Retiring before 65 means navigating health insurance without the safety net of Medicare. Many folks find this gap between employer coverage and Medicare eligibility creates one of the biggest financial challenges of early retirement. The reassuring news is that several options exist to maintain coverage, though they require careful planning and budgeting.

COBRA: Your Bridge Coverage

COBRA continuation coverage lets you keep your employer’s health plan for up to 18 months after retirement. You’ll pay the full premium plus a 2% administrative fee, which often means your monthly costs triple or quadruple since your employer no longer contributes their portion.

Despite the sticker shock, COBRA can be valuable if you have ongoing health conditions or prefer to keep your current doctors. The coverage remains identical to what you had as an employee, including the same deductibles, copayments, and provider networks.

COBRA has strict enrollment deadlines. You have 60 days from losing employer coverage to elect COBRA, and another 45 days to pay your first premium. Missing these deadlines means losing the option entirely, so don’t delay if you’re considering this route.

Marketplace Plans Through Healthcare.gov

The Affordable Care Act marketplace offers individual health insurance plans with standardized coverage levels. Bronze plans have lower premiums but higher deductibles, while Gold and Platinum plans cost more monthly but provide better coverage when you need care.

Marketplace plans often include prescription drug coverage and preventive care at no additional cost. Many plans also offer telehealth services and wellness programs that weren’t available in older individual insurance markets.

Open enrollment typically runs from November 1 through January 15, but losing employer coverage qualifies you for a special enrollment period. You have 60 days from losing coverage to enroll in a marketplace plan without waiting for the next open enrollment.

Premium Tax Credits and Subsidies

Income-based premium tax credits can significantly reduce marketplace plan costs for people with moderate incomes. These credits are available to individuals earning between $15,060 and $60,240 annually, with higher limits for married couples.

The credits work as advance payments that reduce your monthly premiums directly. You can also choose to receive the full credit when filing taxes, though most people find monthly premium reduction more helpful for budgeting purposes.

Cost-sharing reductions provide additional savings on deductibles and out-of-pocket expenses for people earning up to 250% of the federal poverty level. These reductions are only available with Silver-level marketplace plans.

Alternative Coverage Options

Short-term health insurance plans offer temporary coverage for up to 364 days, with the possibility of renewal in most states. These plans cost less than comprehensive coverage but exclude pre-existing conditions and may not cover prescription drugs or preventive care.

Healthcare sharing ministries operate outside traditional insurance regulations. Members contribute monthly amounts that help pay other members’ medical expenses, though these arrangements don’t guarantee payment of medical bills.

Planning Your Health Coverage Transition

Calculate the true cost of different options by considering premiums, deductibles, and out-of-pocket maximums. A plan with higher monthly premiums might cost less overall if you need regular medical care or prescription medications.

Research provider networks carefully, especially if you have established relationships with specialists. Switching insurance often means changing doctors, which can disrupt ongoing treatment plans.

Consider timing your retirement around your health needs and financial situation. If you have planned medical procedures, completing them while still on employer insurance might save money compared to higher deductibles on individual plans.

Key Health Coverage Deadlines

• 60 days to elect COBRA after losing employer coverage
• 60 days to enroll in marketplace plans after qualifying event
• November 1 – January 15 for regular marketplace open enrollment
• 18 months maximum COBRA coverage period

Managing Prescription Drug Costs

Many marketplace plans include prescription drug coverage, but formularies vary significantly between plans. Check that your medications are covered before enrolling, and understand any prior authorization requirements.

GoodRx and similar prescription discount services can reduce costs for medications not covered by your plan. Consider generic alternatives when available, and ask doctors about 90-day supplies that often cost less per dose.

Budgeting for Higher Healthcare Costs

Early retirees typically spend 15-25% of their budget on healthcare premiums and expenses, compared to 5-10% for people with employer coverage. Health Savings Accounts (HSAs) provide valuable coverage for healthcare expenses in early retirement, since money contributed while working can be withdrawn tax-free for medical expenses at any age.

Consider maintaining higher emergency funds to handle unexpected medical expenses. Even good insurance plans can leave you with significant out-of-pocket costs for hospital stays or emergency procedures.

Special Circumstances and Strategies

Military retirees may qualify for TRICARE Reserve Select, which provides comprehensive coverage for a monthly premium. Some professions offer retiree health benefits to employees who meet specific age and service requirements.

The gap between employer coverage and Medicare represents a significant planning challenge, but understanding your options helps you make informed decisions. Start researching health coverage options at least a year before your planned retirement date to avoid gaps in coverage.