What to Know About Early Retirement Health Insurance
If you’re thinking about early retirement (retirement prior to age 65), you may have started a bucket list of things you’d like to do as you transition to this new chapter of life. Although figuring out the nuances of early retirement medical insurance is likely not on your bucket list, securing appropriate coverage is an important part of your planning that shouldn’t be left to chance.
Finding the right health coverage can seem daunting, but we’re here to help, and we’ll walk you through multiple types of coverage to consider.
How do people who retire early have health insurance?
Keep in mind that as an early retiree, Medicare is often not an option yet due to age restrictions. However, there are many other health insurance options available to individuals who retire early.
COBRA
The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives individuals who are no longer employed the right to maintain employer-provided health coverage for a certain period of time under specific circumstances, such as voluntary or involuntary job loss, a reduction in hours worked, transition between jobs, death, divorce, and other life events.
For early retirees, COBRA coverage is usually available for a limited time. Although COBRA allows you to keep your existing health plan benefits, it can be quite expensive. Those who utilize COBRA as their health plan may be required to pay up to the employer’s full cost plus an additional two percent.
Can you get COBRA insurance if you retire early?
It depends. Most retirees will have a COBRA option, but there are exceptions. COBRA does not apply to small employers or church employers, but there may be continuation coverage requirements (usually for a short amount of time at a very high cost).
Can I drop COBRA and get Marketplace coverage instead and qualify for lower costs based on my income?
It depends on your situation:
- During the annual Marketplace Open Enrollment Period (Nov. 1- Jan. 15), you can drop your COBRA coverage (even if it hasn’t ended) and replace it with a Marketplace plan.
- If your COBRA coverage ends outside of the Open Enrollment Period, you qualify for a Special Enrollment Period and you can enroll in a Marketplace plan.
- It’s important to know that you can’t drop your COBRA coverage outside of Open Enrollment and enroll in a Marketplace plan instead. The Special Enrollment Period applies only if your COBRA coverage ends.
Marketplace Coverage
Plans from the Health Insurance Marketplace, often referred to as Affordable Care Act (ACA) plans, provide private health coverage for individuals or families without employer-sponsored coverage. If you retire before age 65 without health coverage, Marketplace coverage is a strong option.
All Marketplace plans cover 10 essential health benefits (including emergency services, prescription drugs, and hospitalization), preventive health services, and treatment for pre-existing conditions. Some states have laws requiring insurance companies to cover services or procedures in addition to these.
The monthly cost of Marketplace plans is individualized and based on the estimated income of all household members. These plans generally have deductibles, copays, and other out-of-pocket costs that apply to most covered benefits. Many households qualify for the premium tax credit, which is a subsidy based on household size and income and could reduce your monthly insurance premium for a Marketplace plan. There is an income number called Modified Adjusted Gross Income (MAGI) that determines the amount of premium subsidy assistance you will receive from the government. You are generally not eligible for Marketplace premium tax credits if you are eligible for coverage under your own employer or a spouse’s employer plan. Learn more about tax credits.
In order to be eligible for a Marketplace plan, you must: live in the United States, be a U.S. citizen or national (or be lawfully present), and not be incarcerated.
You can enroll in a Marketplace plan online, by phone, via paper application, through an agent/broker (such as RetireMed), or through certified enrollment partner websites.
Spousal Coverage
If you have a spouse who is currently employed and receives employer health benefits, you may consider either being added to their plan once you retire (depending upon the policy or employer terms) or remaining on the plan if you are already enrolled. As with every coverage option, it’s important to compare the costs and plan details with other choices available to you.
Retiree Health Benefits
Some employers or employee organizations offer retiree health benefits. The coverage and out-of-pocket costs associated with such plans can vary widely. If your employer extends these benefits to you, evaluate them carefully. It might make sense for some individuals to utilize their retirement benefits, while others may find less expensive or better coverage through other alternatives.
Medicaid
Medicaid is a government-run health insurance program, and it helps certain people with limited resources and income pay their medical costs. This program does not have an age requirement, because it provides low-cost health insurance for people based on need.
Medicaid eligibility rules, coverage, and costs vary from state to state. If you qualify for Medicaid, you can evaluate if this coverage will work for you as an early retiree. You can apply for Medicaid by contacting your State Medical Assistance (Medicaid) office.
Health Share Plans
Health share plans consist of a group of individuals who agree to combine their money to cover the health care costs of other group members. These plans are not health insurance policies. Coverage is generally limited to basic health care and catastrophic care, but coverage and costs can differ from plan to plan since health share plans are not regulated in the same way as health insurance plans. Also, pre-existing conditions are often not covered. Before enrolling in a health share plan, it’s especially important to review it thoroughly to ensure it covers your health care needs and fits your budget as an early retiree.
How much does health care cost for early retirement?
Health care costs for early retirees are dependent on multiple factors, such as location, age, personal health situation, and type of health plan. So, how much is health insurance if you retire early? Just as there are many coverage options for early retirement health insurance, costs will also vary depending on the coverage option you choose. We highly recommend meeting with a health insurance advisor to review your options and compare costs to see what they would look like for your personal situation. Our team of experts is ready to help you!
Early Retirement Tax Benefits
Can early retirees deduct health insurance premiums?
In some cases, early retirees can deduct health insurance premiums if they comply with certain requirements from the Internal Revenue Service (IRS).
Do my IRA or 401k withdrawals count as income?
Generally, IRA and 401(k) withdrawals count as income, according to the Internal Revenue Service.
Retiring early?
You have a team of experts on your side! If you’re retiring early, your retirement health coverage will require careful planning well in advance of your retirement date. There are multiple options available to you, from COBRA to health share plans, all with differing costs and coverage. It’s important that you take the time to research and compare coverage options to ensure you find the right plan for your needs and budget.
If health insurance research and planning sounds overwhelming, know that our team of health insurance experts is here to help. Let us do the legwork so you don’t have to. Plus, you’ll enjoy lifelong support – all at no cost or obligation. When the time comes to transition to Medicare, we will be here to simplify the process and walk you through each step.