Early Retirement and Health Insurance: What You Need To Consider

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Early retirement is a dream for many individuals. Some people want more years to travel, spend time with kids and grandkids or write The Great American Novel. However, one significant hurdle early retirees often face is securing affordable health insurance. Medicare isn't available until three months before reaching the age of 65, and health insurance only gets more expensive as people age.

Let’s explore the challenges of buying health insurance privately with insights on how to save money while ensuring that you have comprehensive health insurance coverage during your early retirement years.

Key Takeaways

  • Retiring before the age of 65 means you won't yet qualify for Medicare so you must figure out where to get health insurance coverage.
  • Health insurance premiums are often income-based, so you may qualify for subsidies that reduce costs.
  • Effective financial planning can help you carve out money for health insurance premiums.
  • Having little or no health insurance between early retirement and Medicare may have disastrous consequences.

The Challenge of Early Retirement Health Insurance

Retiring before the age of 65 means you won't yet qualify for Medicare, the government-sponsored health insurance program. This gap in coverage can be daunting because private health insurance that is not subsidized by an employer is expensive if you don’t qualify for government subsidies guaranteed through the Affordable Care Act (ACA).

Private health insurance premiums can be a significant financial burden on a fixed income. If you’re creating a budget for your retirement years, add on the cost of a health insurance premium each month.

Losing health coverage after you retire qualifies you for a Special Enrollment Period, which means that you can enroll in a health plan even if it’s outside the annual Open Enrollment Period, which takes place in November.

Here are some tips on where to buy a health insurance plan during the interim years in early retirement, before Medicare kicks in.

Where To Buy Health Insurance During Early Retirement

There are several ways to secure health insurance, and there are ways you can save on it too. Here are some options:

Disability Insurance

You may qualify for Medicare earlier than age 65, if you’re eligible for Social Security Disability Income (SSDI). You will automatically get enrolled into Medicare if you apply and are determined to be disabled as per eligibility requirements.

COBRA Insurance

If you retire before age 65, you may be eligible for COBRA continuation coverage, which allows you to keep your employer-provided health insurance for up to 18 months. While COBRA is expensive, it can bridge the gap until you qualify for Medicare, depending on how early you plan to retire. If you are retiring at, say, age 62, Cobra coverage won’t offer coverage the entire time you are ineligible for Medicare.

Compare Health Insurance Plans Online

Compare and purchase individual or family plans from an insurance-comparison website, like SmartFinancial, by entering your zip code and offering your information one time, to see which plans are available in your area. Premiums are often income-based, so you may qualify for subsidies that reduce costs. If you do not qualify for subsidies, you will have several options at different price-points for private plans.


You can also shop directly at the Health Insurance Marketplace, where you can compare and purchase individual or family plans. Premiums are often income-based, so you may qualify for subsidies that reduce costs.

Health Savings Account (HSA)

If you have an HSA, you can cash it out at age 65, tax free, no questions asked. You will get taxed if you’re younger, however. If you don’t have an HSA, you can open an account now, because you can use that money tax-free for medical expenses. An HSA can help if you buy a cheaper high-deductible health plan instead of a more comprehensive one until you qualify for Medicare. It’s not advised to rely solely on your HSA.

Medicaid Coverage

Check to see if you qualify for Medicaid coverage, which is only available to lower income individuals. If you do qualify, chances are that you will also qualify when you are eligible for Medicare.

Get on a Spouse's Employer-Sponsored Plan

If your spouse is still working and has access to an employer-sponsored health insurance plan, you may be eligible to join their plan as a dependent. This option can provide you with coverage even if you retire early.

Short-Term Health Plans

While it is not a substitute in terms of being comprehensive, a short-term health insurance plan may provide some coverage for a year, unless a bill is passed that restricts it to four months. While short-term health plans do not cover pre-existing conditions, they can protect you from some unexpected medical expenses. These types of plans rarely offer full benefits and are not advised unless you have a generous HSA.

Retiree Health Benefits

If you retired from a company, check to see if they offer retiree health benefits, which can be a more affordable alternative to private insurance.

