8 health insurance options for early retirees: Ways to stay covered before Medicare kicks in

Retiring early has many perks: more time to travel, explore new business opportunities and spend time with family and friends. Yet if you quit work before you turn 65, you’ll likely lose access to your employer’s health insurance plan. It’s still possible to get coverage — through a spouse, new employer or the health insurance marketplace, for example. But it may not be cheap.

Still, remaining covered is usually worth it — especially as you get older. Uninsured Americans ages 65 and older owed about 20% more in unpaid medical bills than those who did not, according to a recent study by the Consumer Financial Protection Bureau.

If you’re looking to cover the gap between early retirement and Medicaid, here are your main health coverage options to explore.

While preparing to retire, ask your employer if they offer health insurance coverage for early retirees. This has become less common over the past decade, thanks in part to rising health insurance costs, but it’s possible that you’ll have some level of coverage through your former job. The federal government offers retirement benefits to eligible retirees through the Federal Employees Health Benefits Program. Academic institutions like Johns Hopkins and the University of Michigan also offer this type of coverage.

This would be the simplest option for early retirees, requiring minimum work on your part. While most won’t have this as an option, it’s worth making sure you’re not eligible before considering other alternatives.

Option 2: Your spouse’s health insurance

If you’re married to a person who has health insurance through their employer, you may be able to get coverage through their job. (That’s what I did when I quit my full-time job to pursue writing as a freelancer.)

You may not even have to be married to qualify, as some companies and states like New York offer coverage to domestic partners. Not all companies provide this, but if you live with a partner, it’s worth having them ask if you can be included in their coverage.

This, along with staying on your employer’s health coverage after retirement, is among the least expensive options available before you turn 65.

Option 3: COBRA

Most businesses of 20 or more employees are required to offer an extension of your insurance when you leave a full-time job, thanks to the Consolidated Omnibus Budget Reconciliation Act — or COBRA. COBRA allows you to retain the same coverage that you received while you were working, including benefits for your spouse or dependents. A downside? You’re responsible for footing the entire bill — and it may not be cheap.

Average costs range from $400 to more than $2,000 each month. How much you pay varies depending on factors like your insurance company, where you live, how many people your insurance covers and whether you want add-ons like basic and dental. In some cases, you might have to pay a little extra if you’re a smoker.

When I left my previous job, my COBRA rate would have been about $800 per month as a single adult. Previously I’d been paying only about $250. My husband and I opted to use his employer-sponsored insurance instead, which was about $400 per month for the two of us.

While COBRA is designed as a short-term solution, you may be able to stay on it for as long as three years. If you don’t have a partner or a job that offers early retirement insurance, COBRA could be a good choice, especially if you need wide coverage. Since employers offer group coverage, they can often qualify for more robust coverage at a lower rate than you’d find purchasing health coverage on your own.

Option 4: ACA marketplace insurance

If COBRA payments are too high, you can go to the Affordable Care Act’s health insurance marketplace to buy a more affordable plan on your own. There are several benefits to buying insurance through the ACA marketplace. The ACA also ensures that your plan meets certain standards. All ACA marketplace plans are required to cover pre-existing conditions and cannot have lifetime limits on medical spending.

Plans tend to cost between $300 and $800 per month. Some plans can top $1,000, though costs that high are rare. Each state runs its own marketplace, so plans and costs vary depending on where you live — in addition to other variables such as your deductible, the type of plan you choose and the number of dependents you’re planning to include.

However, you can get a tax credit for premium payments if your income is below 400% of the federal poverty level, which will lower your monthly premium. Depending on your state, income and family size, you may also qualify for additional savings. Enter your state, household size and income into HealthCare.gov’s money-saving calculator to learn whether you qualify.

How to get insurance through the ACA marketplace

Typically, you’re allowed to sign up for a new plan only during the open enrollment period around the end of the year. However, new retirees qualify for a special enrollment period: You can buy a new health insurance policy as long as you do so within 30 days of leaving your job.

