Health Insurance After Early Retirement: Options for the Gap Before Medicare

For people who leave the workforce before age 65, one of the more immediate practical questions is what to do about health insurance. Medicare eligibility begins at 65 for most people, which means anyone who retires earlier faces a coverage gap. Depending on when someone retires, that gap could be a matter of months or close to a decade.

There is no universal answer. The right approach depends on a household's specific circumstances: the length of the gap, whether a spouse is still working, what a former employer offers, how retirement income is structured, and how much flexibility in plan design matters. Some people use a single option for the entire gap; others sequence two or three approaches as circumstances change. Short-term health plans are another category some people consider, though federal rules governing their duration are in active flux as of this writing; anyone evaluating them should verify current state and federal regulations before making a decision.

COBRA Continuation Coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows most people leaving employer-sponsored group health coverage to continue that same coverage for up to 18 months after separation. For someone retiring at 63 or 64, this can serve as a straightforward bridge to Medicare eligibility.

A few things worth understanding:

• Coverage is identical to what was in place through the employer plan, which can be an advantage for people who are mid-treatment or have established provider and specialist relationships they want to preserve
• The cost increases significantly because the employer's contribution goes away; the former employee becomes responsible for the full premium plus an administrative fee, which is typically capped at 2% of the premium
• The 18-month window is fixed, so timing matters considerably; someone retiring at 62 would exhaust COBRA well before Medicare eligibility at 65

For someone with a gap of 18 months or less, COBRA is one of the more straightforward options to assess. Whether it represents the right approach depends on cost, health status, and what other options are available.

Retiree Health Benefits from a Former Employer

Some employers, particularly large corporations, public sector organizations, and certain union-affiliated employers, offer continued health benefits to retirees. These benefits are separate from COBRA and are not subject to the 18-month limitation.

Retiree health benefits have become less common over time, but they remain available in certain industries and career paths. People who spent careers in government, education, or large unionized industries may have access to this option.

If retiree health coverage is available, it is generally worth comparing carefully against individual market alternatives. Employer contributions, when present, can make retiree coverage meaningfully more affordable than purchasing a plan independently.

ACA Marketplace Coverage for Early Retirees: Subsidies, MAGI, and Income Strategy

The Affordable Care Act (ACA) Marketplace offers individual health insurance plans to people outside of employer-sponsored coverage. For early retirees, particularly those without access to COBRA, a working spouse's plan, or retiree benefits, it is one of the most commonly used options. For households with income within a specific range, it also offers access to premium subsidies. The rules governing subsidy eligibility changed significantly at the start of 2026.

Losing employer-sponsored coverage at retirement qualifies as a Special Enrollment Period (SEP) triggering event. This typically opens a 60-day window to enroll in a Marketplace plan outside of the standard Open Enrollment period. This is relevant for people who retire mid-year or who need coverage outside the November–January enrollment window.

How subsidies work

ACA Marketplace premium subsidies are calculated based on Modified Adjusted Gross Income (MAGI). MAGI for ACA purposes is calculated as adjusted gross income from your federal tax return, plus any tax-exempt interest income and the non-taxable portion of Social Security benefits. It reflects income as it flows through the tax return, not total wealth or account balances. This distinction matters significantly for people who have accumulated substantial wealth over their careers but retire with relatively modest reportable income in a given year.

A household with $2 million in assets and minimal reportable income may qualify for premium subsidies, provided their MAGI falls below the income ceiling discussed below. A household with $400,000 in annual W-2 earnings will not, even if they have far less total wealth. The ACA does not see a brokerage account balance, a home's equity, or a cash reserve. It sees only the income that flows onto a tax return in a given year.

One important change took effect for 2026: the enhanced premium tax credits that were in place from 2021 through 2025 expired on December 31, 2025. During those years, subsidy eligibility extended to households at any income level. Under the original ACA rules now back in effect for 2026, subsidies are available only to households with MAGI between 100% and 400% of the federal poverty level (approximately $15,650 to $62,600 for a single person). This is a hard cutoff, not a phase-out: a household earning $62,600 qualifies for the minimum subsidy, while a household earning $62,601 receives no federal premium assistance at all. Households with MAGI above that ceiling receive no federal premium subsidy regardless of how income is structured. The sequencing strategies discussed below apply to households that expect to fall within the eligible range.

The cost environment for 2026 Marketplace coverage changed substantially when the enhanced credits expired. According to KFF, average net monthly premiums among Marketplace consumers rose 58%, climbing from $113 to $178 per month compared to 2025. For subsidized enrollees who kept the same plan, premium payments increased by an estimated 114% on average. At the same time, the average deductible on Marketplace plans rose by more than $1,000, partly because many enrollees shifted from silver to lower-premium bronze plans to manage monthly costs. These figures vary by income, household size, location, and plan type, but they illustrate the materially different cost baseline early retirees face when shopping for Marketplace coverage in 2026.

What the ACA counts and does not count as income

Not all financial activity generates MAGI, and this is where income sequencing becomes particularly relevant for early retirees using the Marketplace.

Approaches to managing MAGI

The strategies below apply to households whose projected retirement income falls within the 100% to 400% FPL range for their household size (approximately $15,650 to $62,600 for a single person in 2026), or can be sequenced to stay within it. For households with income that consistently exceeds that ceiling regardless of withdrawal sequencing, ACA premium subsidies are not available, and coverage cost planning must account for the full unsubsidized premium.

For early retirees using the ACA Marketplace, income sequencing strategies (choosing which accounts to draw from and when) can affect both subsidy eligibility and the net cost of coverage.

A note on over-minimizing MAGI

Managing MAGI for subsidy purposes does not necessarily mean minimizing it as aggressively as possible. Deferring all Traditional IRA withdrawals during the pre-Medicare years may result in a significantly larger Required Minimum Distribution (RMD). RMDs are mandatory annual withdrawals taxed as ordinary income. Under the SECURE 2.0 Act, RMDs begin at age 73 for those born between 1951 and 1959, and at age 75 for those born in 1960 or later. 

A large RMD can push income into higher tax brackets late in retirement. Taking measured withdrawals from Traditional accounts during lower-income years may reduce that future burden, even if doing so reduces ACA subsidy eligibility slightly in those years. Identifying the right balance typically involves running multiple income scenarios rather than following a single rule. For instance, taking $20,000 in Traditional IRA withdrawals annually during the pre-Medicare years may modestly reduce ACA subsidies while meaningfully lowering the projected RMD balance at 73 or 75. A financial planner can model how different withdrawal sequences compare over a 5- to 10-year pre-Medicare window.

Key Factors in Choosing a Pre-Medicare Coverage Strategy

The options above are not mutually exclusive, and the right combination often changes over the course of a multi-year gap. Someone who retires at 62 might use COBRA for 18 months, then transition to the ACA Marketplace for the remaining years before Medicare. Someone whose spouse works until 64 may have a much shorter and simpler gap to plan for.

Each of these factors shapes not just which options are available, but how they compare in cost and coverage depth.