Jeffrey Wade
Health insurance is a crucial consideration for retirees, especially those who retire before the age of 65 when Medicare eligibility begins. The loss of employer-provided health insurance can result in significant financial implications, with healthcare costs in the US being notoriously high. Fortunately, there are various options available for retirees to ensure continued access to healthcare services. These options include purchasing private insurance, enrolling in Medicare, exploring health share plans, and taking advantage of federal programs or state-specific initiatives like Medicaid. Planning for healthcare costs in retirement is essential, and understanding the interplay between Medicare and retiree coverage is vital to making informed decisions.
| Characteristics | Values |
|---|---|
| Health insurance options for early retirees | Health share plans, Medicaid, private health insurance, Medicare, employer-sponsored plans, Affordable Care Act (ACA) health insurance exchange, Consolidated Omnibus Budget Reconciliation Act (COBRA) |
| Medicare | Medicare Part A (Hospital Insurance) and Part B (Medical Insurance) |
| Medicare and retiree coverage | Medicare pays first for healthcare bills, then submits the remaining amount to the retiree plan |
| Medicare and private insurance | If you have private insurance, you can use it alongside Medicare |
| Medicare and COBRA | COBRA coverage typically ends when you get Medicare |
| Losing job-based coverage | You can use the Health Insurance Marketplace to buy a plan |
| Losing health coverage | You qualify for a Special Enrollment Period |
| Retiree coverage and Marketplace plan | You can buy a Marketplace plan instead of using retiree coverage, but you won't get premium tax credits and other savings based on your income |
| Premium tax credits | You may qualify for premium tax credits based on your household size and income |
| Federal retiree health insurance | Federal Employees Health Benefits Program (FEHB), TRICARE, Civilian Health and Medical Program for Uniformed Services (CHAMPUS) |
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What You'll Learn
Private health insurance plans
Employer-Provided Retiree Coverage
Some employers offer health coverage for retirees, so it's important to check with your former company. This is known as retiree coverage and can provide valuable benefits, such as extended hospital stays. However, it may have limitations on coverage amounts. Additionally, if you have both retiree coverage and Medicare, Medicare typically pays first, and your retiree plan covers any remaining costs. Understanding how these two coverage options interact is crucial.
Medicare and the Marketplace
If you retire before the age of 65 and lose your job-based health plan, you can use the Health Insurance Marketplace to purchase a plan. Losing health coverage qualifies you for a Special Enrollment Period, allowing you to enroll outside the usual annual period. The Marketplace may offer private plans with premium tax credits and lower out-of-pocket costs, depending on your income and household size. You can explore your options and eligibility on healthcare.gov.
Private Insurers
You can also purchase private health insurance directly from insurance companies or through intermediaries like insurance brokers. The Affordable Care Act (ACA) allows you to buy private insurance from federal or state exchanges if you lose coverage under your employer's plan. However, if you purchase private insurance outside of the exchange, you won't be able to claim a tax credit. The cost of private insurance varies by state, coverage, and age, with monthly premiums ranging from $381 to $507 per person, according to the Kaiser Family Foundation.
Federal Programs
If you're a federal employee, retiree, or a family member of one, you may be eligible for various federal insurance programs. The Federal Employees Health Benefits (FEHB) Program is the largest employer-sponsored group health insurance program globally, covering over 9 million people. Additionally, the Federal Employees' Group Life Insurance (FEGLI) Program is the largest group life insurance program worldwide, covering over 4 million people. The Federal Employees Dental and Vision Insurance Program (FEDVIP) is another option available on an enrollee-pay-all basis.
Medicaid
Depending on your income, you may qualify for free or low-cost coverage through the Medicaid program in your state. This option is worth exploring if you meet the financial criteria.
It's important to carefully consider your specific situation, eligibility, and preferences when choosing a private health insurance plan for medical retirement. Each option has its advantages and considerations, so be sure to research thoroughly and seek professional advice if needed.
