Whether you intend to retire before age 65 by choice or are forced to retire due to health difficulties, downsizing, or family circumstances, there’s a question you need to answer. What will you do for health insurance until you become eligible for Medicare? Many Americans retire before the age of 65, either by choice or need. Health insurance for these early retirees is typically more expensive than they anticipated. A couple’s monthly coverage premiums could range from $1,700 to $2,200. However, this depends on where they live, their age, and the type of insurance they have. In addition to premiums, there are deductibles, copays, and prescriptions, which can total hundreds of dollars.
Health insurance is what keeps many people employed, even if they want to retire and have enough money to. Prior to the Affordable Care Act (ACA), people with major pre-existing diseases were frequently denied self-purchased coverage, depending on the state. Self-purchased coverage is now available in all states, regardless of medical history. The ACA also provides income-based subsidies, making insurance significantly more affordable than it would otherwise be.
Meanwhile, the American Rescue Plan (ARP) and the Inflation Reduction Act improved the ACA’s affordability features until the end of 2025. However, extending that into the future would require another congressional act. Approximately half of Americans* get their health insurance from their employment. Almost every American turns 65 and is immediately eligible for Medicare. It’s typical for people to switch straight from employer-sponsored health insurance to Medicare. Whether they’re active employees or retirees, many people may be able to continue getting supplemental coverage from their employers, depending on their circumstances. However, if you want to retire before the age of 65, you have a few healthcare options to consider in the meantime. Today, we’ll discuss each one.
State Health Insurance Marketplace
Thanks to the Affordable Care Act, there’s now a health insurance marketplace/exchange in each state where health coverage can be purchased. These plans are all guaranteed-issue. This means that you can join regardless of your medical history, and any pre-existing conditions will be covered once your plan goes into effect. Enrollment is confined to the yearly open enrollment period or a special enrollment period initiated by a qualifying event. Termination of your employer-sponsored health plan is a qualifying event, so you can switch to a marketplace plan after leaving your work.
Premium Subsidies
The Affordable Care Act provides income-based premium tax credits (premium subsidies) through your state’s marketplace/exchange. Most people who buy health insurance through the marketplace benefit from these subsidies. They cover a significant portion of their premiums. The American Rescue Plan and Inflation Reduction Act extended the scope and availability of these subsidies from 2021 to 2025. Subsidies now account for a larger share of total premiums. Furthermore, the income threshold for subsidy eligibility, which was previously 400% of the poverty line, has been removed. Congress could decide to prolong these provisions past 2025. If they don’t, however, the income eligibility for premium tax credits will be reset to 400% of the poverty line.
COBRA or State Continuation
Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage may be an option worth considering if you are eligible. This will depend on a number of factors, including:
- How long will it take before you become eligible for Medicare?
- How much have you spent on out-of-pocket expenses this year?
- Are you qualified for subsidies in the marketplace or exchange?
- Will you be able to keep your existing medical providers if you change plans?
- Can you afford to pay the entire cost for your coverage while on COBRA?
If you’ve already reached your out-of-pocket maximum for the year or are in the middle of complex medical treatment and don’t want to worry about switching health insurance, COBRA or state continuation could be a beneficial option.
Your Spouse’s Health Plan
If your spouse is already employed and has access to a health insurance plan that includes spousal coverage, you will be able to enroll in that plan whenever your current coverage expires. The end of your coverage will result in a unique enrollment period for your spouse’s plan. Even if you and your spouse were both covered by your plan, you will be eligible to switch to your spouse’s employer’s plan once your current plan expires. Assuming, of course, that coverage is available. It’s important to note, however, that if you qualify to enroll in your spouse’s plan, you may or may not be eligible for a marketplace premium subsidy. The IRS addressed the “family glitch” in 2023.
Medicaid
If your income drops substantially following your retirement, you may become eligible for Medicaid. In most states, adults under the age of 65 who earn less than 138% of the federal poverty line are eligible for Medicaid. Medicaid eligibility can be determined based on monthly income. In contrast, Marketplace premium subsidies are solely dependent on annual income. So, regardless of how much you earned earlier in the year, if your monthly income does not exceed one-twelfth of the annual income limit for Medicaid eligibility, you may be eligible for coverage.
Where to Learn More
If you’re considering retiring early (or need to) and want to go over the options available to you, visit HealthCare.gov. If your state operates its own exchange, you will be redirected there. You can browse the available plans by age, zip code, tobacco status, and income to examine your different options. If you are currently receiving medical care, be sure to review the relevant provider networks and drug formularies. Even if they are offered by the same carrier, don’t assume they’ll necessarily be the same as your current work plan.
If you retire before reaching age 65, you will have a few different alternatives for health insurance available to you, until you become eligible for Medicare. Your specific circumstances will determine which solutions are right for you. Or, depending on your circumstances, you might discover that it’s best to continue working until you become eligible. This way, you can continue utilizing your employer-sponsored health insurance. If you need to retire earlier, though, rest assured, you’ll likely have access to reasonable health insurance.
*Source: The Wall Street Journal
