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.

"I have a client, an early retiree, whose renewal premiums just went from $1,000 to $1,500 per month, and that was with a $2,500 deductible," says Stumpf. "Remember, Kansas is a relatively low-cost state for health insurance. We decided to go out and shop around and wound up finding an association-based plan that reduced their premiums significantly."

Would you know where to turn if a frantic client calls with news she's been denied insurance coverage at the very moment you've told her she's well-qualified to retire early? Or if premiums cost twice today what they did yesterday, thanks to a premium hike?

Expert health insurance agents and advisors should be able to shop hard for your clients. Alternate issuers with younger pools of insureds may offer lower-cost policies. It can also pay to shop association-based plans. Experienced agents will also be able to navigate the impact higher deductibles may have on policy pricing, along with the availability of catastrophic insurance, coverage available from the client's state high-risk insurance pool and self-insurance options.

Consider Self-Insurance

Some amount of self-insurance may be warranted, says Harold E. Foster, CFP, a principal of Financial Supermarkets Inc. in Paterson, N.J. Foster is the author of the new book Applying Medical Savings Accounts (Palisades Press).

He says tax-deferred MSAs can work well in conjunction with individual policies or catastrophic coverage (if that's all that is available to a client), by allowing the client to sock away relatively significant sums of money to offset deductibles, co-payments and uninsured treatments. If they never tap the money, it can be used for long-term care insurance needs or even retirement.

Increasing deductibles to an amount a client can comfortably afford-another form of self insurance-can also reduce monthly premiums and increase the odds a policy will be issued. "If you raise deductibles, say from $250 to $2,500 annually, you're much more likely to be offered a policy," Foster says.

Beware Of Better Service Offers

Doctors' bid to bolster their annual income and establish direct relationships with clients has led to some interesting new product and pricing schemes. Successful Washington, D.C.-based realtor Charlie Miller was shocked when he received an invitation from his longtime doctor to become a member of MDVIP, a doctor-led healthcare consortium promising to provide "a new level of preventative care based upon early detection and wellness planning."

How will they do it? By limiting doctors' client roster to a few hundred patients, instead of a few thousand. The price for the service? A hefty $1,500 a year, in addition to the $2,400 Miller already pays at age 62 for an individual Blue Cross-Blue Shield policy. "I was shocked," says Miller. "The only benefit I could see was not having to wait for appointments. That would have cost me $15,000 over 10 years." Miller didn't bite. But one or more of your clients may be tempted to, so it's important to let them know you're ready to have such offers vetted for them.

Know Your State High-Risk Pool Parameters

High-risk pools were mandated by Congress in the 1990s, but have yet to become the nationwide safety net lawmakers envisioned. While it's important for clients who lose or are denied private coverage to consider applying for insurance through their state pool, the subsidized alternative to private insurance is not a panacea. Only 29 states have created pools, and the insurance is expensive, often 150% to 200% higher than the average premium on individual policies would be, if your client were healthy. Still, state coverage can be a viable option for a client who has been denied coverage or can't tolerate private policy premium increases.

To qualify, a state resident must have been rejected by an insurer, have a catastrophic or serious medical condition or be insured by a policy that has premiums higher than the pool's. Still, it's important to investigate the pool's policies and requirements. Some states have very low lifetime benefit caps, such as California, which caps benefits at $75,000. Other states have a pretty stringent pre-existing lock-out period, some as long as a year.

COBRA Coverage Expires

COBRA coverage can be an easy option for early retirees. By law, retirees are entitled to COBRA or continuing coverage through their employer when they retire. The problem is it expires, often within 18 months of early retirement. "That means if a client retires at age 58, his health insurance runs out before he hits age 60," says Harlow. "And you don't want that to happen when a client's health has taken a turn for the worse. I often advise clients, if they'll have long lapses in coverage before Medicare kicks in, to shop as early as possible for a policy to replace their COBRA coverage." Another incentive: COBRA insurance can often be more expensive than individual policies, Harlow adds.

Build A Trusted Network Of Health Insurance Advisors

If you have any doubts that health insurance is a complex subject, take a quick glance at issues covered on the National Association of Health Underwriter's home page (www.nahu.org). An expert who specializes in health care will know which carriers will be more open to a client with special underwriting needs. He or she will also be able to provide and price alternatives.

Health insurance experts should have a Registered Health Underwriter designation and maybe even a Registered Employee Benefits Consultant designation and should be members in good standing with either the National Association of Health Underwriters (www.nahu.org) or the Association of Health Insurance Advisors (www.ahia.net). The groups' Web sites offer search engines to make shopping for expert agents and advisors easier.

Sign Up For Medigap During The Six-Month Guaranteed Period

This is our last bit of advice. Vern C. Hayden, principal of Hayden Financial Group in Westport, Conn., learned this the hard way when he turned 65, blew past the six-month guaranteed Medigap enrollment period and then needed hip replacement surgery. He was busy writing his new book (Getting an Investment Game Plan, John Wiley) and was startled when he got his group policy premium increase-from $300 to $700. "They really want to get rid of you when you turn 65. Don't wait to buy a Medigap policy," says the veteran planner.