Part-time Job With Health Insurance

You can work part-time at a job that offers health insurance benefits. This can help reduce your out-of-pocket expenses while providing necessary coverage.

Short-term health insurance is not a substitute for a health insurance policy and will leave you vulnerable, especially if you have a pre-existing condition.

Saving and Financial Planning For a Comfortable Early Retirement

Early retirement and health insurance can be a balancing act, but effective financial planning can help you carve out money for these expenses. Here are some strategies to consider before you retire:

Create an Emergency Fund

Grow an emergency fund to cover premiums for the time between retirement and when you become eligible for Medicare. You may also want to save even more to cover other medical costs, like copays, coinsurance and deductibles.

Create a Reasonable Budget

If your emergency fund can’t cover it all, create a budget that accounts for healthcare expenses, including premiums and out-of-pocket costs. Also include all other anticipated costs to see if you have enough income to cover everything.

Invest Wisely

Maximize your investments to generate income during early retirement. Consult a financial advisor to build a diversified investment portfolio.

Consider Part-Time Work

Part-time work can provide additional income to cover insurance premiums and other expenses. It may even cover most of your insurance costs if your job offers benefits.

Review Your Insurance Needs

Each year, review your insurance needs and make adjustments as necessary. Your health insurance requirements may change, and you may save money buying a more comprehensive plan as a result.

Going Without Health Insurance Coverage Before Medicare

Having little or no health insurance between early retirement and Medicare may have disastrous consequences, especially if you have an accident or unexpectedly fall ill. It is expensive to buy health insurance as you age, but it’s still cheaper than paying out of pocket if you require hospitalization, surgery or a treatment plan. Some of the key risks and challenges of being uninsured during this period include:

Unanticipated Healthcare Costs

For uninsured individuals, healthcare expenses can quickly accumulate and cause financial bankruptcy in serious cases, like after a bad car accident, a heart attack, stroke or cancer. The onset of a chronic condition is also likely to impact you greatly.

Limited Access to Care

Without health insurance, access to healthcare services may be compromised. Some healthcare providers may require upfront payment and in full. If a provider requires imaging, lab tests and other services, your expenses will only multiply. Lack of insurance can also result in delayed or deferred medical treatment. In some cases, individuals without insurance may only seek medical care in the event of an emergency. This can be dangerous and very costly.

Health Deterioration

Avoiding preventative care due to cost can cause health issues to worsen. Preventive care and early intervention are crucial, and going without insurance may result in missed opportunities to prevent more serious health conditions.

Financial Bankruptcy

A major illness or injury can have catastrophic financial consequences for uninsured individuals. Medical debt can accumulate rapidly, potentially leading to bankruptcy or severe financial hardship. One hospital stay can cost thousands of dollars.

Pre Existing Conditions

If you have a health insurance policy, you are guaranteed that policy without rate hikes due to pre-existing conditions. Going without insurance during the gap period if you do have a condition can be especially costly. Short-term policies are legally allowed to exclude pre-existing conditions.

Shopping for Health Insurance After Quitting Your Job?

Health Insurance and Early Retirement FAQs

If I have a pre-existing condition, will a private individual health insurance plan cost more?

Under the Affordable Care Act (ACA), insurance companies are prohibited from denying coverage or charging higher premiums based on pre-existing conditions. This provision ensures that individuals with pre-existing conditions have access to affordable health insurance coverage. Short-term health plans will exclude pre-existing conditions.

What are some important considerations for choosing private health insurance in early retirement?

Early retirees should consider factors like premium cost, deductible costs, copays, networks and preferred doctors and how pre-existing conditions are handled if considering a short-term health insurance plan.

What is hospital indemnity coverage and will it be enough while I wait for Medicare coverage?

Hospital indemnity insurance is a type of supplemental insurance that provides financial protection for individuals and families when they are hospitalized or receive medical treatment in a hospital. Some policies include coverage for critical illnesses, such as heart attacks, strokes, and cancer, in addition to hospitalization benefits.Hospital indemnity insurance is not a substitute for a primary health insurance policy, and the lump sum that is paid out will usually only cover copays, deductibles and coinsurance.

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