While the Affordable Care Act (ACA) first came into effect in 2010 – and although open enrollment in the Health Insurance Marketplace began over a year ago – many Americans still don’t understand how their health coverage options have changed under the law. Mandated purchases, noncompliance penalties and restrictions on denials for preexisting conditions have taken center stage in the news, but there are plenty of little-known nuances related to premium increases, subsidies and changing access to certain types of care.

Understanding these changes is particularly important for retirees, pre-retirees and their health and financial advisers. The ACA cut several hundred billion dollars from Medicare, and while the program has improved coverage for seniors in some ways, those cuts will eventually result in greater financial burdens for beneficiaries. Prescription drug coverage, access to preventative treatments and the availability of coverage in early retirement have also changed, and given the typical income dip seniors experience in retirement, they and their advisers need to stay up to speed to make sure they can afford critical services without compromising their broader retirement plans.

New Options for Early Retirement

One of the biggest impacts of the healthcare exchanges for retirees is a greater likelihood of early retirement. “There’s always an age range between 60 and 65 of people who want to retire, don’t have any company plan and don’t yet qualify for Medicare,” said Jason Dudum, Dudum Financial chief executive officer. “The ACA helps them get coverage more easily during this ‘black hole’ period.” While early retirees may only face a few years without employer-provided health plans, the high costs of individually purchased private insurance have historically kept seniors in the workplace just to maintain their coverage. “Affording coverage is now roughly 20 to 30 percent easier in that age range,” said Dudum.

Some early retirees can reduce their pre-Medicare insurance costs even further by qualifying for subsidies. For seniors earning 400 percent of the federal poverty level (FPL) or less, maximum tax credits are based on household income and family size, and subsidy amounts increase as household income decreases. Those whose incomes fall below 250 percent of the FPL also qualify for reduced deductibles, copayments and maximum out-of-pocket costs. With the right tax planning, and by strategically reducing household income, seniors can significantly improve their prospects of retirement before age 65.

Prescription Drug Coverage: Plugging the Donut Hole

Another advantage the ACA holds for retirees is the closing of the “donut hole,” the gap in Medicare coverage for brand-name prescription drugs. In 2014, Medicare beneficiaries pay 47.5 percent for brand-name drugs and 72 percent for generics. By 2020, they’ll pay just 25 percent for both – the same percentage they pay between meeting their deductibles and reaching their out-of-pocket spending limits. Also, while that spending limit was increased to $4,550 in 2010 and will keep increasing throughout the decade, in 2020 it will set back to $3,600.

Still, greater prescription drug coverage may not offset other cuts to Medicare. “Due to bundling costs, seniors can’t necessarily expect their coverage to be as good, even with the donut hole closing,” said Minda Wilson, founder of the Affordable Healthcare Review. “For example, you might need chemotherapy, and the more expensive drugs you need, the less money will be left over to pay for hospital fees, doctors’ visits and everything else involved in the treatment. You have to weigh the costs of drugs versus other treatment costs.”

Interactions between Private and Public Coverage

Seniors transitioning from employment to retirement – and vice-versa – need to keep a few considerations in mind regarding the costs, benefits and interplay between private health insurance, exchange policies and Social Security income. Many early retirees can take advantage of the Consolidated Omnibus Budget Reconciliation Act (COBRA) to stay on their former employees’ health plans for up to 18 months, for instance. However, COBRA may no longer be their best bet. “You get the company policy but not the rate,” said John Bucsek, MetLife Solutions Group managing director. “COBRA can be expensive, and the healthcare exchanges may be a more affordable option.”

Still, those private plans often provide more robust coverage than either Marketplace insurance or Medicare. “A lot of private insurance has better coverage for cancer treatment,” said Minda. “With Medicare there are also exemptions such as no more mammograms for women over 75 and no prostate cancer treatments for men over 80. Overall you’re much better off getting insured under a non-exchange plan if you can afford it.”

Matters become more complicated for early retirees contemplating going back to work. Seniors at full retirement age can keep all of their Social Security benefits, no matter how much they earn, but early retirees stand to have as much as one dollar per two dollars earned withheld from their benefits until they reach age 66. Early retirees on health exchange plans may also lose their subsidies if they earn too much by returning to work. “You might gain $10,000 in income but lose that much or more in reduced Social Security benefits and tax credits,” said Bucsek. “The average person isn’t making these calculations until they pay their taxes and find out they made too much money.”

Access to Preventative Care

Finally, while the ACA’s Medicare cuts have resulted in exemptions for certain treatments late in life, beneficiaries now enjoy cheaper access to preventative care. Instead of a one-time, “Welcome to Medicare” visit at the beginning of their coverage periods, retirees can now receive annual wellness visits from primary care providers. Medicare also covers preventive screens for cancer, depression, diabetes and other conditions that might be flagged during those visits, as well as counseling and cessation programs for patients suffering from lifestyle-related diseases. Given rising healthcare costs, longer average lifespans and increased incidences of chronic disease, even well-insured seniors should capitalize on these opportunities to prevent unnecessary medical bills.

The Growing Need to Plan Ahead

No matter what type of coverage retirees purchase, advisers need to emphasize long-term savings to avoid unmanageable medical bills late in life. “Around 50 percent of medical costs occur in the last six months of a person’s life, and one of the major mistakes financial planners are making right now is to overlook the dramatic increases in the costs of healthcare for Baby Boomers retiring now,” said Minda. “You might want to supplement your practice with a healthcare adviser to differentiate yourself from your peers and offer better customer service.” The ACA has expanded retirees’ options in many respects, but Medicare cuts and overall rising healthcare costs have made it more important than ever for seniors to seek adviser’ advice and save.