3 ways to get health insurance if you retire early

You’ve decided to retire early. Congratulations, by the way!

But if you do retire early, that means you have some important decisions to make. One of them is figuring out how to get health coverage. That’s because if you retire in your 50s, you won’t be able to get Medicare until you turn 65.

Thankfully, there are some other great options out there. Here are 3 to keep in mind.

Planning on retiring early? Call a licensed insurance agent at (800) 827-9990 to discuss available insurance plans, or browse your options online today.

Coverage option #1: Go on COBRA.

COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, is a federal law that gives you and your family the right to continue with group health benefits after your job ends.

The law generally applies to employers that have health coverage for at least 20 employees. Some states also have their own mini-COBRA laws for companies that have less than 20 employees.

“From a benefits standpoint, COBRA is almost always the best option until you become eligible for Medicare,” says Adam Rosenfeld, president of Rubicon Benefits in Melville, New York.

When you choose COBRA, you’re choosing to continue with the exact same health insurance plan you already have, Rosenfeld points out. That means you’ll be able to keep all your same doctors, and all your prescription medications should still be covered under your existing plan’s drug list (formulary).

But here’s the downside: You’ll pay for the plan’s total costs, which includes monthly bills (premiums) that were formerly subsidized by your employer. You likely will also need to cover an additional 2% administrative fee. This can get expensive quickly, especially if you’ll have a more limited income during retirement, Rosenfeld notes.

A Health Savings Account may help

With some planning, a more affordable way to stay on COBRA is to use the money you may have accumulated in your Health Savings Account, or HSA, if you have one, Rosenfeld suggests.

An HSA is a type of personal savings account you can set up to pay certain out-of-pocket health care costs, such as doctor’s visits, mental health therapy and hearing aids. You can put pretax money away and withdraw it tax free for qualified expenses — and COBRA premiums are qualified expenses.

HSAs can be rolled over from year to year, and eventually into retirement. You must be enrolled in a High-Deductible Health Plan, or HDHP, to contribute to an HSA. An HDHP is a type of health plan with a higher deductible and lower premiums. A deductible is the amount you have to pay out of pocket before your insurance begins to share costs with you.

You can use the funds from your HSA to pay your monthly COBRA bill, “so you’re essentially paying for health coverage with tax-free dollars,” explains Rosenfeld.

For 2024, if you have an HDHP, you can contribute up to $4,150 to your HSA for individual coverage and up to $8,300 for family coverage. You can also make “catch-up” contributions of an additional $1,000 starting at age 55.

One thing you don’t have to wait until next year to do? Call a licensed insurance agent at (800) 827-9990 to discuss available insurance plans, or browse your options online today.

Coverage option #2: Pick an Affordable Care Act plan.

If you’re thinking COBRA doesn’t sound like the right option for you, you may also be interested in buying an Affordable Care Act (ACA) plan. That’s a health plan that offers essential coverage for certain types of health services, such as preventive care and prescription drugs. And you may qualify for , which lower the costs of your plan.

“What’s cool about this is, because you’ve retired early, your income is usually lower,” explains Tasha Riggs, a licensed insurance agent for HealthMarkets, based in Westminster, Colorado. That means you’ll have a good chance of qualifying for those subsidies, and that’ll mean you pay a lower monthly insurance bill (premium). That can save you on potential out-of-pocket health care costs too, she adds. In fact, 4 out of 5 people shopping for an ACA plan find one that costs less than $10 a month after tax credits.

Since you lost your health coverage when you retired, you’ll also be eligible for a Special Enrollment Period, or SEP. That means you can enroll in a health plan even if it’s outside the ACA’s annual Open Enrollment Period.

Qualifying for subsidies

When you fill out an application, you’ll provide your household and income information. You’ll then find out whether you qualify for a premium tax credit to lower your monthly health insurance bill. And you may also get extra savings known as cost-sharing reductions (that means you’ll pay less out of pocket every time you get medical services).

If you do qualify for these savings, it’s important that you enroll in a silver plan, cautions Riggs. This helps ensure that you’ll get extra savings on out-of-pocket costs. If at any point you lose your eligibility for cost-sharing reductions, you’ll qualify for an SEP during which you can change plans — including switching to a bronze or gold plan that meets your needs and budget.

Want a guided path to an ACA plan? Call a licensed insurance agent at (800) 827-9990 to discuss available insurance plans, or browse your options online today.

Coverage option #3: Get short-term medical insurance.

Let’s say you retire early — but not too early. And that leaves you with just a small gap before you’re eligible for Medicare coverage. One option you may want to consider is short-term medical insurance. This type of plan provides you with health coverage for a limited amount of time.

There are different types of plans. Some examples include:

• A plan that offers very limited care — for example, only hospital, surgical and limited urgent care benefits, as well as a prescription discount card.
• A plan that pays for most care after your deductible (that’s what you pay out of pocket before your insurance pays the rest).

The value plans have lower monthly bills (premiums) but higher out-of-pocket costs, while more extensive plans have the opposite.

There are a few things to note when it comes to short-term medical:

• Short-term plans don’t have to follow the same rules as ACA plans do, so they don’t have to cover you for essential health services, such as preventive care and prescription drugs.
• Short-term health plans may require you to undergo medical underwriting. This means your application will be reviewed to check whether you have any preexisting conditions, such as heart disease, cancer or type 2 diabetes. If you do, you may be rejected from coverage or subject to limitations and exclusions.

“You may also find yourself in a pickle if your policy ends before the start of the annual Open Enrollment Period,” points out Riggs. (That would be if you’re not close to being eligible for Medicare.) “You’ll have to go several months without any sort of health insurance coverage, which isn’t a good idea.”

Her recommendation: Work with a licensed insurance agent to review your options and help you find a plan. You can call one at (800) 827-9990, or browse your options online today.