If you want to retire before age 65, or are forced to retire owing to health difficulties, downsizing, or family circumstances, how will you pay for health insurance until you are eligible for Medicare? Many Americans retire before the age of 65, either by choice or need. And, health insurance for these early retirees is usually 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, prescriptions, and coinsurance payments, which can total hundreds of dollars.
Covering Health Insurance
Even if they would like to retire early and have sufficient savings, a lot of people keep working because of health insurance. Patients with significant pre-existing conditions were frequently denied self-purchased coverage prior to the Affordable Care Act. All states now allow them to obtain self-purchased coverage, regardless of their medical history. Additionally, income-based subsidies under the Affordable Care Act significantly lower the cost of insurance compared to what it would have otherwise been.
Meanwhile, the American Rescue Plan (ARP) and the Inflation Reduction Act enhanced the Affordable Care Act through the end of 2025. To prolong it into the future, Congress would need to adopt additional legislation. The majority of Americans* receive health insurance through their employers. A direct transition from employer-sponsored health insurance to Medicare is common. Depending on their circumstances, many people, whether retired or working, may be able to continue getting supplemental coverage from their employers until they qualify for Medicare. If you need or want to retire before the age of 65, you should look into a few healthcare options in the meantime. Today, we will discuss each one:
State Health Insurance Marketplace
As a result of the Affordable Care Act, each state now has its own health insurance marketplace/exchange where private individual and family health policies 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. You may be able to switch to a marketplace plan after quitting your job and terminating your employer-sponsored health plan.
Premium Subsidies
The Affordable Care Act (ACA) offers income-based premium tax credits (premium subsidies) through your state’s marketplace or exchange. These subsidies benefit the vast majority of individuals who purchase health insurance through the marketplace. They cover a large percentage of the premiums. The American Rescue Plan and Inflation Reduction Act expanded the scope and availability of these subsidies until 2025. Subsidies now make up a higher share of total premiums. Furthermore, the income threshold for subsidy eligibility, which was previously set at 400% of the poverty line, has been temporarily removed. Congress could decide to extend these provisions beyond 2025. If they don’t, the income threshold 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 worth considering. However, whether or not you are eligible will depend on a number of factors, including:
- How long it will take before you become eligible for Medicare
- How you have 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?
- If you can 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 may be an extremely beneficial option for you.
Your Spouse’s Health Plan
If your spouse is currently employed and has access to a health insurance plan with spousal coverage, you can switch after your current coverage expires. The termination of your coverage will result in a special registration period for your spouse’s plan. Even if your plan previously covered both you and your spouse, you can switch to your spouse’s plan once your current one ends. This assumes, of course, that coverage is available. It is crucial to note, however, that if you qualify to enroll in your spouse’s plan, you may not be eligible for a marketplace premium subsidy. The IRS resolved the “family glitch” in 2023.
Medicaid
If your income drops drastically after retirement, you may qualify for Medicaid. In most states, adults under the age of 65 who earn less than 138% of the federal poverty line are eligible. Medicaid eligibility can be determined based on monthly income (unlike Marketplace premium subsidies, which are based only on annual income). So, if your monthly income is less than one-twelfth of the yearly income limit for Medicaid eligibility, you may be eligible for coverage regardless of how much you earned earlier in the year.
Where to Learn More
Visit HealthCare.gov to learn more about your options for early retirement. If your state operates its own exchange, you will be directed there. You may compare your options and sort the plans by age, zip code, tobacco status, and income. If you are already receiving medical care, make sure to review the relevant provider networks and drug formularies. Even if they’re offered by the same carrier, you shouldn’t expect them to necessarily be identical to your current plan.
If you retire before the age of 65, you will have a few different options for health insurance until you qualify for Medicare. Your individual circumstances will determine which solutions are best for you. Alternatively, depending on your circumstances, you may decide that it is best to simply continue working until you become eligible. This allows you to continue utilizing your employer’s health insurance. If you need to retire sooner, one of these options will likely provide you with decent health insurance.
*Source: The Wall Street Journal