Retiring Before 65: Health Insurance Options Until Medicare

If you retire at 62, 63, or 64, you face a coverage gap of 12–36 months before Medicare eligibility. That gap is expensive — and how you fill it affects not just your premiums today but your IRMAA surcharges once Medicare starts.

Three options, one strategic angle

The main paths to bridge coverage between early retirement and Medicare are COBRA continuation, the ACA marketplace, and a spouse's employer plan. But the real decision isn't just "which is cheapest right now" — it's how your income choices during this pre-Medicare window affect your IRMAA surcharges once you turn 65.

Medicare's two-year look-back means the income you report in the years before Medicare eligibility directly determines how much you pay for Part B and Part D. Retirees who plan income deliberately during the pre-Medicare window can lock in base-rate premiums ($202.90/mo for Part B in 2026).² Those who don't may pay $1,148–$6,936/year more per person in IRMAA surcharges — permanently, as long as income stays elevated.

Option 1: COBRA continuation

COBRA (Consolidated Omnibus Budget Reconciliation Act) lets you continue your former employer's group health plan after leaving employment. For voluntary retirement — the most common early-retirement scenario — you're eligible for up to 18 months of continuation coverage.³

Cost

You pay the full premium — both the share you previously paid and the employer's share — plus a 2% administrative fee. Employer-sponsored individual coverage commonly runs $7,000–$14,000/year; family coverage $18,000–$25,000/year. As the retiree, you absorb all of that plus the 2% admin fee. That's the sticker shock of COBRA.

When COBRA makes sense

• You have ongoing specialist care or treatments that depend on your current network
• You expect to gain coverage through a spouse's employer plan within 12–18 months
• You're 63–64 and COBRA bridges to Medicare eligibility without a gap
• Your ACA alternative is unsubsidized and costs roughly the same

COBRA mechanics

You have 60 days from your qualifying event (retirement) or from receiving the COBRA election notice to elect coverage. Coverage is retroactive to the qualifying event date — so even if you're healthy and don't elect immediately, you can elect within 60 days if a medical need arises.

When COBRA ends, that termination is a qualifying life event — triggering a 60-day special enrollment period for the ACA marketplace.

Option 2: ACA marketplace plan

ACA marketplace plans guarantee coverage regardless of pre-existing conditions. For 2026, the enhanced premium tax credits that reduced costs for most enrollees from 2021–2025 have expired. The pre-ARPA subsidy structure is currently in effect, meaning a 400% federal poverty level income cliff applies.⁴

The 400% FPL cliff

With the enhanced subsidies expired, premium tax credits phase out at 400% of the federal poverty level — approximately $62,000 for a single filer or $84,000 for a married couple for 2026. Above those thresholds, no subsidy applies.

For our audience with retirement income of $80K–$500K, this cliff is highly relevant. Unsubsidized silver plan premiums for a 62-year-old commonly run $1,200–$1,800/month depending on state and plan tier. A 64-year-old pays more — ACA age-rating allows up to 3× the youngest-adult premium for 64-year-olds. These premiums are unshared: no employer contribution.

Income management below the cliff

ACA MAGI for subsidy purposes includes W-2 wages, 1099 income, taxable Social Security, taxable pension, dividends, capital gains, and traditional IRA/401(k) distributions. It does not include Roth IRA distributions or Roth 401(k) distributions.

An early retiree with substantial assets split between Roth and pre-tax accounts may be able to hold MAGI below the subsidy cliff by drawing from Roth accounts while deferring taxable distributions. That can mean thousands of dollars per year in ACA subsidies during the coverage gap.

Open enrollment and special enrollment

Annual open enrollment runs November 1 – December 15 for January 1 coverage. Losing employer coverage — including COBRA expiration — triggers a 60-day special enrollment period at any point in the year.

Option 3: Spouse's employer plan

If your spouse is still working and their employer offers group health coverage with dependent enrollment, this is typically the most cost-effective option. You're sharing the employer's contribution — group rates, underwritten across the entire workforce rather than just you individually as a 62-year-old.

