May 25, 2020

Edited 06/15/20

Early Retirement Health Insurance Options

4 types of healthcare options before you qualify for Medicare at age 65.

Retiring early is a dream that many work towards but one financial factor that commonly gets overlooked is early retirement health insurance options. 

If you’re financially able to do so, retiring early can mean having more time to spend with loved ones and complete your bucket list. However, you will need to carefully assess the different ways to get early retirement health insurance until you qualify for Medicare at age 65. 

Alternatively, if you’re dependent on your spouse’s employer insurance who is retiring and now you need to find a gap plan until you qualify for Medicare. 

For financial planning purposes, let’s define early retirement as not employed or retiring before age 65. To protect your health and wealth, you should have some form of health insurance at all times. 

First, look at your typical health care needs and your budget to see if retiring early is viable. Then consider all the different insurance options and their full costs.

4 Early Retirement Health Insurance Options

There are four ways to get early retirement health insurance:

  1. Get health insurance through your spouse’s employer if you have a spouse who is currently working. This is the best choice if you can get it. 
  2. Enroll in COBRA health insurance. This allows you to continue on your previous employer’s same group health plan with the same in-network doctors for 18 months, but you must pay the entire monthly premium with no employer contribution. Compare the cost to see if COBRA is less expensive than individual coverage for you. 
  3. Some large employers offer a group health plan to their retirees, but this benefit is rare. You will need to check with your company’s plan before you retire. Certain industries, such as finance, utilities, and state and local government, are much more likely than others to provide health benefits to their retirees. 
  4. Sign up for individual health coverage through a state-run healthcare marketplace within 60 days prior to, or 60 days after, your effective retirement date. This coverage, sometimes called Obamacare, comes from a private insurer. The costs vary. 

Healthcare Marketplace by State

You can access your state’s healthcare marketplace through a website, call center, or in-person assistance. For example, you can visit HealthCare.gov, a website the federal government operates in accordance with the Patient Protection and Affordable Care Act (ACA). 

Depending on your income level, you may qualify for premium assistance to make healthcare insurance more affordable. The exchange tells people how much assistance they qualify for. Some large employers offer a set dollar amount for their retirees to buy their own coverage through an exchange.

Under the current law, health insurers cannot refuse to cover you or charge you more for insurance because of preexisting health conditions, such as diabetes. This rule took effect in 2014.

Open Enrollment Period

During the open enrollment period, you can purchase coverage through your state’s healthcare exchange to take effect for the next year. For example, Maryland’s open enrollment period was Nov. 1, 2019 to Dec. 15, 2019 for those who wanted coverage effective in 2020. It’s important to be aware of the deadline for open enrollment. You can find this information on the website for your state’s healthcare exchange. In most cases, retirement is a life event that qualifies you to enroll outside the open enrollment period. 

*COVID-19 Impact: Some states are offering a Special Enrollment Period for those who’ve lost their coverage. First, see if you qualify for this enrollment by taking a screener test through HealthCare.gov.

You can purchase coverage through the healthcare marketplace outside the open enrollment period, if you’ve had certain life events, such as:

  • Losing eligibility for employer-sponsored health coverage or Medicaid, 
  • Retiring, 
  • Moving to a new zip code, 
  • Getting married, 
  • Divorce or legal separation, 
  • Death of a family member who carried your health insurance, or 
  • Experiencing domestic abuse or spousal abandonment, which made you want to get coverage separate from your abuser. 

If you’re enrolling in this coverage for the first time, you may need to submit documents, such as mortgage documents, divorce papers or a death certificate, to prove that you qualify for a special enrollment period. After you pick a plan, you have 30 days to send the documents. 

To apply for coverage through an exchange, you must live in the United States, be a U.S. citizen or national, and not be incarcerated. 

Key Health Insurance Takeaways for Retiring Early

It may be confusing and overwhelming to sort through your early retirement health insurance options, especially if you haven’t had to pick a plan before. Each option has pros and cons to consider, such as cost, provider networks, and start date. 

Remember that having some coverage is better than having no coverage. An unforeseeable accident or serious diagnosis could be financially devastating to someone who has no insurance. 

Most health plans have an annual out-of-pocket maximum, which protects you from catastrophic costs, such as a $90,000 heart surgery. The out-of-pocket maximum is the most you have to pay for covered services in that plan year. For example, with plans offered through healthcare exchanges in 2020, the most you have to pay is $8,150 in an individual plan or $16,300 in a family plan. 

We don’t advise choosing no coverage or association health plans. Even if you are close to age 65, don’t be tempted to forgo insurance for a short period. Keep in mind that you could have unlucky timing and be on the hook for a huge medical bill, if you have an injury or medical emergency.

If none of the early retirement health insurance options appeal to you, then it may be best to postpone retirement until you qualify for Medicare or discuss with your spouse about your options.