Retiring Before 65: How to Get Health Insurance Until Medicare Starts
Medicare usually begins at 65, so anyone who retires earlier needs a bridge. This guide compares the main options, from COBRA and an ACA Marketplace plan to a spouse's coverage, retiree plans and Medicaid, and explains how your retirement withdrawals can change what Marketplace coverage costs.
For most Americans, Medicare eligibility starts at 65. Leave work at 58, 60 or 62 and there is a gap of several years when you need health insurance on your own, and it is often one of the largest costs in an early retirement budget. The good news is that there are several ways to bridge the gap. The less obvious news is that the cheapest option often depends on how you draw down your savings, because Marketplace subsidies are tied to income.
Why the gap matters
Employer coverage typically ends when you leave your job, sometimes on your last day and sometimes at the end of that month. Going uninsured even briefly exposes you to the risk of a large medical bill at exactly the age when health problems become more common. Planning the bridge before you give notice gives you time to compare options and avoid a lapse.
Medicare can begin before 65 only in specific situations, such as after receiving Social Security disability benefits for a qualifying period or for certain conditions including end-stage renal disease. For most early retirees, it starts at 65, with an Initial Enrollment Period around your 65th birthday. Our guide to Medicare enrollment deadlines and choices covers that switch in detail.
The main options
| Option | Who can use it | How long | Cost profile |
|---|---|---|---|
| COBRA continuation | Most people leaving an employer with 20+ employees | Generally up to 18 months after leaving a job | Full premium plus up to 2% admin fee; no subsidy |
| ACA Marketplace plan | Most US residents not eligible for other qualifying coverage | Until Medicare, renewed each year | Premium tax credit may reduce cost, based on income |
| Spouse's employer plan | Those with a working spouse whose plan covers spouses | As long as the spouse stays covered | Employer typically shares the cost |
| Retiree health plan | Retirees from some employers, unions and public jobs | Set by the plan | Varies; ask your employer |
| Medicaid | Low-income households, under rules that vary by state | While eligible | Little or no premium |
COBRA
COBRA, a federal law, lets you keep the exact plan you had at work, with the same doctors and the same deductible progress for the year. That continuity is its main appeal, especially mid-treatment. The drawback is cost: you pay the full premium that you and your employer used to share, plus an administrative fee of up to 2%. You generally have at least 60 days to elect coverage, and it can apply retroactively to the day your work coverage ended. Many states have their own "mini-COBRA" laws for smaller employers. The Department of Labor's COBRA guide explains the rules.
ACA Marketplace plans
The Affordable Care Act Marketplace, at HealthCare.gov or your state's own exchange, sells individual plans that must cover pre-existing conditions and essential health benefits. Plans are grouped into metal tiers, bronze, silver, gold and platinum, which differ mainly in how costs are split between premium and out-of-pocket spending.
Two enrollment windows matter:
- Special Enrollment Period. Losing job-based coverage, including when you retire, generally gives you 60 days to enroll. Voluntarily dropping COBRA midyear usually does not qualify; using it up does.
- Open Enrollment. The annual window, which on HealthCare.gov typically begins November 1. Dates can vary by state exchange, so check your exchange for this year's deadlines.
A spouse's plan, retiree plans and Medicaid
If your spouse is still working, joining their employer plan is often the simplest bridge. Leaving your job usually counts as a qualifying event that lets you join outside their plan's open enrollment, within a deadline set by the plan.
Some employers, unions and government pension systems offer retiree health coverage until 65. These benefits have become less common in the private sector, and plans can change their terms, so get the details in writing.
Medicaid eligibility depends on income and on your state's rules. Early retirees with low taxable income in a given year may qualify, which can be a planned outcome or a surprise.
How retirement income affects Marketplace costs
This is where retirement planning and health insurance meet. Marketplace premium tax credits are based on your estimated household income for the year, measured using a version of modified adjusted gross income (MAGI). The amount of help, and the income ranges that qualify, are set by law and have changed more than once in recent years, so check HealthCare.gov for the rules that apply to the year you are buying coverage.
What counts toward that income matters as much as how much you spend:
- Traditional 401(k) and IRA withdrawals generally count as income.
- Qualified Roth IRA withdrawals generally do not.
- Selling investments in a taxable account adds only the gain, not the full sale proceeds.
- Cash savings you spend do not count as income at all.
- Roth conversions add to income in the year you convert.
As a scenario, two retirees each spend the same amount in a year. One funds it entirely from a traditional IRA; the other uses cash savings and a taxable account with modest gains. The second may report far lower MAGI and could qualify for a larger premium tax credit. That does not make one approach right for everyone: deferring traditional IRA withdrawals can mean larger required distributions and taxes later. But it is a trade-off worth modeling with a tax professional before you retire, and it interacts with any plans for Roth conversions.
Because the credit is based on an estimate, you reconcile it on your tax return. If your actual income comes in higher than projected, you may have to repay some or all of the advance credit, so update your exchange account when your income changes.
Where an HSA fits
If you have a health savings account, it can be a useful source of tax-free money for deductibles, copays and other qualified medical expenses during the gap. IRS rules generally treat COBRA premiums, and health coverage premiums paid while you receive unemployment compensation, as qualified expenses, while most other individual insurance premiums are not. After 65, some Medicare premiums can also be paid from an HSA. Contributions stop once you enroll in Medicare. IRS Publication 969 sets out the rules.
Options to treat with caution
- Short-term health plans are cheaper for a reason: they do not have to cover pre-existing conditions or all essential benefits, and federal rules limit how long they can last.
- Health care sharing ministries are not insurance and do not guarantee payment of claims.
- Going uninsured turns a manageable monthly cost into the risk of a bill that could derail the entire retirement plan.
Building the bridge into your plan
Start pricing coverage a year before your planned retirement date. Get a COBRA estimate from your employer, run your expected income through the HealthCare.gov plan preview tool, and check whether a spouse's or retiree plan is available. Then decide the order in which you will draw on cash, taxable, traditional and Roth accounts with health costs in mind. A fee-only planner or tax professional can help model the trade-offs. Health insurance before 65 is rarely cheap, but it is a known cost, and known costs can be planned for.
Frequently asked questions
Can I sign up for a Marketplace plan as soon as I retire?
Usually, yes. Losing job-based coverage generally qualifies you for a Special Enrollment Period, which typically gives you 60 days to choose a Marketplace plan. If you miss that window, you would normally wait for the annual Open Enrollment Period unless another qualifying life event applies.
Is COBRA or a Marketplace plan cheaper?
It depends on your income and the plans available where you live. COBRA can cost up to 102% of the full plan premium with no subsidy, while Marketplace premiums can be reduced by a premium tax credit based on your household income. Compare the actual numbers for both before your employer coverage ends.
Can I use my HSA to pay health insurance premiums before Medicare?
In some cases. IRS rules generally allow tax-free HSA withdrawals for COBRA premiums and for health coverage premiums while you are receiving unemployment compensation, but not for most ordinary Marketplace premiums. Check IRS Publication 969 or ask a tax professional before relying on it.
