this and still qualify for the tax credit. You can help people buy the plan that is going to be best for them through the exchange, as I understand it. Is that …
Julie: That’s correct.
Jason: Yeah, that’s …
Julie: That’s correct. Yes.
Jason: I’m really glad that they didn’t cut the health insurance agents out, because this is so darn confusing. People need help and you’re an expert in this area. How does it affect tax subsidies when 1 spouse is enrolled in Medicare?
Julie: We’ve had this discussion with a couple of our clients. They’ve come in, and they’re like, “Well, we’re going to get tax subsidies.” They filled out the quoting mechanism on the health plan finder, and they’re like, “Well, my tax subsidy’s going to be 600 bucks for the 2 of us. Since one of us is going to be on Medicare, aren’t I going to just receive $300 in tax subsidies?” Unfortunately it’s not as easy of an algorithm as that.
Typically what we’re seeing is between 1/3 and 1/2 of the tax subsidy that’s due to a couple is given to the individual that’s going to be on the individual plan versus if they were both on an individual plan, they would receive that full $600. If just one of them’s on the individual plan, they’re not going to just receive a cool $300. It’s going to be … They’ve got a huge complicated formula that the IRS and the exchanges have created to show what an individual’s going to be receiving.
Jason: That’s interesting. Back on this issue of COBRA, if somebody opts for COBRA, is that considered an employer plan or a former employer plan, so there would be no tax credit available for them if they choose the COBRA option?
Julie: That’s correct. That’s correct. They would [crosstalk 00:22:27] … Go ahead.
Jason: Oh, I just think that’s another really important point. If you’re eligible for tax credits and you choose to go the COBRA route, you may be losing out on those tax credits for your health insurance just because you didn’t research all of your options fully.
Julie: Exactly. Exactly.
Jason: When do you think an individual should start discussing these types of options, health insurance coverage?
Julie: We’ve talked with folks about 12 months in advance even, just because they’re like, “You know, I’m going to be retiring.” They’re not going to have any information on their COBRA plan per se, but it gives them a starting point to talk about what is available on the individual market, and they can use that as their benchmark or the threshold, knowing, “I’m going to pay about $700 a month in health insurance premiums if my income’s here,” or, “I’m going to be paying $200 in health insurance premiums if my income’s even lower. How do I plan for that?” Those kinds of things.
Jason: That’s really great [crosstalk 00:23:33]. Unfortunately, Julie, we’re out of time, but I just wanted to say thank you for taking time to be a guest on soundretirementradio.com.
Julie: Thank you.
Jason: All right. For those of you that are just driving down the road, remember you can find this online. We’re episode 053 at Sound Retirement Planning. This is Jason Parker signing out.
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