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

Whether you want to retire before 65, or are forced to retire due to health issues, downsizing, or family circumstances, what will you do for health insurance until you qualify for Medicare? Many Americans retire before the age of 65, whether through choice or necessity. And health insurance for these early retirees is typically more expensive than they expected. A couple’s monthly coverage premiums might range between $1,700 and $2,200. However, this is dependent on where they live, their age, and the source of their insurance. In addition to premiums, there are deductibles, copays, and prescriptions, which can add hundreds of dollars to the overall cost.

Health insurance is what keeps many people employed, even if they want to retire and have enough money to. Prior to the Affordable Care Act (ACA), patients with serious pre-existing conditions were frequently excluded from self-purchased coverage depending on their state. Now, self-purchased coverage is available in every state, regardless of medical history. The ACA also provided income-based subsidies, making insurance much more affordable than it would otherwise be.

Meanwhile, the American Rescue Plan (ARP) and the Inflation Reduction Act have enhanced the ACA’s affordability provisions through the end of 2025. It would take another act of Congress to extend that into the future, however. Approximately half of Americans* receive their health insurance through their employer. Almost every American turns 65 and becomes eligible for Medicare. It is common for people to move directly from employer-sponsored health insurance to Medicare. Individuals, whether active employers or retirees, may be able to continue receiving supplemental coverage from their jobs based on their conditions.

If you plan on retiring before 65, there are a few healthcare options you can utilize in the interim. Today, we’ll walk you through each one.

State Health Insurance Marketplace

As a result of the Affordable Care Act, each state now has a health insurance marketplace/exchange where 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 the moment your plan goes into effect. Enrollment is limited to the annual open enrollment period or a special enrollment period triggered by a qualifying event. The termination of your employer-sponsored health plan is a qualifying event, so you will be able to switch to a plan on the marketplace after leaving your job.

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 large percentage of their premiums. The American Rescue Plan and Inflation Reduction Act expanded the scope and availability of these subsidies from 2021 to 2025. Subsidies now account for a higher proportion of total premiums. Furthermore, the income ceiling for subsidy eligibility, which was previously 400% of the poverty line, has been eliminated. Congress could decide to extend these provisions beyond 2025. If they don’t, the income limit for premium tax credits will be reset to 400% of the poverty line.

COBRA or State Continuation

If you are eligible for Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage or state continuation coverage, it may be an option worth considering. This will depend on a number of things, including:

• How long will it take before you are eligible for Medicare?
• How much have you spent on out-of-pocket expenses this year?
• Are you qualified for subsidies in the marketplace or exchange?
• Will you be able to keep your existing medical providers if you change plans?
• Can you afford to pay the entire cost for your coverage while on COBRA?

If you’ve already reached your out-of-pocket maximum for the year, or are in the middle of complex medical treatment, and you don’t want to worry about switching health insurance, COBRA or state continuation could be an extremely beneficial option for you. 

Your Spouse’s Health Plan

If your spouse is already employed and has access to a health insurance plan that provides spousal coverage, you’ll have the option to enroll in that plan whenever your current coverage expires. The end of your coverage will trigger 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 move to your spouse’s employer’s plan once your current one ends. Assuming coverage is available, of course. It’s worth noting, however, that if you qualify to enroll in your spouse’s plan, you may or may not be eligible for a marketplace premium subsidy. The IRS addressed the “family glitch” in 2023.

Medicaid

You may become eligible for Medicaid if your income drops significantly after retirement. In most states, adults under age 65 who earn less than 138% of the poverty line are eligible for Medicaid. Medicaid eligibility can be assessed based on monthly income. In contrast to Marketplace premium subsidies, which are only based on annual income. So, if your monthly income doesn’t 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 go over the options available to you, visit HealthCare.gov. Or, if your state operates its own exchange, you will be redirected there. Browse the available plans by age, zip code, tobacco status, and income to look over your options. If you are currently receiving medical care, be sure to review the relevant provider networks and drug formularies. Even if they are offered by the same carrier, don’t assume they will necessarily be the same as your current plan at work.

If you retire before 65, you will have various alternatives for health insurance available until you become eligible for Medicare. Your specific circumstances will determine which solutions are viable for you. Or, depending on your circumstances, you might discover that it’s best to continue working until you become eligible. That way, you can continue utilizing your employer-sponsored health insurance. If you need to retire earlier, though, rest assured, you’ll have access to reasonable health insurance. 

*Source: The Wall Street Journal