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Medicare and retiree coverage
If you retire before turning 65 and lose your job-based health plan, you can use the Health Insurance Marketplace to buy a plan. Losing health coverage qualifies you for a Special Enrollment Period, which means you can enrol in a health plan outside the annual Open Enrollment Period.
Retiree health coverage is health insurance that some employers, unions, and trusts may offer to retiring employees and their spouses. Typically, it is group health insurance similar to plans offered to active employees. Eligibility, enrollment, coverage, and other rules are specific to each employer's retiree plan. Even if you have a retiree health plan, you most likely need to sign up for Medicare. Depending on the plan, you may need to sign up for Part A and Part B, or just Part A (provided you are eligible for Part B).
Retiree insurance is almost always secondary to Medicare, meaning it pays after Medicare and may provide coverage for Medicare cost-sharing, like deductibles, copayments, and coinsurance. When you become eligible for Medicare, you may need to enrol in both Medicare Part A (Hospital Insurance) and Part B (Medical Insurance) to get full benefits from your retiree coverage. You have a limited time to sign up for Medicare without paying a penalty.
If you have both Medicare and retiree coverage from a former employer, Medicare pays first for your healthcare bills. Medicare will submit any amount it doesn't cover to your retiree plan. If you have limited income and resources, you may qualify for Extra Help, even if you have creditable retiree drug coverage. If you qualify for Extra Help, your drug costs through Medicare may be lower than what you pay with your retiree coverage.
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Health share plans
If you're medically retiring, there are a few health insurance options available to you, depending on your circumstances. Here is an overview of health share plans and other options:
- Membership Requirements: Health share plans often have membership requirements based on religious or ethical values. Members usually agree to a statement of beliefs and may be required to attend religious services or engage in certain lifestyle practices.
- Cost-Sharing Provisions: In a health share plan, members contribute a set amount of money each month into a shared fund. When a member incurs medical expenses, they submit a request for payment from the fund. The costs are then shared among the members, with each individual contributing towards the other's medical needs.
- Variety of Plans: Different health share plans offer various coverage options. Some plans may cover only catastrophic events, while others might include a wider range of medical services. It's important to carefully review the specifics of each plan to understand what is and isn't covered.
- Pre-Existing Conditions: Health share plans may have different approaches to pre-existing conditions. Some plans may exclude coverage for pre-existing conditions, while others might offer limited coverage after a waiting period. Be sure to review the plan's guidelines regarding pre-existing conditions before joining.
- Affordability: Health share plans often position themselves as a more affordable alternative to traditional insurance. The monthly contribution amounts can vary, and some plans offer flexibility in choosing a contribution level that suits your budget. However, it's important to note that health share plans typically have less comprehensive coverage than traditional insurance.
- Network of Providers: Health share plans may have a preferred network of medical providers who offer discounts to members. It is worth considering whether your preferred healthcare providers are included in the plan's network.
Other Options:
In addition to health share plans, there are other health insurance options to consider when retiring:
- Medicare: If you are 65 or older, you may be eligible for Medicare. This federal health insurance program offers coverage for hospital stays (Part A) and medical services (Part B). You can also choose to add a Medicare drug plan (Part D) for prescription medication coverage.
- Retiree Coverage: Your employer may offer retiree health coverage. It's important to understand how this interacts with Medicare. In some cases, your retiree coverage might include extra benefits, while in other cases, there may be limits on what it will pay.
- Federal Programs: If you are a federal employee or retiree, you may be eligible for the Federal Employees Health Benefits Program (FEHB) or TRICARE. These programs provide comprehensive health insurance coverage.
- Marketplace Plans: If you lose your job-based health coverage, you can use the Health Insurance Marketplace to purchase a plan outside of the annual Open Enrollment Period. You may qualify for premium tax credits and lower out-of-pocket costs based on your income and household size.
- Medicaid: Depending on your state, you may qualify for free or low-cost coverage through the Medicaid program.
