Bridging the Gap to Medicare when Retiring Early

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Matt Bacon


Early retirement is a dream for many. But it’s a dream that requires careful planning, particularly when it comes to managing your healthcare options. It can be a mad scramble to find affordable, quality healthcare coverage in the intervening years between retirement and Medicare eligibility. When Medicare does kick in you will still have plenty of ancillary costs. Healthcare will be one of your largest expenses no matter where you are on your retirement path.

You have four options to bridge the gap from retirement to Medicare. Each have pros and cons.


You may have heard of this before or even utilized it at some point earlier in your career. COBRA is shorthand for the Consumer Omnibus and Budget Reconciliation Act of 1981. It is the piece of legislation that allows you to continue your employer sponsored health coverage after your departure from a company. If you’re lucky, your employer may provide a subsidy that covers COBRA payments for a certain period of time as part of your retirement package. This is generous but becoming less common.

You may be in for a rude awakening if you find yourself on the hook for COBRA payments. These policies are often more expensive since your former employer paid part of your health insurance premiums while you were working. Beyond that, you must also pay an additional 2% administration fee while on a COBRA plan. It’s painful. The Kaiser Family Foundation found that the average premium for employer sponsored family health coverage was a little over $21,000 in 2020.

Critically, COBRA only applies to companies that employed at least 20 people for more than half a year. You may not have this option if you retire from a small organization. Assuming you do, be cognizant of your 60 day window to enroll in COBRA coverage. If you don’t sign up quickly you don’t get to use this option! The 60 days starts from the date you lose coverage or the date you are furnished a COBRA election notice, whichever is later.

COBRA coverage is typically extended for 18 or 36 months, though it could be longer if your plan allows. The Department of Labor put together a voluminous FAQ on COBRA if you’re a fan of “light” reading.

Utilize Your Spouse’s Plan

If you are married and your spouse is covered by a workplace health insurance plan, then you may be able to gain coverage on their employer’s plan. This is likely your best and most cost-effective option. You may also be added to your spouse’s retiree medical plan as well if they have coverage there.

Public Marketplace

The public marketplace, also called health insurance exchanges, were created under the Affordable Care Act and provide options to anyone not yet Medicare eligible. Coverage under these plans is guaranteed and pre-existing conditions cannot deny you coverage.

Costs for these plans vary wildly. The main marketplace is, but there are thirteen other states that also run their own marketplaces (including Maryland and Washington, DC). By law, state exchanges cannot price policies to undercut one another. The price of a policy on exchange A will have the same price as an identical policy on exchange B.

All plans must offer the same 10 essential benefits, but plans still vary. States that run their own exchanges have more control over the types of policies offered and can require them to cover more benefits and services or set different qualifying events and enrollment periods.

Plans are divided into four metal tiers – bronze, silver, gold, and platinum. Each tier denotes a different level of cost sharing between the insurance company and you. Subsidies are also available for these plans based on your income. This is a critical detail. You may be able to claim subsidies based on how you structure your retirement income strategy.

Private Insurance

Private insurance plans are still an available option. These can be purchased from brokers, some trade and professional associations, and private exchanges that offer plans from multiple carriers. These plans may have more options available than plans offered on the public marketplace, but they are not eligible for government funded premium tax credits. The National Association for Health Underwriters has a convenient “find an agent” tool to help locate a broker.

Conclusions and Parting Thoughts

Healthcare costs an arm and a leg, which is a little ironic as the whole system is built to help you hang on to both of those. Planning poorly can result in missing out on great coverage, like a COBRA option, or paying for benefits you may not need in private policies. Missing out on available subsidies also hurts, and the difference in qualifying may be something as benign as selling low-basis stocks instead of high-basis bonds. Be wise. Plan well.

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but is intended to help manage risks and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax, or financial advice. Please consult a legal, tax, or financial professional for information specific to your individual situation.

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