Early Retirement Health Insurance Options to Consider

Updated: November 14, 2022
early retirement health insurance

Having early retirement health insurance is essential if you plan to retire young. You can find yourself without insurance for early retirement, whether on purpose or due to unanticipated circumstances. According to the Social Security Administration, early retirement is for any age under 65. Social Security payments can be partially claimed as early as age 62, but if you apply for benefits at that age, you could forfeit up to 30% of your earnings.

Early Retirement Health Insurance: Key Takeaways

All you will know after reading this entire article 

  • Important information to know before picking Early Retirement Health Insurance
  • Retiree Health Coverage
  • Retiree Health Reimbursement Account
  • Spouse’s Health Insurance
  • Health Insurance Marketplace (Public)
  • Medicaid
  • Purchasing Direct Insurance (off-exchange)
  • Short-term Insurance Plans
  • Health Savings Account (HSA)
  • Membership-based group health plans
  • Private health insurance
  • Part-time job
  • Possible ways to pay for early retirees’ health insurance

Early Retirement Health Insurance: Things to Know About?

One of the significant barriers stopping people from early retiring is the cost of health coverage. For people without access to retiree health care options from a prior employer, the bridge health insurance until Medicare, which begins at age 65, can be costly.

Many people’s health insurance is usually expensive, although this is more often due to poor preparation than to the sickness insurance itself. Because so many people who retire before age 65 utilize Affordable Care Act insurance before Medicare begins, this lack of preparation can frequently result in expensive health insurance. 

Obamacare and ACA insurance are two of the many names for Affordable Care Act insurance. Currently, there is government-run medical insurance for retirees in 20 states plus the District of Columbia. Plans, while 30 states offer ACA insurance. 

Your household’s modified adjusted gross income can have an essential bearing on the price you pay for early retirement insurance under the Affordable Care Act and state-run health care programs (MAGI). 

Your health plan for early retirees will cost more as your household’s MAGI rises. The rest of this will be kept simple for ease of understanding article will concentrate on methods for ACA health insurance for retirees under 65 to lower insurance costs. 

Since state-run health insurance is offered in 15 states at a cheaper price depending on income level, these tactics are often applied to those states.

Early Retirement Health Insurance: Best Health Insurance for Retirees?

Let’s see what the best early retirement medical insurance 

Retiree Health Coverage

Speak to your company or past employer about your early retirement health insurance options alternatives, whether you are still employed there or have just quit. Retirement-age employees can access group medical insurance through many businesses and unions. 

Your spouse may be able to stay on your plan if you’re married and choose retiree health insurance. Inquire about the fees, health insurance enrollment period deadlines, and eligibility requirements for different health benefits from your employer or union representative.


Your business might also provide the Consolidated Budget Reconciliation Act (COBRA) as an additional sickness insurance alternative. Similar to retiree health insurance, which enables you to enroll in a brand-new group plan, COBRA lets you keep using your current managed care strategy. 

COBRA insurance is only valid for a limited time, up to 18 or 36 months. The duration of your existing plan’s eligibility will depend on the qualifying event that makes you eligible for COBRA. 

You can keep your spouse and dependents’ health insurance through COBRA if you already cover them. Your company’s size could affect COBRA’s availability. The provision of this option is typically required of businesses with 20 or more employees, but smaller businesses (small business health insurance) may not. 

COBRA can be pricey. Before retiring, it’s possible that your company covered all or a portion of your premium. The whole sum will now be due from you. Your COBRA benefits will end if you reach the age of 65 and become qualified for Medicare simultaneously.

Retiree Health Reimbursement Account

An employer-funded account called a health reimbursement account can assist you in covering some medical costs after retirement. 

The term “Retiree Health Reimbursement Arrangements” is also used to describe these accounts. After retirement, you can use your HRA to pay for medical expenses and health plan premiums. 

When you meet the requirements, the cost of Medicare Part B is also covered. Your company might make a one-time payment into your account that you can use when you retire. 

These funds could be in the form of retirement incentive payments, extra vacation time, unused sick time, or severance pay.

Spouse’s Health Insurance

You might be able to enroll in your spouse’s sickness insurance if they have it. Don’t presume that this coverage is automatic, though. Employers are not required by the Affordable Care Act (ACA) to offer managed care to the spouses or domestic partners of their employees.  

Ask your spouse to inquire with human resources to see whether you are eligible for this option. If you qualify to enroll in your spouse’s plan, you must do so during the special enrollment period (SEP) that is brought on by the termination of your current workplace and health insurance. It is possible to enroll in new health insurance during the SEP. SEPs may only endure for 30 days, so you need to move quickly.

Health Insurance Marketplace (Public)

You cannot be denied access to public health insurance due to preexisting conditions under the ACA. Individuals and families can acquire a sickness insurance policy on their state’s exchange through the ACA’s public health insurance marketplace up to 60 days before or after they lose qualifying medical benefits.

You might be eligible for a premium tax credit or cost-sharing reductions, depending on your income, to lower the price of the coverage you buy through the public Health Insurance Marketplace.

