Retirement Before 65: How to Pay for Health Costs Until Medicare Kicks In

If your client falls into this group of early retirees, consider the following options for paying for health care before Medicare eligibility.

What to Consider When Evaluating Coverage Options

Even if the gap between early retirement and Medicare eligibility lasts only a few years, securing coverage that meets both health care needs and budget constraints is critical.

When reviewing health care coverage options before Medicare eligibility, consider the following:

• Cost of coverage: Compare premiums, deductibles, copays and out-of-pocket maximums.
• Special health needs: Ensure the plan covers any preexisting conditions or ongoing treatments.
• Provider networks: Confirm whether preferred doctors and providers are in network. Out-of-network care can significantly increase costs.

Retiree Medical Coverage Through a Former Employer

If a former employer offers a medical plan for retirees under 65, this may be your client's best option. Costs are often reasonable, and coverage may be similar to what the client had while employed.

However, this type of coverage is becoming increasingly rare.

When offered a severance package that includes extended employer health care coverage, it is important that you and your client understand how the plan is structured. Will the employer be subsidizing all or part of this extended coverage? Does it include COBRA coverage or otherwise overlap with it? If so, how much COBRA eligibility will your client have when the employer subsidies end?

Coverage Under a Spouse's Plan

If your client is married and the spouse is still working, enrolling in the spouse's employer-sponsored plan may be the simplest and most cost-effective option. Although there may be an additional premium for employee-plus-one coverage, this is often the least expensive solution if available.

Once your client becomes eligible for Medicare at age 65, additional decisions arise. If the spouse's employer has 20 or more employees, your client may be able to remain on their plan if it is preferable to Medicare. If the employer has fewer than 20 employees, or if the spouse leaves the job, Medicare generally becomes the primary option.

COBRA

COBRA coverage is offered by most employer-sponsored plans. It allows former employees to continue their existing health insurance coverage, but typically requires them to pay the full premium without employer subsidy.

COBRA can provide high-quality coverage, particularly if the former employer's plan was strong. However, it is often one of the more expensive options for bridging the gap to Medicare.

COBRA coverage is also time-limited. It generally lasts 18 months, though in some cases it may extend to 36 months. Once your client reaches age 65 and enrolls in Medicare, COBRA coverage typically ends. A spouse under age 65 and any dependents may remain eligible until the COBRA period expires or until they enroll in Medicare.

Private Insurance vs. the Public Marketplace

Another option is to purchase coverage directly from a private insurance company, either independently or through a health insurance agent, or in the public marketplaces set up under the Affordable Care Act.

Privately purchased policies may offer broader provider networks and greater flexibility to meet specific health care needs. However, they are often more expensive than plans purchased through the public marketplace. In addition, navigating the private insurance market can be complex.

Depending on income, clients may qualify for premium tax credits in the public marketplace, as well as reduced deductibles and copays under certain plans.

In all states, policy buyers who earn up to $63,840 for an individual or $86,560 for a couple — 400% of the federal poverty level — are eligible for premium subsidies in the form of tax credits. Some states may offer additional subsidies.

These thresholds are based on modified adjusted gross income expected for the year coverage is needed. MAGI includes Social Security income and most types of retirement income, but not qualified Roth IRA distributions.

From 2021 to 2025, premium subsidies were available to people with earnings above 400% of the poverty line.

A plan to renew these "enhanced" subsidies passed the House of Representatives in January but remains stalled in the Senate. It is unclear whether these subsidies will be renewed in the future, making ACA marketplace coverage a less attractive option for higher-income clients.

Nationally, the average marketplace premium rose 20% in 2026, according to KFF.

The Role of an HSA

Health savings account assets accumulated during your client's working years can come in handy if they need to find health insurance after leaving a job before they are eligible for Medicare.

Money in an HSA can be withdrawn tax-free to cover qualified medical expenses. This can include costs like premiums for COBRA coverage or health insurance premiums while receiving unemployment compensation. However, clients cannot generally use HSA funds to cover regular health insurance premiums prior to Medicare eligibility. HSAs can be used to cover Medicare premiums once they do enroll.

Other qualified medical expenses include deductibles, copays, dental and vision costs. HSA money can also be used for a wide variety of health-related purchases, from over-the-counter medicines to certain home improvements to the care and training of a service animal. This can help your client lower their overall health care costs while waiting for Medicare eligibility.

Case Studies

Here are a few hypothetical examples to help illustrate some strategies your clients might consider if they find themselves retired before 65.

Voluntary Early Retirement

Bob and Sarah both retire at 62 and need three years of coverage before Medicare at 65. The estimated ACA benchmark premium in their area for a silver plan is about $1,800 per month. Their COBRA premiums would be a bit higher at about $2,100 per month. 

Despite the higher costs, your clients opt for COBRA coverage. They see several specialists, and they don't want to worry about out-of-network doctors or higher out-of-pocket costs.

If they decide after their COBRA election that they want to switch to ACA coverage, they have two options: They can sign up for a marketplace plan during the annual open enrollment period, or they can do so within 60 days of their COBRA coverage expiring. They cannot drop their COBRA coverage early and join a marketplace plan outside of those timeframes.

Husband Laid Off, Wife Still Employed

Steve was unexpectedly laid off from his employer at age 60. Jane, 58, works in middle management and has solid employer health care coverage. 

Steve will move to spousal coverage under Jane's employer's plan. He is not ready to retire and is seeking another job.

Jane is uncertain whether or not she wants to work until age 65 — or if she might also face a late-career layoff. For this reason, you have encouraged them to understand their ACA and private insurance options in case their situation changes.

Single Client Laid Off

Stuart was laid off from his employer at age 60 with a generous severance package as well as health insurance coverage for a year. 

His former employer is providing this coverage by subsidizing his COBRA premiums. When those subsidies end, he can elect COBRA for an additional six months.

At this point, Stuart has 3.5 years before Medicare eligibility. Still struggling to find a new job that offers health benefits, he is living off his severance money and withdrawals from his Roth IRA. Because his MAGI is below $63,840, he can receive tax subsidies to help cover the cost of a marketplace plan.

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