If you are lucky enough to retire early before you become eligible for Medicare at age 65, you may have to contend with an expense you haven’t had to worry about while employed—the cost of health insurance. Health insurance isn’t cheap and if you retire before you reach Medicare eligibility, it becomes your responsibility to manage the full expenses of your health insurance.
In some cases, according to the Kaiser Family Foundation, large firms offer health insurance to retirees. Reach out to your company and see if they participate. Otherwise, you are responsible for covering the full cost of your premiums until you reach the eligible age for Medicare at 65.
Preparation for this healthcare coverage gap is an essential factor that can’t be overlooked as you design a retirement strategy.
What health insurance options are available to cover the gap between retirement and Medicare?
Spouse’s employer-sponsored plan
If you retire and your spouse is still employed, you may consider joining their employer-sponsored plan. This is probably the easiest strategy to cover the gap until you are old enough for Medicare, however, based on the policy requirements, your partner may be subject to an increase in the deduction from their paycheck to cover your addition to the family insurance policy. Your spouse’s job’s benefits administrator can go over the details to help you make an informed decision such as:
· Will the current benefits change in any way?
· Is supplemental coverage that works with Medicare offered?
· Will the current benefits change in any way?[i]
Part-time job employer-sponsored plan
In many cases, part-time jobs offer health benefits that you can use to cover the gap until Medicare eligibility. In 2025, if you are under retirement age, you can earn up to $23,400 before Social Security starts withholding benefits, which means every dollar then that you earn over that amount is deducted $0.50 from your benefits.[ii] A financial professional can work with you to determine how these rules may impact your financial strategy and goals.
Private insurance
There is always the option of purchasing insurance through a private insurer. You can explore choices through the health insurance marketplace, by reaching out to a company directly or through an insurance broker.
· Affordable Care Act (ACA)
According to the Affordable Care Act (ACA), if you lose coverage under an employer’s plan you may be eligible to purchase private healthcare insurance from a state or federal insurance exchange outside of the normal enrollment window. According to the Centers for Medicare & Medicaid Services (CMS), 24.2 million people elected to purchase health coverage through the ACA marketplace for the 2025 plan year.[iii]
If you go the route of purchasing a plan on an insurance exchange, this could open the door for eligibility to receive a tax credit based on your family size or income. This only applies to those who use the exchange, it is not eligible to people who purchase private health insurance outside of the exchange.
· Insurance Broker
Some retirees choose to purchase health insurance through a broker. Several benefits to this approach, depending on your situation, include,
o Less time-consuming and potentially cost-effective
A broker can sort through the myriads of policies and insurers to find the most cost-effective and beneficial policy for you and your family.
o Professional guidance
Brokers can help you navigate the complicated world of health insurance.
o Customized coverage
Brokers can compare policies and tailor coverage that fits your individual needs.
Cobra
As your employment is winding down and you are preparing for retirement, consider asking your employer if you are eligible to extend your existing coverage under COBRA (the Consolidated Omnibus Budget Reconciliation Act). Generally, COBRA extends your coverage up to 18 months after you leave your employer. In certain cases, such as disabilities or other factors, your coverage and that of your family could extend as long as 36 months.
If you happen to reach 65 while still covered by COBRA, you can still sign up for Medicare Parts A and B. When Medicare becomes active your COBRA coverage will end but your spouse (if under 65) and your dependents will still retain their eligibility until the coverage runs out.
Medicaid
For those who qualify due to specific income requirements, have a disability, or are blind, you may be eligible for Medicaid after retirement. To be eligible you have to fall under one or more of these categories:
· Low Income
o In most states, adults under 65 may qualify if their income is at or below 138% of the federal poverty level.[iv]
o You may qualify if you are deemed to be medically needy.[v]
o There are cases where you can have an income at 100% of the federal poverty level and qualify.[vi]
· Disability
o Individuals determined disabled receiving SSI and mandatory state supplementary payments.[vii]
o Individuals who are severely impaired and had received SSI and Medicaid previously, but whose earnings from working make them ineligible for SSI.[viii]
o Individuals over age 18 who had a disability before age 22, and lost eligibility for SSI.
o For younger and older adults with disabilities who may not qualify for full Medicaid, may still be eligible to enroll in one of the four Medicare Savings Programs (MSPs).
1) Qualified Medicare Beneficiary (QMB)
2) Specified Low-Income Medicare Beneficiary (SLMB)
3) Qualified Individual (QI)
4) Qualified Disabled Working Individual (QDWI)
· Blindness
o If you are blind, you may qualify. Married couples applying for coverage, regardless of if one or both spouses are the applicants could be permitted up to $3,000 as a couple in 2025.[ix]
· Medicare Savings Program (MSP)
o If you are enrolled in an MSP, you may qualify for a portion of Medicaid benefits.[x]
· Supplemental Security Income (SSI)
o If you receive SSI, you may qualify.
High-deductible plan and a health savings account (HSA)
A high-deductible plan that allows you to open a health savings account (HSA) is another option that may align with your retirement strategy. An HSA usually requires you to pay more out of pocket for your coverage but may have lower monthly premiums than traditional health insurance plans.[xi]
- HSAs also offer several tax advantages:
- Contributions are made with pre-tax dollars
- Your money grows tax-free
- Withdrawals are free for qualified expenses.
You don’t have to be an employee to be eligible for an HSA. You only have to qualify. Their eligibility requirements are as follows:[xii]
- Not enrolled in Medicare
- Enrolled in a high-deductible health plan with a minimum deductible of $1,650 for individual coverage and $3,300 for family coverage
- Have no other qualifying health coverage unless permitted by the IRS guidelines
- Not eligible to be claimed as a dependent on someone else’s tax return in that year
Once you become eligible for Medicare you can no longer contribute to an HSA, however, you can make withdrawals from the HSA to pay certain Medicare premiums (Part A, Part B, Part C Medicare Advantage, and Part D prescription drug coverage, but not premiums for a Medicare supplemental policy such as Medigap)[xiii] and qualified out-of-pocket medical expenses tax-free (deductibles, premiums, copays, and coinsurance).[xiv]
Preparation is significant to lower costs and reduce unnecessary stress
Preparation is critical as you work toward your retirement and financial goals. An ancient Greek named Aesop once said, “It is thrifty to prepare today for the wants of tomorrow.” It is a concept people have embraced for over 2,500 years and it is still true today. Healthcare costs in the gap between leaving your employer-sponsored plan and Medicare could negatively impact you if you fail to take them into consideration. Determining the right health insurance policy for you and your family can be a complex decision and a financial professional can help you navigate the many directions you can go with insurers, policies, and how these decisions may affect you and your family financially. When it comes to your health and that of your loved ones, don’t leave it up to chance.
Important Disclosures:
Content in this material is for educational and general information only and not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
LPL Tracking #727063
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