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How Retirees Can Bridge the Health Insurance Gap Before Medicare

For many, the vision of retirement represents the freedom to spend your time and energy doing the things you enjoy most. While you may have done a thoughtful job preparing for yours, there are still a number of decisions to consider before making that vision a reality.

If you plan to retire early, you’ll likely have an additional obstacle to navigate —how to secure healthcare coverage between when you leave your job and when Medicare kicks in at age 65.

To bridge this gap, there are several options available to you, but finding the right balance between affordable and adequate coverage can be a challenging task. I’ve broken down the pros and cons of each choice below.

Group Employee Coverage

The first place to start is to fully understand the health insurance coverage of your employer before you separate from service.

There’s a chance you could be eligible for some form of post-work coverage, although retiree medical benefits are becoming increasingly rare. As of last year, only 18% of large companies offered health insurance that included retirement coverage.

Assuming that you do lose your coverage when you retire, the next step is to check your spouse’s coverage. This is obviously conditional on whether or not they’re still working, and if their plan covers spouses. While you may have each maintained your own coverage, or opted for yours, even a lesser employer-sponsored plan could be better than the alternatives.

Shop the Marketplace

If employer coverage isn’t an option for you or your spouse, your next step is to check out the public marketplace.

Established by the Affordable Care Act, the marketplace (also known as the healthcare “exchange”) is a government-run health insurance program. Depending on your income, you may be eligible for subsidies to help make your premiums more affordable. 

Some states have their own individual marketplaces, while others rely on the federal program. If you’re a New York resident, you’ll want to visit nystateofhealth.ny.gov, whereas states that use the federal marketplace should start their search for a policy at healthcare.gov.

Open enrollment typically lasts from November until mid-December each year, but losing prior coverage (e.g., from an employer) is considered a “qualifying life event,” allowing you a 60-day Special Enrollment Period to apply and enroll in a plan that best suits your needs.

Find Part-Time Work

Many retirees still want to work in some capacity, opting for something more enjoyable than their previous careers. Since some companies provide health insurance to part-time workers, if you can find one that does, it may be worth pursuing just for the benefits alone.

Other Options to Consider

While most retirees I work with choose one of the above, the following are alternatives that are still worth mentioning:

  • Health-Sharing Plans: Also known as “health sharing ministries,” these arrangements are based on the idea of sharing medical costs with people that have similar (mostly Christian) values. Since they’re technically not a form of insurance, it’s important to do your due diligence on the rules and limitations if you choose to go this route.
  • COBRA: The Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, allows you to maintain the same healthcare coverage you had while working for up to 18 months after you retire. The catch here is that you’ll likely be required to pay the full premium, which your employer paid the majority of while you were still working, plus a 2% administration fee, making it significantly more expensive.
  • Self-Insure: Health insurance isn’t cheap, and you may be tempted to just pay for health care as you need it. Even if just for a short period of time, this is a risky move, as one illness or accident could derail the retirement you’ve planned for. If you choose to risk it, make sure you’re familiar with your state’s creditor laws and what assets may be seized in order to cover your bills.

Determining when you can retire at any age starts with having a strong understanding of your anticipated expenses and how much income you’ll have to support that lifestyle. For investors who intend to retire early, estimating your health care costs and knowing your insurance options before Medicare should be a major factor in whether you can make retirement a reality. By developing an intentional plan for your money in retirement, you’ll be much more likely to make the right decisions for your family’s specific situation.

Need help determining how health care coverage will impact your retirement plans? I’d love to help you figure it out.  Get in touch today!


Brett Koeppel is a fee-only Buffalo financial advisor, CERTIFIED FINANCIAL PLANNERTM , and the Founder/President of Eudaimonia Wealth.  Eudaimonia Wealth is a fee-only, fiduciary, Buffalo financial planner and wealth management firm dedicated to helping families prepare for and transition into retirement by providing independent, objective financial planning and investment management advice.