The top eight trends early retirees and their advisors should think about.

One of Richard Stumpf's clients, an early retiree who was looking forward to reaping the rewards of more time to play and travel, just got the surprise of her life. Her COBRA coverage ran out, so she went to Wichita, Kan.-based health insurance agent Stumpf to apply for a new policy.

The verdict? She was declined. Why? Stumpf points a finger at the $200 in prescription drugs she takes each month.

"Even if she had been rated excellent, premiums still would have cost $600 per month," says Stumpf, a CFP certificant. "Now she's got two options: Apply to Kansas's high-risk pool, which provides minimum coverage at a steep price, or go back to work full-time, where she'll qualify for more coverage at a better price."

The lifestyle sacrifice isn't lost on either Stumpf or his client. "She's been traveling with her husband, who retired at the same time as she did, and now I'm telling her to go back to work," he says. "Retiring early may be the national pastime, but it's not the time to start planning for health insurance."

If there is one wild card that can derail even a perfectly happy early retirement, it's nasty health insurance surprises and limited or pricey choices for those who have yet to attain age 65, when Medicare and Medigap insurance kick in. Whether it's expiring COBRA benefits, excruciating premium hikes or policy application denials, the news for early retirees isn't getting any better.

With premiums rising as much as 20% to 30% in 2002, increases have far outpaced inflation every year for the last 30, says Richard L. Harlow, Senior Partner of the Harlow Group, Reston, Va. That makes early planning absolutely critical, says Harlow, who is president of the Association of Health Insurance Advisors in Falls Church, Va.

To help planners incorporate health insurance planning into their practice, we've talked with experts across the country to pinpoint the issues most likely to trip up early retirees. Here are the critical topics to keep in mind when working with clients who plan to retire before age 65:

Track Premiums

With many individual policy premiums rising 20% to 30% in 2002 alone, it's critical that planners help clients track health-care costs on an annual basis. With little notice, a client's premiums can almost double, especially if they have even slightly escalating health care issues. They need not have catastrophic issues. Insurers cannot single any policyholder out for an increase, but instead must raise rates on the entire pool the insured finds him or herself in. Unfortunately, the healthy often move out of pools, either to new jobs or to less expensive insurance, leaving those with healthcare issues to bear the brunt of premium increases. "Insurance is the law of large numbers, but over the years pool sizes start shrinking," says Stumpf. "Those who are left are often older and sicker. So the insurer can start raising premiums 50% and 60% hoping you're going to go away."

Norma Mannix, an Alamo, Calif.-based planner with Retirement Benefits Planning, age 51, saw her own 20% premium increase. She now pays $350 a month, $4,200 per year, for health and dental insurance. "Health care is not on planners' radar screens, but these costs are going up. The most expensive period is between ages 50 and 65, exactly when clients are thinking about retiring early," Mannix says.

Shop Around

As options grow in number and complexity, comparison shopping for health insurance is becoming absolutely critical.