Pre-Medicare: Your Health Insurance Options Between Early Retirement and Medicare

All the careful financial planning for your retirement years has paid off. You have built a substantial nest egg that allows you to retire before the age of 65. Not only have you saved enough money to retire before the average age when most Americans retire, but the nest egg you have built will also generate a healthy cash flow throughout your retirement years. Everything appears to be in place for you to enjoy the next stage of your life. However, there is one issue that if not addressed immediately, can turn your financial plan for retirement upside down.

We are talking about funding health insurance.

Although you have the financial resources to pay all your bills and still have enough money left over to enjoy taking vacations and pursuing hobbies that interest you, paying for health insurance until you reach the Medicare-qualifying age of 65 requires a bridge between early retirement and turning 65 years old. How do you create the financial bridge that pays for health insurance until Medicare kicks in?

Let’s review four health insurance options between early retirement and the start of Medicare eligibility.

COBRA Health Insurance

In 1985, the United States Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) to provide American workers with the option to continue participating in an employer-sponsored health insurance plan after retirement. COBRA coverage lasts between 18 and 36 months, depending on your health insurance coverage status, which means it is a short-term bridge between early retirement and the start of Medicare eligibility. If you retire several years before Medicare kicks in, you have to find another way to obtain health insurance.

COBRA-backed health insurance requires you, not your employer, to fund the same policy that your employer previously financially covered. In addition, you might have to pay an additional charge of two percent to keep your employer’s health insurance plan for a limited amount of time.

COBRA typically works well for early retirees that plan to invest in another health insurance option, such as enrolling in a marketplace plan offered under the Affordable Care Act (ACA).

Learn more about the Pros and Cons of COBRA Health Insurance.

ACA Marketplace

Every year from mid-November through the first half of January, the ACA provides early retirees with the option to enroll in a health insurance plan offered in the public marketplace. Early retirees cannot be denied coverage for any reason, including if they enroll in a plan with a preexisting medical condition. Before the ACA established the public marketplace for buying a health insurance policy, finding an affordable policy was difficult to do, especially for Americans that enrolled in a plan with a preexisting medical condition.

The cost of enrolling in a public marketplace health insurance policy offered under the ACA marketplace varies depending on the subsidies that you use, as well as the extent of your health insurance coverage. Because of the negative impact the COVID-19 pandemic had on retirement, the United States Congress made temporary changes in 2021 to the requirements of qualifying for subsidy eligibility.

Private Health Insurance

You can purchase a health insurance policy through one of many private exchanges. You might discover more health insurance options by opting through a private carrier, but you also can expect to pay more in monthly premiums regardless of what you pay for an annual deductible. In addition to higher monthly premiums, purchasing health insurance through a private exchange makes you ineligible for federal government-backed subsidies and tax credits.

You can buy private health insurance by working directly with an agent, broker, or insurance company.

Spouse’s Health Insurance Plan

If your spouse receives health insurance benefits from an employer, you might qualify to receive the same benefits after you retire before Medicare eligibility. Getting health insurance from your spouse’s employer-sponsored plan might be the best and most cost-effective option you have for obtaining health insurance until you reach the Medicare qualifying age of 65. If your spouse has retired as well and has obtained retiree medical coverage, you might be eligible for that type of health insurance coverage as well.

Preparing for Medicare Coverage

You should prepare for enrolling in Medicare before you turn 65 years old. If you retired at 62 years old and currently receive Social Security benefits, you will receive a Medicare enrollment kit a few months before you turn 65 years old. However, you should prepare to make the transition to Medicare coverage before you receive your Medicare enrollment kit.

You also have to know about the various Medicare enrollment sign-up dates, as Medicare consists of several parts that require different sign-up dates for Americans that qualify for publicly funded health insurance coverage at the age of 65.

Whether you need six months of health insurance coverage or five years to bridge the health insurance gap between early retirement and Medicare coverage, Insurance Broker Hub can help.