What’s the best route for medical insurance without a work place option? I need two years of coverage before Medicare kicks in.
– Robert
Health insurance and its associated costs are an important consideration in retirement – even more so if you retire before qualifying for Medicare at age 65. I don’t think there’s any one “best route” for obtaining that coverage. Instead, it’s about assessing your needs and budget, and then comparing your available options. Here’s a closer look at how to approach this important component of your retirement plan.
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Pre-Medicare Health Insurance Options for Retirees
The pre-Medicare health insurance options for retirees typically include COBRA, the healthcare marketplace and private insurance. If you have a spouse who is still working for an employer that provides a workplace health plan, that is usually a good place to look as well, but that isn’t always an option. Since you said that you don’t have a workplace option, I’ll assume that applies to your spouse, as well (if you’re married).
COBRA
People often refer to “COBRA insurance,” but it’s not really a form of insurance. Rather, COBRA refers to the Consolidated Omnibus Budget Reconciliation Act (COBRA) – a law that allows you to maintain the coverage you have through an employer’s group plan for a short period after your employment there ends.
If available to you, COBRA could possibly close a portion of the two-year coverage gap before you become eligible for Medicare. The standard length of time you qualify to maintain your coverage through COBRA is 18 months. It can be extended to 36 months in some cases if you have another qualifying event.
The rub with COBRA is its cost. While you are working, your employer often covers a significant portion of your premium. If you choose to continue coverage through COBRA, you’ll typically pay the entire cost yourself. As a result, many people find it to be cost prohibitive.
Healthcare Marketplace
For now, the healthcare.gov marketplace may be your best option. This is where you can obtain an Affordable Care Act (ACA) or “Obamacare” plan. The benefit here is that your eligibility for premium tax credits is based in part on your modified adjusted gross income (MAGI). The lower your MAGI, the larger your premium subsidy will be. With prior planning, you may be able to reduce your MAGI to a level that allows you to obtain a very cost-effective policy.
However, the enhanced subsidies provided by Affordable Care Act are set to expire at the end of 2025, which may impact your potential cost and/or coverage. The American Hospital Association says the potential expiration of these subsidies could result in 2.2 million consumers losing coverage. Congress could extend these credits or make them permanent, but it’s unclear if that will happen. (And remember, a financial advisor can help you navigate changes in legislation and their impact on your finances.)
Private Insurance
Your next option is to simply to purchase an individual health insurance policy from an insurer. If you already work with an insurance agent on other insurance policies you might start with that person. But’s it’s important to shop around for a policy and price that suits you.
One significant advantage of private insurance is the ability to tailor coverage to specific needs, like including certain specialists or prescription benefits. However, premiums for private policies can be high, and they may not include subsidies based on income.
(And if you need help evaluating your insurance options for retirement, consider working with a financial advisor who specializes in comprehensive financial planning.)
Planning for Health Insurance Before Medicare
Getting health insurance without access to an employer-sponsored plan often comes with higher costs, which is something retirees should prepare for realistically. While managing these expenses is important, recognizing that they will likely be a significant part of your retirement budget can help you make more informed decisions about when and how to retire.
The availability of affordable health insurance is a key factor in retirement timing for many individuals. Some choose to delay retirement specifically to maintain access to employer-sponsored coverage. While this can be a sound financial strategy, it’s also often influenced by emotions – many people feel uneasy about paying more for insurance even if their financial situation allows it. That’s a valid choice, as financial decisions should align with personal comfort and priorities, as long as the options are sustainable.
Conversely, if health insurance costs are prohibitive, it may indicate that retiring isn’t financially feasible yet. In such cases, delaying retirement could allow you to continue building savings and maintaining coverage through your employer. Alternatively, you might consider transitioning to part-time work or a role you enjoy more to stay on a group plan while still reducing work hours. This flexibility can bridge the gap until Medicare eligibility while supporting both your financial and lifestyle goals.
(A financial advisor can help you determine when you can afford to retire. Match with an advisor today and talk about your plan for retirement.)
Bottom Line
Health insurance is normally going to be more expensive during the gap period between leaving the workforce and becoming eligible for Medicare. While the Affordable Care Act’s premium tax credits are still in effect, buying a plan through the marketplace is likely going to be your best option. If Congress doesn’t extend or replace these subsidies in 2026, then you may need to consider buying an individual plan through a private insurer.
Retirement Planning Tips
- Diversifying the tax treatment of your retirement accounts can help optimize withdrawals and manage taxes in retirement. Consider balancing contributions between tax-deferred accounts (like a traditional 401(k) or IRA), tax-free accounts (like a Roth IRA) and taxable brokerage accounts. This strategy provides flexibility to withdraw funds in a tax-efficient manner based on your income and tax brackets during retirement.
- Lots of financial advisors help clients plan and save for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not an employee of SmartAsset and is not a participant in SmartAsset AMP. He has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.
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