Retiring Before 65? Here’s What You Need to Know

If you’re looking to retire before 65, or are forced to retire following health difficulties, downsizing, or family circumstances, what will you do for health insurance until you qualify for Medicare? Many Americans retire before reaching the age of 65, whether by choice or need. And health insurance for these early retirees is frequently more expensive than they anticipate. A couple’s premiums for coverage can range from $1,700 to $2,200 per month. However, this depends on where they live, their age, and the source of the insurance. In addition to premiums, there are deductibles, copays, prescriptions, and coinsurance payments, which might add hundreds of dollars to the total cost.

Health insurance is what keeps many people employed, even if they would like to retire and have enough money to do so. Prior to the Affordable Care Act (ACA), patients with serious pre-existing diseases were often disqualified from self-purchased coverage. Today, self-purchased coverage is available in all states, regardless of medical history. The ACA also established income-based subsidies, making coverage significantly more affordable than it would otherwise be.

Meanwhile, the American Rescue Plan (ARP) and the Inflation Reduction Act have strengthened the ACA’s affordability protections up until the end of 2025. It would require another act of Congress to extend that into the future. Approximately half of Americans* get their health insurance through their work. At the age of 65, nearly all Americans become eligible for Medicare. It’s typical for people to shift directly from employer-sponsored health insurance to Medicare. Depending on their conditions, individuals may be able to continue receiving supplemental coverage from their jobs, whether they are active employers or retirees.

If you plan on retiring before 65, you may have numerous healthcare options in the interim. Today, we’re going to walk you through them.

State Health Insurance Marketplace

As a result of the Affordable Care Act, each state now has a health insurance Marketplace/exchange where private individual and family health policies can be purchased. These plans are all guaranteed-issue. This means you can join regardless of your medical history, and any pre-existing conditions will be covered as soon as your plan goes into effect. Enrollment is limited to either the yearly open enrollment period, or a special enrollment period prompted by a qualifying event. The termination of your employer-sponsored health plan is a qualifying event, so you will be allowed to switch to a plan on the marketplace after you leave your work.

Premium Subsidies

The Affordable Care Act makes income-based premium tax credits (premium subsidies) available through your state’s Marketplace/exchange. Most people who enroll in health insurance through the marketplace benefit from these subsidies. They cover a significant portion of their premiums. The American Rescue Plan and Inflation Reduction Act increased the size and availability of these subsidies from 2021 to 2025. Subsidies now cover a greater proportion of total premiums. Also, the income ceiling for subsidy eligibility, which was previously 400% of the poverty level, has been removed.

Congress could choose to prolong these provisions beyond 2025. If they don’t, the income restriction for premium tax credits will revert to 400% of the poverty level.

COBRA or State Continuation

Are you eligible for Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage or state continuation coverage? It could be a viable option for you. This will rely on a number of things, including:

• How long will it take until you’re eligible for Medicare?
• How much have you already spent on out-of-pocket charges this year?
• Are you eligible for subsidies in the marketplace or exchange?
• Will you be able to keep your current medical providers if you switch plans?
• Can you afford to pay full price for your coverage while on COBRA?

However, 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 can be extremely beneficial.

Your Spouse’s Health Plan

If your spouse is currently working and has access to a health insurance plan that includes spousal coverage, you will be eligible to enroll in that plan when your own coverage expires. Your loss of coverage will result in a special enrollment period for your spouse’s plan. Even if you and your spouse were both covered by your plan, you’ll be able to switch to your spouse’s employer’s plan when your current plan expires. Assuming coverage is available, anyway. It’s important to note, however, that if you are qualified to enroll in your spouse’s plan, you may or may not be eligible for a Marketplace premium subsidy. The “family glitch” was addressed by the IRS in 2023.

Medicaid

If your income drops significantly after retirement, you may be eligible for Medicaid. In most states, adults under the age of 65 who earn less than 138% of the poverty line are eligible for Medicaid. Medicaid eligibility can be assessed based on monthly income (unlike Marketplace premium subsidies, which are only based on annual income). So, if your monthly income does not exceed one-twelfth of the yearly income maximum for Medicaid eligibility, you may be eligible for coverage regardless of how much you made earlier in the year.

Where to Learn More

If you’re thinking about retiring early and want to know what options are available to you, visit HealthCare.gov. If your state operates its own exchange, you will be redirected there. To view your options, browse the available plans by age, zip code, tobacco status, and income. If you are presently receiving medical care, make sure to review the relevant provider networks and drug formularies. Even if they are offered by the same health insurance carrier, don’t assume they will be the same as your current plan at work.

If you retire before the age of 65, you will have various alternatives for health insurance until you become eligible for Medicare. Your individual circumstances determine which solutions are available to you and which are the best fit for you. Depending on your circumstances, you may discover that it is best to continue working until you become eligible. This way, you can continue utilizing your employer-sponsored health insurance. If you wish to retire earlier, though, you’ll have access to reasonable health insurance.

*Source: The Wall Street Journal