Did I Just Save $10,000 on Health Insurance?

One of the biggest concerns I had about early retirement was healthcare costs. What would happen when my COBRA insurance ran out? How much would I have to pay to cover my whole family before I became eligible for Medicare, which was still more than ten years away?

When I was working full-time, I never had to think much about finding health insurance. I simply chose from the options my employer offered. I knew healthcare was expensive, and I assumed it would cost even more once I left full-time employment.

Well, I may have been wrong.

After applying for health insurance through Covered California, our family of four went from paying approximately $1,450 a month to less than $500. What? How is this possible? And even more surprising: We may not have to give up access to some of our current doctors.

Our new insurance only started on November 1, so I don’t know yet how everything will work out. But what we’ve discovered so far seemed worth sharing, especially with anyone considering early retirement.

First, We Had a Little Insurance Scramble

When I left my full-time job, we continued our family’s health insurance through COBRA. It wasn’t cheap, but going without insurance was never an option. One serious accident or unexpected hospitalization could leave us with enormous medical bills.

As our 18 months of COBRA approached its end, I thought we could extend it through Cal-COBRA, California’s continuation coverage program. Unfortunately, our coverage wasn’t eligible because of my former employer had out-of-state insurance.

Suddenly, we had to find insurance on our own, and quickly. I’d heard about Covered California, the state’s health insurance marketplace, but didn’t know how it worked. I assumed we’d pick a plan and pay even more than we had through COBRA.

Applying Through Covered California Was an Adventure

We started the application about six weeks before our COBRA expired. The website wasn’t particularly difficult to navigate, but knowing how to answer some questions was another story.

We completed it over several sessions, using ChatGPT to help clarify questions. The biggest challenge was estimating our annual household income.

When I was working full-time, my salary gave me a pretty good idea of what I’d earn. But now that we’re living primarily on cash flow and investments, we had to estimate our interest, dividends, capital gains, and other investment income from our financial statements. This was our first year with such a different income situation, and I wasn’t sure what our final income would be.

When we submitted our estimates, Covered California determined that all four of us qualified for Medi-Cal! Wait, what?

We were so surprised that we wondered whether we’d underestimated our income. After reviewing our numbers again, we revised our estimate upward bringing it to approximately $72,000 for our household of four.  And that’s when things got interesting.

Wait, We’re Actually Saving Money?

Based on our revised income estimate, my husband and I qualified for subsidized health insurance, while our two children still qualified for Medi-Cal.

We were initially offered a Kaiser HMO plan for approximately $370 a month for the two of us. Since we weren’t familiar with Kaiser, we explored other options and selected a Blue Shield of California HMO plan for about $480 a month. Its unsubsidized premium was approximately $3,200, but we qualified for government subsidies. Our children’s Medi-Cal coverage costs us nothing in premiums.

For those of you who want the details, here’s what happened to our monthly health insurance costs:

I couldn’t quite believe it.  Of course, these are premium savings, not necessarily our total healthcare savings. We still have copays, deductibles, and other potential expenses. But paying roughly one-third of our previous premiums was a very pleasant surprise!

But What About the Quality of Care?

This was my next concern. Our family had always been on PPO insurance, and I liked the flexibility of choosing doctors and specialists without referrals. I also had some preconceived notions about HMOs and Medi-Cal. Would we sacrifice access to good doctors or be stuck with a limited network?

So we started investigating.

We discovered that our primary care doctor accepts Blue Shield HMO. By selecting Hill Physicians Medical Group, we can access UCSF specialists. And here’s another lucky discovery: My current gynecologist accepts this exact insurance and medical group combination!

For our children, I was initially even more concerned. They’d been seeing doctors within our previous network since they were babies. Then I discovered that UCSF participates in Medi-Cal through the San Francisco Health Plan. Its Adolescent and Young Adult Medicine Clinic may actually be a great fit for our kids. We’re still working through the arrangements, but I felt much better about the change.

I also learned from a friend in early retirement that she and her son have been using Medi-Cal with Kaiser doctors for two years. She’s been very happy with the experience and pays nothing in premiums. That made me realize how much I’d assumed about HMOs and Medi-Cal without really knowing much about them.

What About Those HMO Deductibles?

Our new HMO has a deductible of approximately $5,400 per person. That’s substantial, but many common services have copays without requiring us to meet the full deductible first. Here’s one comparison that really surprised me:

• Our old PPO had a family deductible of approximately $8,000, and an emergency room visit for my daughter once cost us around $1,500.
• Under our new insurance, the benefits brochure indicates a $400 emergency room copay for either my husband or me, while our daughters’ Medi-Cal coverage could mean no charge.

What?! That’s quite a difference, at least on paper!  

We could have chosen a PPO through Covered California, but the option offered was approximately $1,500 a month for just the two of us. At that price difference, we figured it was worth trying an HMO.

Why This Works for Us (And May Not Work for Everyone)

There are a few important things about our situation that made these savings possible.

First, we live in California. My experience is specifically with Covered California. I don’t know how other states’ marketplaces or subsidy programs work.

Second, we’re in early retirement without full-time salaries. Our subsidies were based on our estimated household income, not simply the fact that we’re retired.

Third, and perhaps most importantly, we don’t need to generate much taxable income to fund our lifestyle right now.

Before leaving full-time work, we put aside a few years of living expenses in savings account or Treasury ETFs. We also have investments we can sell without realizing significant capital gains.

For example, I recently sold an investment I’d held for decades. Unfortunately, it hadn’t performed particularly well, so I realized very little capital gain from the sale. Not exactly an investment success story! 😜

But it illustrates an important distinction: For our income-based eligibility, what matters is the income counted by the program, not our overall net worth.

Our cash savings and investments with small capital gains help us fund our lifestyle while keeping our reported income relatively low. Our estimated $72,000 in household income helped us qualify for assistance. That doesn’t mean $72,000 or $80,000 is a universal cutoff. I’m just sharing our situation.

This experience made me appreciate something about our retirement planning that I hadn’t considered: Having cash flow available without realizing substantial taxable income creates more flexibility than I realized.

I also know this may not last forever. Eventually, we’ll need to sell investments with larger capital gains, which could reduce or eliminate our subsidies. But for now, our planning has given us an unexpected benefit.

What I Still Don’t Know

Our coverage only began on November 1, and I still have plenty of questions.

• Will it be easy to make appointments via Medical or get referrals to UCSF specialists?
• Will we encounter frustrating approval processes or long wait times?
• Are there HMO limitations we haven’t discovered?
• Will our actual healthcare expenses be as favorable as the benefits brochures suggest?
• I’m also uncertain about our final household income. What if we estimated $72,000 but our actual income ends up being $90,000? How much of our subsidies might we need to repay?

I’ll be paying attention over the next year and will write a follow-up once we’ve had more experience.

In the meantime, if you’re considering early retirement and worried about health insurance costs, I hope my experience encourages you to explore your options rather than assume coverage will be prohibitively expensive. If you’re in California, Covered California is a good place to start.

And if you’ve already navigated health insurance in early retirement, I’d love to hear how it’s worked out for you. I’m especially curious about people’s experiences with HMOs and Medi-Cal, since we’re just getting started with both.

I look forward to your questions and comments on my substack.

Lei