You have three ways to enroll in marketplace coverage:

1. Enroll online. Create a HealthCare.gov account, compare plans you’re eligible for and apply through the marketplace.

2. Enroll by phone. Call the marketplace toll-free at 800-318-2596. The number is available 24 hours a day, 7 days a week (except holidays).

3. Enroll by mail. Complete and print the Health Insurance Marketplace application and mail to Health Insurance Marketplace, Dept. of Health and Human Services, 465 Industrial Blvd., London, KY 40750-0001.

You can also find local assistance if you need guidance, or use a third party to handle the application for you. If you decide to go into consulting after retirement, you can also sign up for ACA health insurance through the Small Business Health Options Program marketplace, otherwise known as SHOP.

🔍 Can I cancel my coverage through the ACA marketplace when I’m eligible for Medicare?

Yes. You can use your marketplace plan to cover the gap and cancel as soon as you’re eligible. Those who are newly eligible to Medicare can sign up starting three months before you turn 65 and ending three months after.

Option 5: Insurance from a part-time job

Some companies offer health insurance even to part-time workers. Typically these are large corporations that heavily rely on hourly workers — like big-box stores and coffee chains.

But you need to meet a certain number of hours every few months to qualify, usually the equivalent of 20 hours a week. With this kind of shift work, you’re often not guaranteed to be assigned that many hours per week, so there’s a chance you could lose eligibility for insurance at any time. Unionized jobs may offer better coverage and more protection.

Companies that offer insurance to part-time employees

Here are some large companies that offer insurance to part-time workers:

• JP Morgan Chase offers a full suite of benefits to employees working at least 20 hours a week. For part-time employees, you must work for the company at least 60 days to qualify for coverage.

• Starbucks offers health insurance and a host of other benefits to part-time employees after you’ve worked at least 240 hours over three consecutive months. To remain eligible, you must put in at least 520 hours every six months.

• American Red Cross offers health coverage through Cigna to all employees regularly scheduled for more than 20 hours per week.

• Staples offers a pared-down version of medical and dental benefits to part-time employees in addition to other benefits like pet insurance.

• Your local government might also offer coverage to employees who work at least 20 hours a week.

Option 6: Medicaid

If you’ve experienced a drop in income over the last year, you may be eligible for Medicaid. This depends on where you live: While Medicaid is a federal program, you apply for it through your state government, which has its own criteria. Generally, Medicaid is free and retroactively covers medical bills from 90 days before coverage officially begins.

Typically, your eligibility is determined based on your modified adjusted gross income — or MAGI. If your income is too high but you have a health condition that requires care, you may qualify as “medically needy.” In that case, you have the option to spend down your income until you reach the MAGI cutoff for that type of Medicaid.

However, qualifying for Medicaid can be tricky if you rely on your retirement account for income, which Medicaid counts as an asset. It may be worth consulting an attorney who specializes in elder law to walk you through the process.

Option 7: Short-term health insurance

Short-term health insurance is a type of health insurance available outside of the ACA marketplace. With monthly costs ranging from around $100 to $300, these plans might sound like a great deal. They’re also available outside of open or special enrollment periods.

However, they don’t offer the same coverage as your standard marketplace plan and may leave you with sky-high medical bills in the event of an emergency. That’s why it’s sometimes called junk insurance. Thanks to recent legislation, these plans can also only cover you for up to three months, with the option for a one-time one-month extension.

Option 8: Stay uninsured

While you can technically go without health insurance, it’s not advisable. It’s true that you no longer have to pay a penalty associated with the ACA for remaining uninsured — but it’s still a risky option. Aside from the fact that healthcare and prescriptions are priced with the assumption that patients are covered by insurance, a Wall Street Journal investigation found that many healthcare providers charge higher rates to uninsured patients than they do to insurance companies. That’s because large insurance companies have more leverage than individuals when it comes to negotiating how much they pay for care.

This may not be the case with public or nonprofit hospitals — many offer “charity care” at reduced prices or even free coverage to low-income patients. If you do end up in the hospital without insurance, always negotiate your medical bills before paying them.