Losing your own employer coverage is a qualifying life event. Your spouse's employer must allow you to enroll outside their normal open enrollment window, typically within 30–60 days of your qualifying event.

The IRMAA pre-planning opportunity

Most early retirees treat health insurance as an insurance problem. It's also a Medicare premium problem — because the income you report in the two calendar years before Medicare eligibility determines your Part B and Part D surcharges, potentially for many years.

Example: the early-retirement IRMAA clean slate

Lisa retires at 62 in 2024 with $2.5M in assets: $1.2M in a pre-tax 401(k), $800K in Roth IRA, and $500K in taxable brokerage. She turns 65 in 2027.

Her first Medicare premium year (2027) is determined by 2025 MAGI — a transition year where she may still have some taxable income. But for 2028 premiums, the look-back year is 2026 — her second full year of retirement.

In 2026, Lisa takes $60,000 from her Roth IRA (excluded from MAGI), receives $15,000 in qualified dividends, and sells some brokerage positions for $10,000 net gain. MAGI: roughly $25,000. She pays base-rate Medicare premiums — $202.90/mo for Part B in today's terms.

Contrast that with a retiree who takes $150,000 from a traditional 401(k) in 2026 to fund lifestyle without planning. MAGI ~$165,000 single. That's IRMAA Tier 3: Part B surcharge of $324.64/mo — an extra $121,768 over 20 years, traceable to one unplanned year of distributions.

Maximize your HSA before Medicare

If you have an HSA-eligible high-deductible health plan (HDHP) during the coverage gap years, the period before Medicare enrollment is your last window to contribute to an HSA. Once you enroll in Medicare Part A — even retroactively — you cannot make new HSA contributions.

2026 HSA contribution limits:¹

• Self-only HDHP: $4,400 (IRS Rev. Proc. 2025-19)
• Family HDHP: $8,750 (IRS Rev. Proc. 2025-19)
• Catch-up (age 55+): +$1,000

A 62-year-old on an HDHP through age 64 can contribute up to $16,200 in additional catch-up-eligible HSA contributions over those three years (self-only). Those funds remain spendable on Medicare costs after enrollment:

• Medicare Part B, Part D, and Medicare Advantage premiums
• Out-of-pocket medical, dental, and vision expenses
• Medicare deductibles and coinsurance

Note: Medigap premiums are not HSA-eligible expenses.

Medicare enrollment when you retire before 65

If you retire before 65, Medicare enrollment isn't an immediate issue. The action point is your 65th birthday. At that point:

• Your Initial Enrollment Period (IEP) is a 7-month window: 3 months before your birthday month, your birthday month, and 3 months after.⁵
• Enrolling before or during your birthday month: coverage starts the first day of your birthday month.
• Enrolling in months 5–7 of the IEP: coverage is delayed by 1–3 months.

Automatic enrollment at 65

If you started receiving Social Security benefits before age 65, you will be automatically enrolled in Medicare Parts A and B when you turn 65. In that case, you must separately enroll in Part D and choose between Medigap and Medicare Advantage.

If you are not receiving Social Security at 65 — common when delaying SS for a higher benefit — you must proactively enroll in Medicare during your IEP.

What an advisor helps with

The decisions around early retirement health coverage sit at the intersection of insurance, income taxes, and Medicare planning. The questions that benefit most from integrated modeling:

• What income sources and amounts keep you below the ACA subsidy cliff while drawing down assets in the right order?
• Which calendar years should you avoid Roth conversions to stay clear of both the ACA income cliff and the IRMAA look-back window?
• Does an HDHP + HSA make sense vs. a lower-deductible plan given your expected healthcare utilization?
• How does delaying Social Security interact with automatic Medicare enrollment and your HSA contribution window?
• What's the right sequencing of asset drawdown across pre-tax, Roth, and taxable accounts to minimize lifetime Medicare costs?

A fee-only advisor who specializes in Medicare-adjacent planning models these windows explicitly — rather than treating Medicare as the insurance broker's domain and income planning as separate. The decisions made in the 2–3 years before Medicare enrollment often have a larger dollar impact than any Medicare plan choice itself.