Planning to Retire Before Age 65? Here’s What You Need to Know

Regardless of whether you decide to retire before age 65 or are compelled to do so by medical conditions or other family situations, you need to ask yourself the same question: How are you going to handle health insurance? Whether by need or choice, a large number of Americans retire earlier than the traditional retirement age, and their health insurance typically costs more than they had anticipated. The monthly premiums for coverage for a pair can range from $1,700 to $2,200. But this depends on a number of factors, including their age, residence, and the kind of insurance they require. Medication costs can go into the hundreds, in addition to premiums, deductibles, and copays.

Covering Life Insurance

Health insurance keeps many people employed, even if they want to retire earlier and have enough money to. Prior to the Affordable Care Act, people with major pre-existing health conditions were frequently denied self-purchased coverage. Now, however, self-purchased coverage is available in all states, regardless of your medical history. The Affordable Care Act also provides income-based subsidies, making insurance significantly more affordable than it would otherwise be.

Meanwhile, the Affordable Care Act was enhanced by the American Rescue Plan (ARP) and the Inflation Reduction Act, through to the end of 2025. But to carry that over into the future would require another act of Congress. The majority of Americans* obtain their health insurance via their job. A direct transfer from employer-sponsored health insurance to Medicare is a frequent occurrence. Depending on their circumstances, many people—whether retired or still working—may be able to keep getting supplemental coverage from their employers until they qualify for Medicare. There are a few healthcare options to think about in the interim, though, if you need or want to retire before age 65. Today, we’ll discuss each one.

State Health Insurance Marketplace

There’s now a health insurance marketplace/exchange where you can purchase health coverage in each state, thanks to the Affordable Care Act. Any pre-existing conditions will be covered once your plan is in effect, and you can enroll in these policies regardless of your medical history. Only the annual open enrollment period and special enrollment periods started by qualifying events are open to new enrollees. If your employer-sponsored health plan is terminated, you can move to a marketplace plan after you leave your job.

Premium Subsidies

The Affordable Care Act provides income-based premium tax credits (premium subsidies) through your state’s marketplace or exchange. The majority of consumers who purchase health insurance through the marketplace receive these subsidies. They cover a significant portion of the premiums. The American Rescue Plan and Inflation Reduction Act extended the scope and availability of these subsidies through 2025. Subsidies now account for a larger share of total premiums. Furthermore, the income limit for subsidy eligibility, which was previously set at 400% of the poverty line, has been temporarily abolished. Congress could choose to prolong these provisions beyond 2025. If they don’t, the income eligibility for premium tax credits will be reset to 400% of the poverty line.

COBRA or State Continuation

Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage may be worth considering, assuming you’re eligible for it. This will depend on several factors, including:

• How long it will take before you become eligible for Medicare
• How you have 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?
• If you can 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 if you’re in the middle of complicated medical treatment and don’t want to worry about switching health insurance, COBRA or state continuation could be a beneficial option.

Your Spouse’s Health Plan

If your spouse is currently employed and has access to a health insurance plan that includes spousal coverage, you can switch to that plan whenever your current coverage expires. The termination of your coverage will result in a unique registration period for your spouse’s plan. Even if you and your spouse were both covered by your plan, you can switch to your spouse’s plan once your current one expires. This is assuming, of course, that coverage is available. It is important to note, however, that if you are eligible to enroll in your spouse’s plan, you may be ineligible for a marketplace premium subsidy. The IRS addressed the “family glitch” in 2023.

Medicaid

If your income drops drastically following your retirement, you may qualify for Medicaid. Most states enable those under the age of 65 who earn less than 138% of the federal poverty line to receive Medicaid. Medicaid eligibility is determined by your monthly income. In contrast, marketplace premium subsidies are dependent on annual income. So, regardless of how much you earned earlier this year, if your monthly income is less than one-twelfth of the yearly Medicaid income limit, you may be eligible for coverage.

Where to Learn More

If you’re thinking about retiring early (or need to) and want to review your alternatives, visit HealthCare.gov. If your state has its own exchange, you will be redirected there. You can compare your options and browse the various plans by age, zip code, tobacco status, and income. If you are presently receiving medical care, make sure to review the applicable provider networks and drug formularies. Even if they’re offered by the same carrier, don’t expect they’ll necessarily be the same as your current plan.

If you retire before age 65, you will have several options for health insurance until you become eligible for Medicare. Your individual circumstances will determine which solutions are best for you. Alternatively, depending on your circumstances, you may find that it is best to simply continue working until you are eligible. That way, you can continue to use your employer-sponsored health insurance. If you need to retire earlier, one of these options will likely provide you with affordable health insurance.

*Source: The Wall Street Journal