Bridging to Medicare Before Age 65
Retiring before age 65 creates a health insurance gap. Medicare eligibility begins at 65, but many people retire at 62, 60, or even earlier. During this gap, you need alternative coverage. Understanding your options helps you budget accurately and avoid coverage lapses.
Why the Gap Matters
Health insurance costs can consume a significant portion of your retirement budget. Without employer-subsidized coverage, individual market premiums range from $500 to $2,000+ per month depending on your age, location, and plan type. Medical costs without insurance can be catastrophic. A single hospital stay can cost $10,000 to $100,000 or more.
The coverage gap also affects your retirement timing decision. Many people delay retirement specifically because of health insurance concerns. Understanding the true costs of bridging options allows you to make an informed decision about when to retire.
Option 1: COBRA Continuation Coverage
COBRA allows you to continue your employer's group health plan after leaving your job. This option provides the same coverage you had while employed.
Key COBRA Details:
| Feature | Details |
|---|---|
| Duration | 18 months standard; 36 months for dependents in some cases |
| Premium | 102% of the full premium (your share + employer's share + 2% admin fee) |
| Enrollment window | 60 days from coverage loss to elect COBRA |
| Coverage | Identical to your employer plan |
| Pre-existing conditions | Fully covered, no exclusions |
Advantages: No application process, no medical underwriting, same doctors and networks, no coverage gaps.
Disadvantages: Expensive because you pay the full premium previously subsidized by your employer. Premiums often run $1,500 to $2,500 per month for individuals and $3,000 to $5,000 for family coverage.
When COBRA makes sense: If you have ongoing medical treatments, expensive prescriptions, or prefer your current doctors. Also useful if you only need 6-12 months of coverage before Medicare.
Option 2: ACA Marketplace Plans
The Affordable Care Act marketplace offers individual health insurance with potential subsidies based on your income. This is often the most cost-effective option for early retirees.
Key Marketplace Details:
| Feature | Details |
|---|---|
| Premium subsidies | Available for incomes 100%-400% of Federal Poverty Level |
| Enhanced subsidies | Extended through 2025, no income cap for subsidy eligibility |
| Special enrollment | Losing employer coverage qualifies you to enroll outside open enrollment |
| Pre-existing conditions | Must be covered, no exclusions |
| Plan tiers | Bronze, Silver, Gold, Platinum with varying premiums and cost-sharing |
2024 Federal Poverty Level Reference (for subsidy calculation):
| Household Size | 100% FPL | 150% FPL | 250% FPL | 400% FPL |
|---|---|---|---|---|
| 1 person | $14,580 | $21,870 | $36,450 | $58,320 |
| 2 people | $19,720 | $29,580 | $49,300 | $78,880 |
Premium subsidy mechanics: Subsidies limit your premium to a percentage of your income. At 150% FPL, you pay about 0% of income. At 400% FPL, you pay about 8.5% of income. The government pays the rest directly to the insurer.
Strategic income management: Early retirees can often control their Modified Adjusted Gross Income (MAGI) by limiting retirement account withdrawals and using taxable savings. Lower reported income means larger subsidies.
Option 3: Spousal Coverage
If your spouse continues working with employer-sponsored health insurance, getting added to their plan is often the simplest solution.
Considerations:
| Factor | Details |
|---|---|
| Qualifying event | Losing your employer coverage allows you to join spouse's plan mid-year |
| Premium impact | Adding a spouse typically costs $300-$800 more per month |
| Coverage quality | Depends on spouse's employer plan |
| Duration | Available as long as spouse remains employed |
This option works well when one spouse is younger and plans to work until 65 or beyond. The working spouse maintains coverage for both people.
Option 4: Short-Term Medical Insurance
Short-term medical plans provide temporary coverage with lower premiums but significant limitations.
Key Short-Term Details:
| Feature | Details |
|---|---|
| Duration | 30 days to 12 months, renewable up to 36 months in some states |
| Premiums | Typically 50-80% less than ACA plans |
| Pre-existing conditions | Excluded from coverage |
| Essential health benefits | Not required to cover (maternity, mental health, prescriptions may be excluded) |
| Medical underwriting | Required; can be denied for health reasons |
When short-term coverage might work: Healthy individuals who need temporary coverage, have no pre-existing conditions, and want lower premiums while accepting higher risk.
Warning: These plans offer limited protection. A new diagnosis during coverage may not be covered. Many states restrict or prohibit short-term plans due to consumer protection concerns.
Worked Example: 62-Year-Old Retiree Comparing Options
Sarah's situation:
- Age: 62, retiring in January
- Health: Generally healthy, takes one maintenance medication ($50/month retail)
- Current employer coverage: $400/month (her share)
- COBRA premium quote: $1,800/month (full premium)
- Expected retirement income: $55,000/year from taxable investments
- Household: Single
Option analysis for Sarah:
| Option | Monthly Cost | Annual Cost | Notes |
|---|---|---|---|
| COBRA | $1,800 | $21,600 | Same doctors, full coverage |
| ACA Silver plan (no subsidy) | $1,100 | $13,200 | $55K income, minimal subsidy |
| ACA Silver plan (managed income) | $350 | $4,200 | If income reduced to $30K |
| Spousal coverage | N/A | N/A | Not applicable |
| Short-term | $400 | $4,800 | Limited coverage, no prescription benefit |
Sarah's decision process:
If Sarah can reduce her reported income to $30,000 by drawing from taxable savings (which aren't counted as income), she qualifies for substantial ACA subsidies. At $30,000 income (about 205% FPL for a single person), her premium would be approximately $350/month for a Silver plan.
Three-year cost comparison (age 62-65):
| Option | Total 3-Year Cost |
|---|---|
| COBRA (18 months) then ACA | $32,400 + $19,800 = $52,200 |
| ACA with managed income | $12,600 |
| ACA without income management | $39,600 |
By strategically managing her income, Sarah could save nearly $40,000 over three years compared to COBRA.
Coordinating the Transition to Medicare
As you approach 65, plan your transition carefully:
Initial Enrollment Period: Begins 3 months before your 65th birthday month and ends 3 months after. Enroll in Medicare Parts A and B during this window to avoid late enrollment penalties.
Timing your bridge coverage: If your birthday is mid-month, Medicare begins on the first of your birthday month. Coordinate your bridge coverage end date to avoid gaps or overlap.
Employer coverage considerations: If you or your spouse has employer coverage through a company with 20+ employees, you can delay Medicare Part B without penalty. Get this decision in writing from the employer's benefits department.
Pre-65 Coverage Checklist
- Document your current health insurance costs (premiums, deductibles, out-of-pocket maximums)
- Request a COBRA premium quote from your employer before retiring
- Calculate your expected Modified Adjusted Gross Income for subsidy eligibility
- Visit healthcare.gov to estimate ACA marketplace premiums and subsidies
- Identify whether you qualify for a Special Enrollment Period
- Check if spousal coverage is available and at what cost
- Review your prescription drug needs and verify coverage under each option
- Confirm your doctors are in-network for any plan you're considering
- Set a calendar reminder to enroll in Medicare 3 months before turning 65
- Create a coverage timeline from retirement date to Medicare eligibility