Using the Kaiser Family Foundation’s Health Insurance Marketplace calculator, you may obtain an idea of how much your managed care might cost. 

You can use the tool to estimate your eligibility for subsidies and obtain an idea of how much you would pay for medical coverage by entering your income, family size, and age.

Additionally, it offers a rough estimate of your Medicaid eligibility, a joint federal-state managed care program for low-income households. Additionally, it offers an estimation of your eligibility for Medicaid, a joint federal-state health insurance program for low-income families.


Depending on your household income, Medicaid, a federal-state public health insurance program, may be an option for you. Children, those with low incomes, the elderly, pregnant women, and those with disabilities are all covered by Medicaid-managed care. 

Despite slight variations, all state plans have a qualifying income criterion. Additionally, you can submit an application through the Health Insurance Marketplace, which will inform you of the programs for which you are eligible.

Purchasing Direct Insurance (off-exchange)

As an alternative to the government’s Health Insurance Marketplace plans purchased directly from a broker or an insurance company are referred to as “off-exchange” coverage. 

There may be more options available when dealing directly with an insurance company than those that are available on the Health Insurance Marketplace. However, purchasing directly without employer or government incentives may be more expensive.

Short-Term Insurance Plans

With the opportunity to renew twice, short-term insurance provides limited coverage for up to a year (for up to three years’ worth of comprehensive coverage). These policies’ coverage may be limited. 

However, this explains why large medical insurance policies, such as those obtained via employers, the Health Insurance Marketplace, or direct purchase, frequently cost less than short-term insurance plans. 

For individual coverage, the average yearly premium for short-term medical insurance was $1,284. These plans might not be a suitable match for you if you require more extensive coverage. 

Numerous benefits, including prescription drugs, lab testing, and mental health therapy, are not usually covered. Additionally, if you have preexisting conditions, you may be denied coverage, forcing you to pay the whole amount.

early retirement health insurance

Health Savings Account (HSA)

An HSA is a form of savings account that enables you to set away pre-taxable income for use on eligible medical costs. When you currently have an HSA, this is the ideal time for the tax-free income you’ve invested in it. 

You can roll over the money you’ve accumulated in an HSA from year to year. Although these funds won’t run out, you might need to spend them all before being qualified for Medicare. While you still have money in your HSA account, it’s a good idea to start planning for health insurance. 

Early retirement has benefits and drawbacks. You can have endless vacations or fresh chances to pursue your interests in creativity and entrepreneurship. Healthcare coverage is crucial for keeping you safe, fit, and able to enjoy life without financial fear wherever this new path leads you.

Membership-Based Group Health Plans

By sharing the expense of care among their members or by leveraging large participation numbers to bargain for lower costs, several organizations give their members lower insurance premiums. 

Premiums for association-based full coverage policies are reportedly between $8,700 and $10,800, less expensive than those for comparable private insurance. Common member-based health programs include association health plans and health-sharing plans, but there are significant differences between them. 

  • Plans for association health. Members of these groups frequently share similar hobbies, phases of life, or work experiences. A membership fee is required for people to get health benefits. With a bigger membership base, the group may bargain with health insurance providers for more affordable rates. 
  • Health savings accounts. Members typically make a monthly payment and are either members of a faith-based group or share the same values. On a case-by-case basis, this money is used to pay for approved medical expenses for its members and is kept in an account that resembles an escrow.

Your insurance premiums may be less expensive if you participate in these programs, but many treatments could not be covered. Certain types of care may be excluded from coverage by organizations, either to control costs or to uphold the community-recommended standards of life.

It’s crucial to remember that neither association healthcare plans nor health sharing plans are valid health insurance plans; rather, you can enroll in them to minimize your healthcare expenses. Additionally, healthcare professionals are not compelled to take advantage of the organization’s discount offer.

Early Retirement Health Insurance: Private Health Insurance

Of course, you can also get private health insurance. If you require maximal flexibility to see doctors outside of your network or have specific coverage needs and are ready to pay for it, choosing private health insurance may make sense. 

You can use the online finder tool provided by HealthCare.gov to locate affordable private health insurance plans that are offered outside of the public Health Insurance Marketplace. Private plans are not eligible for tax credits.

Early Retirement Health Insurance: Part-Time Job

The idea of finding work after retirement could seem counterproductive. However, working a part-time job can be a terrific way to secure major medical insurance. Additionally, you might be eligible for subsidies from a group health plan offered by your job. 

Remember that part-time employees are not obligated to receive managed care from their employers. Additionally, in some circumstances, part-time worker coverage may be significantly diminished. Before working somewhere, make sure to enquire about the perks offered to part-timers.

Four Possible Ways to Pay for Early Retirees’ Health Insurance

Even after switching to Medicare, one of the top retirement expenses is health care. According to Fidelity Investments, a 65-year-old couple retiring today and enrolled in Medicare will require about $295,000 (after taxes) in current dollars to meet out-of-pocket medical expenses. 

This covers the copays, deductibles, and premiums for Medicare. It excludes any expenditures made for long-term care or nursing homes. With healthcare inflation continuing to outstrip overall inflation and life expectancy increases, many financial experts advise retirees to set aside 15% of their monthly budget for medical costs. 

