Stepping away from employer health coverage before Medicare eligibility at 65 requires careful planning. Whether you’re retiring early, facing a job loss, or transitioning to part-time work, understanding your coverage options can prevent costly gaps that might derail your retirement savings.

Understanding Your Coverage Timeline

Most Americans become eligible for Medicare at 65, but 70% of Americans retire before they qualify for this coverage. This creates a bridge period where you’ll need alternative health insurance to protect against medical expenses that could easily reach tens of thousands of dollars.

The stakes are high during this transition. Without coverage, a single hospital stay or major medical event could consume years of retirement savings. Planning ahead ensures you maintain protection while managing costs effectively.

COBRA: Extending Your Current Coverage

COBRA coverage allows you to continue your employer’s health plan for up to 18 months after leaving your job. This option provides continuity of care with the same doctors and benefits you’re accustomed to receiving.

However, COBRA comes with significant cost considerations. You’ll pay the full premium that your employer previously subsidized, plus a 2% administrative fee. For a single adult in 2024, the average health insurance premium was $8,951 annually, or about $746 per month. This makes COBRA expensive but sometimes necessary for maintaining specific medical relationships or ongoing treatments.

ACA Marketplace Plans: Comprehensive Coverage Options

The Affordable Care Act Marketplace offers numerous plans that must accept applicants regardless of pre-existing conditions. This was a game-changer for early retirees who previously struggled to find affordable individual coverage.

Key Marketplace Advantages:

• Guaranteed Coverage: No denial for pre-existing conditions
• Subsidies Available: Income-based premium tax credits can significantly reduce costs
• Comprehensive Benefits: All plans cover essential health benefits
• Special Enrollment: Losing employer coverage qualifies you for immediate enrollment

For 2025, premium subsidies are available with no upper income limit, meaning higher earners can also qualify for assistance. Without subsidies, a 62-year-old might pay around $1,116 monthly for a silver-tier plan.

These enhanced subsidies are scheduled to expire at the end of 2025, potentially causing significant premium increases for 2026 coverage. This makes 2025 an especially favorable year for marketplace enrollment.

Alternative Coverage Strategies

Spousal Coverage: If your spouse or partner has employer insurance that covers dependents, this might be your most cost-effective option. Check the additional premium costs and compare them to other alternatives.

Part-Time Employment: Many companies offer health benefits to part-time employees. This strategy provides both income and coverage while maintaining some retirement flexibility.

Retiree Health Benefits: Only 17% of large employers offer retiree health benefits, but if yours does, it typically covers about 40% of premium costs. This can be an excellent bridge option if available.

Health Savings Accounts: Your Secret Weapon

If you’ve been contributing to an HSA during your working years, these funds become particularly valuable during your bridge period. HSA money can pay for premiums on certain types of coverage, including COBRA and marketplace plans. The triple tax advantage (deductible contributions, tax-free growth, tax-free qualified withdrawals) makes HSAs powerful tools for managing healthcare costs.

Planning Your Strategy

Start researching your options at least six months before leaving employer coverage. Compare total costs including premiums, deductibles, and out-of-pocket maximums. Consider your current health needs, preferred doctors, and prescription medications when evaluating plans.

For marketplace coverage, pay attention to enrollment periods. Open enrollment runs November 1 to January 15, but losing employer coverage qualifies you for a special enrollment period with a 60-day window to sign up.

Looking Ahead to Medicare

Remember that Medicare enrollment brings its own considerations. Most people are automatically enrolled in Medicare Part A and Part B when they turn 65 if they’re already receiving Social Security benefits. Part B premiums are $185 monthly in 2025, deducted from Social Security payments.

Plan ahead by researching Medicare supplement insurance and Part D prescription coverage. Understanding these options before you need them ensures a smooth transition from your bridge coverage to Medicare.

The gap between employer insurance and Medicare doesn’t have to derail your retirement plans. With careful research and strategic planning, you can maintain quality healthcare coverage while managing costs effectively. The key is starting your research early and understanding all available options before you need to make decisions under pressure.