How much can I expect to pay for health care as a retiree?

Retirees can expect to pay an average of $157,500 in health insurance and medical expenses throughout retirement, according to a report from Fidelity. And that’s if you retire at 65.

Early retirees may expect to pay even more during retirement, especially if you dip into Social Security or other retirement funds to help cover the cost before you qualify for Medicare.

Fortunately, the Inflation Reduction Act set limits on how much you’ll pay through Medicare. Starting in 2025, there is a $2,000 cap on out-of-pocket prescription costs — including a $35 monthly cap for insulin prescriptions.

Can I use my HSA if I retire early?

Yes, you can use a health savings account — or HSA — if you retire early. HSAs allow you to deposit pretax dollars into a savings account that can be used only for eligible medical and health expenses. After you turn 65, you can also use the funds for non-medical expenses.

You can contribute up to $4,150 if you have an individual plan or $8,300 for a family plan. Folks over 55 can contribute an additional $1,000 per year. However, to qualify for an HSA, you must have a high-deductible plan. The IRS defines this as a plan with a deductible of at least $1,600 for individuals and $3,200 for families, with out-of-pocket expenses of no more than $8,050 for individuals or $16,001 for families.

Frequently asked questions: Health care coverage for retirees

Learn more about how to bridge the gap between early retirement and Medicaid.

I’m enrolled in COBRA. Can I cancel COBRA and sign up for marketplace coverage instead?

Generally, yes. But when you can switch from COBRA to a marketplace plan depends on whether you’re within the open enrollment period or about to lose COBRA:

• During open enrollment — November 1 through January 15, in most states — you can switch from COBRA to the marketplace without restrictions.

• Outside of open enrollment, you can switch from COBRA to the marketplace only if your COBRA is running out, your former employer stops contributing to COBRA or you lose a government subsidy that results in you needing to pay full cost. In these cases, you qualify for special enrollment.

Contact your state’s marketplace contact to learn more.

Are there organizations that provide health care to early retirees?

No. There’s a common misconception that senior-focused organizations offer medical insurance, but that’s not the case. However, while you can’t get medical coverage through these organizations, you may have access to health-related perks.

For example, AARP offers members dental coverage and prescription drug discounts. Joining the AARP also gives you access to reduced prices on physical therapy, hearing aids, gym membership and more.

What’s a health share plan — and should I sign up?

Also known as healthcare sharing ministries, health share plans are an alternative to traditional insurance where members voluntarily contribute to cover the healthcare expenses of other members. These are most commonly available through religious organizations and do not come with the same consumer protections as your standard health insurance plan.

While the idea of sharing expenses with your neighbor can sound nice, these plans may not be as helpful as they appear. As reported by CBS News, a May 2023 report found that members were required to exhaust all other avenues of paying for healthcare expenses, such as applying for Medicaid and financing through charities, before accessing the funds. Only about a third of coverage requests were approved in 2021, according to the report, and some users who did receive coverage said it took years for it to come through.

Sources

• Medical Billing and Collections Among Older Americans, Consumer Financial Protection Bureau. Accessed July 12, 2024.

• Can I continue coverage into retirement? U.S. Office of Personnel Management. Accessed July 12, 2024.

• FAQs on COBRA Continuation Health Coverage for Workers [PDF], U.S. Department of Labor. Accessed July 12, 2024.

• Health coverage for retirees, HeathCare.gov. Accessed July 12, 2024.

• Fidelity Releases 2023 Retiree Health Care Cost Estimate, Fidelity. Accessed July 12, 2024.

• Inflation Reduction Act and Medicare, Centers for Medicare and Medicaid Services. Accessed July 12, 2024.

• Administrative, Procedural, and Miscellaneous, IRS. Accessed July 12, 2024.

About the writer

Anna Serio-Ali is a trusted lending expert who specializes in consumer and business financing. A former certified commercial loan officer, Anna’s written and edited more than a thousand articles to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in Business Insider, CNBC, Nasdaq and ValueWalk, among other publications, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.