How do I get health insurance between early retirement and Medicare?
Last reviewed: July 2026
The gap between an early retirement date and Medicare eligibility at 65 is one of the most expensive planning windows of a working life. Most pre-Medicare retirees cover health insurance before Medicare through an ACA marketplace plan, COBRA continuation from a former employer, a spouse's group plan, or, less often, retiree health benefits. Each option carries different premiums, different rules, and a different effect on your tax picture, which is why this decision belongs inside your broader retirement plan, not next to it.
On This Page
- Key Takeaways
- What Are My Best Options for Health Insurance Before Medicare?
- How Do ACA Subsidies Work for Early Retirees?
- Is COBRA the Right Choice for the Medicare Gap?
- How Should I Plan My Income to Maximize Health Coverage?
- Related Topics Worth Reading
- Frequently Asked Questions
- Disclosures
Key Takeaways
- Four options dominate the pre-Medicare gap: ACA marketplace plans, COBRA continuation up to 18 months, spousal coverage, and retiree health benefits.
- ACA marketplace plans are usually cheapest because premium tax credits scale with income, and most early retirees can shape their MAGI to qualify.
- Bronze and catastrophic Exchange plans now count as HDHPs for HSA contributions in 2026, opening a tax-deferred savings lever many retirees miss.
- Medicare starts at 65 with a 7-month Initial Enrollment Period, and missing it triggers a lifetime Part B late penalty of 10% per uncovered year.
- Coordinating MAGI with health coverage is a planning lever, not a math problem: every Roth conversion, capital gain, or IRA withdrawal can change your subsidy.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate the gap between early retirement and Medicare since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. Jeff often tells clients that the cost of health insurance before Medicare is a tax-planning decision in disguise, because how you draw retirement income directly shapes what you pay for coverage.
What Are My Best Options for Health Insurance Before Medicare?
Four options cover almost every pre-Medicare retiree: an ACA marketplace plan, COBRA continuation from a former employer, coverage under a working spouse's plan, or retiree health benefits offered by a previous employer. A small group also qualifies for VA, TRICARE, or union plans. Each path has trade-offs in cost, network, duration, and tax interaction.
The right choice almost never comes from the premium alone. A cheaper plan that forces you to switch doctors mid-treatment is not actually cheaper. A subsidized ACA plan that requires you to compress Roth conversions can cost you more in lifetime taxes than the premium savings.
Here is how the main options compare for a typical 60-year-old couple retiring before Medicare:
| Option | Typical duration | How premiums work | Who it fits |
|---|---|---|---|
| ACA marketplace | Until age 65 | Income-based premium tax credit scales with MAGI | Most pre-Medicare retirees, especially those who can control MAGI |
| COBRA | Up to 18 months in most cases | 102% of full group rate, no employer share | Short bridge if retiring 12 to 18 months before 65 or mid-treatment |
| Spouse's plan | While spouse is actively employed | Whatever the employer's family rate is | Couples where one spouse keeps working |
| Retiree health benefits | Varies by employer; sometimes ends at 65 | Often a fixed employer contribution plus a retiree premium | Public-sector, large legacy employers, some unions |
| HSA-funded gap (in combination) | Until HSA is depleted | No premiums; pays qualified expenses tax-free | Any retiree who already funded an HSA aggressively |
A common pattern in Maryland looks like this: COBRA for the first six to twelve months, then the ACA marketplace once enrollment opens. That combination keeps the same network during the transition and shifts into subsidized coverage once the planning is set.
How Do ACA Subsidies Work for Early Retirees?
ACA marketplace subsidies are technically premium tax credits, and they work in two ways. You can take them in advance each month to lower your premium, or you can take them as a refundable credit when you file taxes. Most retirees use the advance route. The size of the credit depends on your modified adjusted gross income for the year, your household size, and the cost of the second-lowest-cost silver plan in your area.
This is where pre-Medicare retirees get a planning edge. Working households often have wages, bonuses, and retirement plan deferrals locking their MAGI in place. Once you retire and your income comes from taxable investment accounts, pre-tax IRAs, and other sources you control, MAGI becomes a dial rather than a constraint.
The 2026 tax year carries a meaningful change. According to IRS Fact Sheet FS-2025-10, there is no repayment cap on excess advance premium tax credits for tax years after 2025. The IRS states it plainly: "There is no repayment cap for tax years after 2025… repay the full amount." For a retiree who underestimates income and takes too much advance credit, the entire excess is owed back at tax time. In prior years a cap limited the damage. That cushion is gone.
Roth conversions interact directly with this rule. A conversion adds to MAGI in the year it happens, which can shrink or eliminate your subsidy and trigger repayment. The planning move for retirees on the marketplace is to decide each year whether the lifetime tax savings from a conversion outweighs the one-year subsidy cost, and to file estimated taxes accordingly. Should I Do Roth Conversions Before I Retire?
