How To Manage Your Health Care Costs If You Retire Early

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Health care costs can be a big issue for people who want to retire before they reach the age of 65. You may end up paying out-of-pocket health care costs before you're old enough for Medicare if you retire early. The cost of health insurance options is already high for most households, but you can take some steps to reduce health care costs before and after you're able to obtain Medicare.

Key Takeaways

  • The Health Insurance Marketplace provides a 60-day open enrollment period you can take advantage of after your employer's coverage ends.
  • You may choose to continue the coverage you had through your employer for 18 months under the Consolidated Omnibus Budget Reconciliation Act (COBRA).
  • You may have to look to the private insurance market if your income is too high for you to qualify for an ACA plan.
  • You'll be eligible for Medicare when you reach age 65.

Your Spouse’s Health Plan

Losing your health insurance is considered to be a qualifying life event that allows you to enroll in a new health insurance plan outside of the Open Enrollment Period.

It might be easy for you to find health care coverage if your spouse is still working and has insurance through their employer. They could add you to their policy during this time. But there's a good chance that your spouse might be thinking about retiring as well, and you'll each need a plan when the time comes.

The Affordable Care Act (ACA)

You can buy an ACA plan on the Health Insurance Marketplace (HIM) or a state HIM if you lose your employer coverage for any reason. These marketplaces are also called "health insurance exchanges." You can apply for a Special Enrollment Period (SEP). The SEP extends to 60 days after your employer's coverage ends. You can also apply for a SEP under the ACA if you expect to lose your coverage within the next 60 days.

You may be able to apply for a subsidy if your family's income drops below a certain level when you retire. The income level to qualify varies by the number of people in your home and the state in which you live.


The website lets you know whether you can apply for lower premiums if you live in a state with its own Marketplace. It then directs you to the state's health insurance website.

The Private Insurance Market

You might also think about the private insurance market if your household income is too high to qualify for a subsidy under an ACA plan and if you're in good health. Policies that are sold in the private market are sometimes called "off-exchange plans." You can purchase them directly from the company or through an agent.

Take Advantage of COBRA 

You may choose to continue the coverage you had from work under the Consolidated Omnibus Budget Reconciliation Act (COBRA) for up to 18 months after you retire. But your premium will rise after that time because you'll have no assistance from an employer, and you'll pay administrative costs. Some of these costs can add up to 2% of the premium charge.

But one benefit of choosing COBRA coverage is that you'll get the same insurance that your former employer is giving its current members. It's also likely to be the same plan that you had while you were working, so you shouldn't have to change health care providers.

COBRA might be your best option if you're going to retire within 18 months of reaching age 65. You'll keep your coverage until you're able to apply for Medicare as long as you keep making your payments.


You must have at least 60 days to elect to continue your health coverage under COBRA. This time period begins when you're given notice of the date when you would lose your current coverage or when you give notice of your retirement, whichever is later.

Work Part-Time

Some employers give benefits for less than full-time work, so you may be able to make some additional money and receive health insurance if you work part-time. Each company is unique, but you might have to work a minimum number of hours and meet vesting requirements.

Part-time workers under the terms of the ACA are those who work an average of less than 30 hours per week.

Before You Retire

You can take some steps before you retire that can help you reduce the costs of health care. They can also help you after you retire or enroll in Medicare.

Establish a Health Savings Account (HSA)

You can save money to pay for future health care by establishing a health savings account (HSA). An HSA is a savings account that you pay into with pre-tax dollars, and you can later withdraw the money tax-free. But the money can only be used for health care purposes.

This type of account gives you tax-free money for care and it can help reduce your taxable income if you're still putting money into it after you retire.

Live Healthy

Living healthy is one of the best ways to reduce your health care costs when you're older. Not smoking and controlling your weight may help you lower your current and future health care costs. Smoking-related illnesses lead to almost $225 billion in health care costs per year, according to the Centers for Disease Control and Prevention.


Taking action in the present to prevent health problems later is always a good choice, and it doesn't cost much to do it.

Budget and Plan for Retirement

Make a budget plan before you retire that lets you fully assess what your income needs will be later. It helps to adjust the amount for inflation to the year you're planning to retire so you don't under-plan your needs. Use a rate of 2% per year for the inflation rate because the Federal Reserve tries to keep the average rate of inflation at this level.

Your budget should include future health care costs with their expected growth rate. For example, the Centers for Medicare and Medicaid Services estimates that health care costs in the U.S. will rise at an average yearly rate of 5.5% from 2018 to 2027, and they'll total almost $6 trillion in 2027.

You may want to consult a financial planner and an accountant if you're unsure how to proceed. These professionals can help you set aside the right amount of money for your health expenses. They can also help you structure your investments in a manner that reduces your tax burden when you need to use them for income.

Frequently Asked Questions (FAQs)

How much income can I earn and still be eligible for reduced premiums under the Affordable Care Act?

Visit the website. It will ask you to select factors that apply to you and tell you the maximum amount of income you can earn and be able to apply for reduced premiums under the terms of the ACA.

What are some of the costs I'll have to pay for in addition to insurance premiums?

Most plans provide that you'll have to pay a deductible before your insurance kicks in, a portion of your health care costs. You might also have to make copayments or pay coinsurance even after you reach your deductible. But many policies have an out-of-pocket maximum. Your insurer will pay 100% of your costs for the year after you've spent this amount.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. "Qualifying Life Event (QLE)."

  2. "Enroll in or Change 2021 Plans—Only With a Special Enrollment Period."

  3. "If You Lose Job-Based Health Insurance."

  4. "Subsidized Coverage."

  5. "ACA Open Enrollment 2023 Guide."

  6. U.S. Department of Labor. "FAQs on COBRA Continuation Health Coverage for Workers," Pages 5-6, 8.

  7. U.S. Department of Labor. "FAQs on COBRA Continuation Health Coverage for Workers," Page 4.

  8. "Full-Time Employee."

  9. "Health Savings Account (HSA)."

  10.  Centers for Disease Control and Prevention. "Health Topics – Tobacco."

  11. Board of Governors of the Federal Reserve System. "Why Does the Federal Reserve Aim for Inflation of 2 Percent Over the Longer Run?"

  12. Centers for Medicare & Medicaid Services. "National Health Expenditure Projections 2018-2027," Page 1.

  13. "Out-of-Pocket Maximum/Limit."

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