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Medicaid
Eligibility for Medicaid is based on income and varies by state. The Affordable Care Act of 2010 established a new methodology for determining income eligibility, known as Modified Adjusted Gross Income (MAGI). MAGI considers taxable income and tax filing relationships to determine financial eligibility. Most states have chosen to expand coverage to adults under 65 with income at or below 133% of the federal poverty level, and those that have not yet expanded may choose to do so at any time.
If you are retired and need health coverage, you can use the Health Insurance Marketplace to purchase a plan. Losing job-based health coverage qualifies you for a Special Enrollment Period, which allows you to enroll in a health plan outside of the annual open enrollment period. During this period, you can also find out if you qualify for free or low-cost coverage through the Medicaid program in your state.
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Employer-sponsored plans
If you're retiring early, one of the biggest new expenses you'll encounter is health insurance. If you've been relying on your employer's group health insurance, your coverage will likely end, although 24% of large firms extend healthcare coverage to retirees, so check with your employer's benefits administrator to see if your employer is one of them. If not, you will be responsible for the full cost of your premiums until you become eligible for Medicare at age 65.
If you're eligible for but not enrolled in retiree coverage, you may qualify for premium tax credits and lower out-of-pocket costs based on your household size and income. You can use the Health Insurance Marketplace to buy an insurance plan. Losing health coverage qualifies you for a Special Enrollment Period, meaning you can enroll in a health plan even if it's outside the annual Open Enrollment Period.
If you're planning on retiring early, your financial advisor can help you estimate your healthcare costs in retirement. By weighing the best coverage options available to you until Medicare kicks in, you can bridge the gap of coverage for you and your family if you were previously all covered on your employer's plan.
You might also consider enrolling in a new employer-sponsored plan by taking on a part-time job that offers healthcare benefits. It's worth noting that as of 2025, you can earn up to $23,400 in retirement and still collect your Social Security benefits. After that, your benefits will be reduced based on the amount you make over the $23,400 limit. Once your last date of employment has been determined, ask your employer's HR department if you're entitled to continue your existing coverage for yourself and your family under COBRA (the Consolidated Omnibus Budget Reconciliation Act). You'll likely pay higher premiums under COBRA than you did when employed—participants generally have to pay the full cost of the insurance plus up to a 2% administrative fee—but it may be worth considering as a temporary measure. COBRA coverage typically lasts for up to 18 months after you leave your job, but there are some exceptions related to Medicare, disabilities, and other factors.
Private health insurance plans are also sold directly to consumers by insurance companies or through a broker. These plans are also known as commercial policies. The benefit of getting a commercial policy is that you can purchase any plan that fits your budget and medical needs. The downside is that these plans can be expensive. You won't have access to any premium tax credits (subsidies) available through the ACA. You'll also have to pay the full cost of your premiums. These plans only provide temporary medical coverage, which can last less than 3 months or as long as 3 years, depending on your state. Although short-term insurance plans may be less expensive than ACA plans, they also typically offer fewer major medical benefits. These plans may be an option if you have a short gap between your retirement and the time you are eligible for Medicare.
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Frequently asked questions
Medical retirement refers to retiring before the age of 65 due to health reasons.
If you retire before the age of 65, you can use the Health Insurance Marketplace to buy a plan. Losing health coverage qualifies you for a Special Enrollment Period, meaning you can enroll outside the annual November 1 to January 15 period. You may also be eligible for Medicaid, depending on your state. Alternatively, you can purchase a private health insurance plan directly from an insurance company or through a broker, but these plans can be expensive and have fewer benefits.
If you have retiree health coverage, you can keep it as a supplemental policy when you sign up for Medicare. Medicare will pay for your healthcare bills first, and submit any remaining amounts to your retiree plan.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows you to continue your existing health coverage for up to 18 months after leaving your job, but you will likely have to pay higher premiums. If you turn 65 while on COBRA, you can sign up for Medicare Parts A and B, and your COBRA coverage will typically end.
When you become eligible for Medicare, you may need to enroll in both Part A (Hospital Insurance) and Part B (Medical Insurance) to get full benefits from your retiree coverage.