A second change matters even more for healthy retirees. IRS Notice 2026-5 confirms that for months after December 31, 2025, a bronze or catastrophic Exchange plan is treated as a high-deductible health plan for HSA purposes, even if it does not meet the standard HDHP minimum deductible or maximum out-of-pocket limits. The IRS guidance says the plan is treated as an HDHP "even if the plan does not satisfy the minimum annual deductible requirement or maximum out-of-pocket expenses requirement."
Practically, that means a 62-year-old on a bronze ACA plan can now make a full HSA contribution. For 2026, the IRS HSA limits are $4,400 for self-only coverage and $8,750 for family coverage, plus a $1,000 catch-up at age 55 or older. A married couple where both spouses are 55 or older can move up to $10,750 a year into an HSA, deducted above the line, growing tax-free. That deduction also drops MAGI, which can lift the ACA subsidy. Two levers, one contribution.
Is COBRA the Right Choice for the Medicare Gap?
COBRA lets you keep your former employer's group health plan, usually for up to 18 months after employment ends. You pay the full premium plus a 2% administrative fee, so the cost runs at 102% of what the employer was paying for that coverage. There is no employer share. For a family plan that was costing the employer $24,000 a year, COBRA can mean writing checks of $2,000 a month or more.
COBRA fits in a narrow set of cases. Three are common: retiring less than 18 months before Medicare and not wanting to disturb mid-treatment care, having a spouse or dependent with a serious ongoing condition whose specialists are locked into the current network, or earning enough in the retirement year that ACA subsidies are out of reach anyway. If none of these apply, COBRA usually costs more than a comparable marketplace plan.
One trap deserves attention. COBRA does not count as employer coverage for Medicare's Special Enrollment Period. If you are on COBRA at 65 and you assume it triggers an SEP for delayed Part B enrollment, you can land a permanent late penalty. CMS data confirms the penalty is 10% per full 12-month period without coverage, and the surcharge lasts as long as you have Medicare. The cleanest move is to enroll in Medicare on schedule, even if COBRA technically continues to run.
A short tactical note: COBRA election windows are 60 days from the date of the qualifying event or 60 days from when you receive the COBRA notice, whichever is later. You can wait, watch your medical needs, and only elect COBRA if you actually use it. If you make it the full window with no claims, you can drop into an ACA plan instead. Most retirees do not realize this lever exists.
How Should I Plan My Income to Maximize Health Coverage?
The mistake we see most often is treating the health coverage decision as an annual one. Pick a plan in November, set premiums in January, do not look at it again until the next open enrollment. By then the year's tax picture is mostly fixed, and the levers are gone.
A better approach is to plan health coverage and taxable income together, every year, starting the year you retire. This is the work the R.U.D.D.E.R. Method™, Chesapeake Financial Planners' six-step planning process of Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine, was built for. The Review and Recognize step pulls last year's MAGI, premium credits, and any IRMAA surcharges into one view. Design and Develop sets target income ranges by year. Reassess and Refine puts it on a calendar.
Five income levers shape pre-Medicare planning more than any other. The first is your Roth conversion schedule. Conversions raise MAGI in the year they happen, which can cost you a subsidy now to save on Medicare premiums and required minimum distribution taxes later. The second is capital gains realization. Long-term gains count toward MAGI for ACA subsidies, even though they are taxed at preferential rates. The third is the order you draw from accounts. Pulling from a taxable brokerage account at zero or low gains is usually cheapest in MAGI terms. The fourth is HSA contributions, which lower MAGI dollar for dollar. The fifth is timing of Social Security. Filing for Social Security before 65 raises MAGI because 85% of benefits typically count for ACA purposes.
Healthcare costs in retirement get easier to forecast once these five levers are mapped on a single year-by-year worksheet. The goal is not to minimize MAGI. The goal is to choose MAGI deliberately, knowing what each dollar costs in subsidy and what it buys in lifetime tax savings.
Jeff has watched clients lose meaningful subsidy money in the first year of retirement because nobody told them their year-end mutual fund distributions would land in December and reset MAGI above the subsidy line. The fix is not complicated. Hold low-turnover index funds or municipal bond funds in taxable accounts, move actively traded positions inside the IRA, and check projected income in October each year so there is time to course-correct. What is the right retirement withdrawal order for your accounts?
A short word on Medicare itself. The eligibility age is still 65. The Initial Enrollment Period is 7 months long, starting 3 months before your birth month and ending 3 months after. Sign-up windows and late penalty rules are documented at Medicare.gov. Coordinate the end of pre-Medicare coverage with the start of Part A and Part B, and review the IRMAA two-year lookback so the MAGI you choose at 63 does not surprise you at 65. How do you maximize Social Security and Medicare benefits in retirement?
