William Lako: The critical consideration of health insurance for non-working spouses in retirement

Imagine through hard work and wise investment decisions, you were able to support your family on one salary, allowing your spouse to stay at home with your children. Now, your spouse is babysitting the grandchildren, and you are months away from retirement, eagerly anticipating joining family life. This was the situation for a couple I worked with. Their retirement plan was all figured out, except for one overlooked issue: health insurance for the stay-at-home spouse.

During their working years, the husband carried the family on his employer-provided insurance plan. Now that he was retiring, he was transitioning to Medicare. But what about his spouse? She hadn't worked outside of the home in more than 40 years. Furthermore, she was only 62.

For these investors, the problem was two-fold. With his retirement, she would lose health care coverage from his plan and was too young to qualify for Medicare. Because her husband was retiring, she should be eligible for COBRA continuing health coverage through his employer. The downside is that continuation coverage is generally more expensive than what active employees pay for group coverage. The alternative is to find coverage through the Health Insurance Marketplace created by the Affordable Care Act. While cost is a significant consideration, I also recommend considering deductibles, co-payments, out-of-pocket maximums, whether your current doctors are in-network, and the benefits provided by each option.

Once she turns 65, she'll be eligible for Medicare. Medicare has four parts: Part A, Hospital Insurance; Part B, Medical Insurance; Part C, Medicare Advantage, and Part D, Prescription Drug Coverage. Generally, Medicare Part A is premium-free if you are 65 or older and have worked and paid Medicare taxes for at least 10 years.

Where does this leave a stay-at-home spouse who does not have a work history? Luckily, non-working spouses are eligible for premium-free Part A based on their spouse's work history. You must be married for at least one year, or if divorced, you must have been married for 10 years and currently be single. If you're widowed, you must have been married for at least nine months and currently be single. If you cannot qualify for premium-free Medicare Part A, you should be able to purchase it. It is important to sign up for Medicare when you are first eligible, usually three months before you turn 65; otherwise, you may face a late-enrollment penalty.

Medicare Part B and Part D generally have premiums. Part B premiums have a base rate set by the government; however, high-income earners may pay an income-based adjustment determined by their modified adjusted gross income, as reported on their federal tax return from two years before the year for which they apply for benefits. The premium for drug coverage (Part D) is based on the plan you choose; however, the income-based adjustment generally will also apply. Medicare Advantage (Part C) is an optional buy-up plan that can bundle basic coverage with vision, dental, and hearing services.

Health care coverage is a vital part of the retirement budget that you should not overlook.