This recommendation has increased as a result. However, that is only an average. Calculate your medical expenses over the past few years to better understand your future out-of-pocket healthcare expenses in retirement. 

Remember to consider your way of life, where you live (health care prices vary widely from state to state), and any health issues to which you may be susceptible because of family history, as Tourin said he does with many of his retired clients. 

He added that every client needs to have this crucial but challenging conversation because it’s necessary to thoroughly research a client’s family medical history to prepare for the possibility of recurring illnesses.

  • Retirement Health Reimbursement Account
  • Health Savings Accounts
  • Penalty-free early IRA withdrawal

Retirement Health Reimbursement Account

If you’re lucky, your company may also give you access to a Retirement Health Reimbursement Account (RHRA), which is funded entirely by your company and allows you to utilize contributions tax-free to pay for approved medical costs after retirement.

Major medical insurance premiums, such as those paid for COBRA and long-term care coverage, as determined by your employer, may occasionally be added to that list, including pharmacy, medical, dental (best dental insurance), and vision expenses (best vision insurance).

After you turn 65, you could even utilize RHRA funds to pay for Medicare Part A and B premiums. RHRA funds increase as a result of employer payments and investment gains. Many have a service requirement that the company must employ state workers for a predetermined period, say ten years, before they are qualified to use the account.

Early Retirement Health Insurance: Health Savings Accounts

You can start setting aside additional funds now if you intend to retire early but are still earning a living in order to cover copays and deductibles in medical insurance options for early retirees. 

If provided by your company, a Health Savings Account (HSA) linked to high-deductible insurance options for early retirement may be helpful. According to HealthCare.gov, some banks and other financial organizations might also provide HSAs. 

The money you contribute to an HSA may be invested for future tax-deferred growth. Disbursements are tax-free if used for qualified medical costs, such as copays, deductibles, and coinsurance payments. 

HSAs are funded with pretax money. Generally speaking, HSA funds cannot be utilized to cover premium costs. (Related: HSA fundamentals)

Early retirees can contribute to their HSAs each year, leaving the money to grow for retirement while covering any additional medical costs they accrue while still working. (Related: Retirement & HSAs)

Penalty-Free Early Ira Withdrawal

You could also be able to access funds from your traditional IRA or Roth before reaching age 59½ without incurring the 10% early withdrawal penalty if you’re unemployed and require extra money to keep your major medical in effect. 

Additionally, you can be qualified for a hardship distribution from either type of IRA before reaching the age of 59½ to pay for unpaid medical expenses that total more than 10% of your total income. Because traditional IRAs are funded with pretax monies, you would still owe regular income tax on whatever money you took out of them. 

When you withdraw the earnings from a Roth IRA, you would only be subject to regular income tax because the contributions were made using after-tax money. (You should be aware that you can take any amount from a Roth IRA at every time and for any purpose.) 

However, you should be aware that early withdrawals from your retirement account may raise your risk of outliving your resources. You can get assistance from a financial expert in assessing the possible effects of early IRA withdrawals.

Bottom Line

Remember the more the rates tend to be for an insurance plan, the more comprehensive it is likely to be, so weigh how much coverage you actually need against what you can afford. 

Do you normally have good health, or do you have medical issues that need more complicated treatment? There is no ideal solution when it comes to combing through all of the health insurance for early retirees possibilities because there is no ideal strategy or universally applicable solution. 

Each of us is an individual with particular needs and circumstances, particularly in relation to our physical and financial well-being. As you consider your options, it’s crucial to evaluate your healthcare requirements and your financial situation. 

And if you want to discuss how early retirement, including pre-Medicare health care, would affect your overall financial strategy, you can always get in touch with a financial expert.

Early Retirement Health Insurance: FAQ

What Is The Best Age To Retire For Your Health?

Early retirement generally results in living longer and being happy. The ideal time to appreciate everything is when you’re in your mid-50s yet still young and fit.

Can I Retire Early?

Although an employee can make a decision to retire as early as age 62, doing so could result in a decrease of up to 30%. Benefit amounts could increase if benefits are started after the typical retirement age. A person can retire at age 70 and still benefit to the greatest extent possible because of delayed retirement credits.

How Can I Retire At 55 Without Penalty?

If you quit your employment in or after the year you turn 55, you are permitted to withdraw money from your current employer’s 401(k) / 403(b) scheme without paying a 10% tax penalty. (Skilled public safety personnel may begin even earlier, at age 50.) Whether you were fired, laid off, or quit doesn’t matter.

Is It Better to Take Early Retirement or Wait?

Your benefit amount will grow if you keep working until you are fully retired, typically at age 70. For every month you begin receiving benefits before reaching full retirement age, a modest percentage decreases your payments.

How Much Cash Do I Need To Retire Early?

However, it’s even more vital if you wish to retire early. A general rule of thumb suggests multiplying your planned yearly retirement income by 25 to get your savings target. So you would need $1.25 million if you wanted $50,000 every year for 25 years.

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