Related Topics Worth Reading
These related guides on the Chesapeake Financial Planners blog go deeper on the levers that shape the pre-Medicare years.
IRMAA: How Medicare Premiums Rise With Your Income. The two-year lookback rule that turns a 63-year-old's MAGI into a 65-year-old's Medicare premium, with examples. What is IRMAA, and how does income raise my Medicare premium?
Healthcare costs in retirement. A full breakdown of Medicare premiums, supplements, Part D, and what to budget for the post-65 years, including the IRMAA tiers. How Much Will Healthcare Cost Me in Retirement?
Roth Conversion Ladders: Multi-Year Tax Strategies. How a conversion ladder fits inside a 5-to-10-year early retirement plan and where it conflicts with ACA subsidy targeting. How Does a Roth Conversion Ladder Work for Early Retirement?
Retirement Income Drawdown Strategy. The sequence-of-accounts decision that shapes both your effective tax rate and your ACA subsidy in the pre-Medicare years. What is the best order to withdraw from my 401k, Roth IRA, and taxable accounts in retirement?
Frequently Asked Questions
Can I just stay on my employer's health plan after I retire?
Only if your employer offers formal retiree health benefits or you elect COBRA. Most plans end coverage on the last day of the month you retire, and active employee group coverage is not transferable. COBRA can continue the same plan for up to 18 months at 102% of the full premium, with no employer contribution. Retiree health benefits, where they exist, often run only until you become Medicare-eligible at 65.
What is the ACA subsidy cliff, and does it still apply to early retirees?
The original ACA had a hard subsidy cutoff at 400% of the federal poverty level, called the cliff because one extra dollar of income could cost a household thousands. Subsequent legislation softened that cliff in some years. Before counting on the current rules, confirm where the cliff stands for your filing year on HealthCare.gov, because the marketplace rules can change with each annual extender.
Is COBRA cheaper than an ACA marketplace plan?
Usually not, once subsidies are factored in. COBRA charges 102% of the full group premium with no employer contribution, while marketplace plans are subsidized based on income. A retiree with controllable MAGI typically pays less on the marketplace. COBRA is most often the right choice for short gaps, mid-treatment continuity, or income years too high to qualify for any subsidy at all.
Can I contribute to an HSA while I'm on an ACA plan before Medicare?
Yes, if your plan qualifies as a high-deductible health plan. Starting in 2026, IRS Notice 2026-5 treats bronze and catastrophic Exchange plans as HDHPs for HSA purposes, even if they do not meet the standard HDHP cost-sharing limits. The 2026 contribution limits are $4,400 self-only or $8,750 family, plus a $1,000 catch-up at age 55. HSA contributions lower MAGI, which can also raise your ACA subsidy.
What happens to my health insurance when I turn 65?
Medicare becomes your primary coverage at 65, and your Initial Enrollment Period runs for 7 months, beginning 3 months before your birth month and ending 3 months after. Most ACA plans and COBRA coverage should end the month Medicare begins. Missing the Initial Enrollment Period triggers a Part B late enrollment penalty of 10% per full 12-month period without coverage, applied to your premium for life.
How much income should I show to qualify for ACA subsidies?
The right MAGI target is the one that balances three things: a meaningful premium tax credit, room for valuable Roth conversions in years when they help, and IRMAA awareness for your post-65 Medicare premiums. There is no universal number. Many early retirees aim for MAGI between 150% and 300% of the federal poverty level to capture solid subsidies, but the right band depends on portfolio composition, tax bracket, and conversion strategy.
Do I need separate dental and vision coverage during the gap?
Yes, in almost every case. ACA marketplace plans for adults rarely include adult dental or vision benefits beyond limited preventive care, and Medicare itself does not cover routine dental or vision either. Many retirees buy standalone dental and vision plans through the marketplace or a private carrier, or self-insure both with HSA dollars. Budget for two cleanings, an exam, and one pair of glasses or contacts a year, plus a reserve for unplanned dental work.
Health insurance before Medicare deserves its own line item in every retirement plan. If you are within five years of retirement and want a structured way to map coverage, tax planning, and Social Security timing on one calendar, our retirement planning guide walks through the decisions in the order most pre-retirees face them. Download it at chesapeakefp.com.
Want to go deeper? Our Medicare and Social Security Guide walks through this step by step.
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Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
This material is for educational purposes only. Insurance products contain exclusions, limitations, and terms for keeping them in force. Please contact a qualified insurance professional for costs and complete details.
This information is not intended to be a substitute for specific individualized tax, investment or legal advice. We suggest that you discuss your specific situation with a qualified tax, legal or financial advisor.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
