When you retire early, one new expense can loom large once you leave the ranks of the employed: health insurance. If you’ve been relying on your employer’s group health insurance, your coverage will likely end, although 21% of large firms extend healthcare coverage to retirees, so check to see if your employer is one of them.¹

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 planning on being one of them (or find yourself in this situation unexpectedly), 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 previously were all covered on your employer’s plan.

Exploring your options

Below are some options you might want to explore with your financial advisor to help you cover your immediate and long-term healthcare needs. To jump to a specific option, click on a link below.

Another employer-sponsored plan

An extension of your coverage through COBRA

A private plan

A high-deductible plan tied to an HSA

Plan ahead for future healthcare costs

#1. Another employer-sponsored plan

Your easiest option, if your partner is still working, might be to sign on to their workplace plan, says Ben Storey, Director, Retirement Research & Insights, Bank of America. It may mean an additional cost to the working partner, depending on the employer’s policy for partner and family coverage, but finding out if you can be added to your partner’s policy, and what the cost would be, should be the first option you investigate.

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 2024, you can earn up to $22,320 in retirement and still collect your Social Security benefits. After that, your benefits will be reduced based on the amount you make over the $22,320 limit.^3,4

#2. An extension of your coverage through COBRA

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 you were working — 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 that could extend the coverage for you, your spouse and dependents to as long as 36 months. Your financial advisor or HR department can fill you in on the details.

If you turn 65 while covered by COBRA, you can sign up for Medicare Parts A and B. Your COBRA coverage typically ends when you get Medicare, but your spouse (if under 65) and dependents will remain eligible for COBRA until the designated coverage period runs out. For more information on how Medicare eligibility affects COBRA coverage, visit medicare.gov and check out the Department of Labor’s guide to COBRA.

#3. A private plan

You can purchase health insurance from a private insurer by reaching out to the company directly or through an intermediary, such as an insurance broker, who will work with a number of companies to find a policy on your behalf.

Or you can purchase private insurance through the health insurance marketplace established by the government after the passage of the Affordable Care Act (ACA).

Under the current provisions of the ACA, people who lose coverage under an employer’s plan may be able to purchase private health insurance from a federal or state insurance exchange outside of the regular open enrollment period. In fact, people between the ages of 55 and 64 account for 26.9% of plans purchased on the government exchange.⁵

If you purchase a plan on the exchange, you may be eligible for a tax credit based on your income and family size. You cannot claim a tax credit if you purchase private health insurance outside of the exchange. The average premium for one person in an ACA plan ranged from $342 to $472 per month in 2023, according to the Kaiser Family Foundation.⁶ The cost will vary by state, your individual plan coverage and your age. You can research the policies currently available to you at healthcare.gov.

#4. A high-deductible plan tied to an HSA

As you shop around, you could consider purchasing a high-deductible health plan that meets federal tax standards permitting you to open a health savings account (HSA). The high-deductible health insurance plan will mean that you are paying more out of pocket for your healthcare but it will likely have lower premiums than others you’re considering.

The money you invest in an HSA, only available to those who purchase a high-deductible plan, can be used to pay for qualified medical expenses not covered by your insurance. Any unused balances remain in the account, potentially gaining in value.

HSAs are triple-tax-advantaged so this option can make sense if minimizing your taxes is a priority. Contributions are tax deductible for federal tax purposes, and any interest or other earnings are federal tax-free. Withdrawals are also federal tax-free as long as they’re used to pay for qualified medical expenses. No other type of tax-advantaged savings account offers all of these features.

“Once you’re eligible for Medicare and enroll, you can no longer contribute to an HSA, although you can draw on your HSA funds to pay certain Medicare premiums and out-of-pocket medical expenses,” says Storey. There’s also no limit on when you can request HSA reimbursements, he adds. “You can tap your account any time you need the money.”

#5. Plan ahead for future healthcare costs

It is clear that if retiring early is part of your plan — or happens unexpectedly — researching all your options for health insurance is key to making sure you find the best choice for you and your family.

It’s also important to remember that retirement planning should include budgeting for all healthcare costs that may be incurred throughout your retirement. Those costs can include health insurance premiums before Medicare kicks in, out-of-pocket costs (such as co-pays, deductibles, prescription and non-prescription drugs, etc. not covered by insurance), and long-term care insurance for future needs. Your financial advisor can help you estimate these costs based on your personal needs.

And, while we tend to have more healthcare needs as we age, taking care of your health throughout your life will provide benefits in retirement that could lessen those healthcare costs and improve your quality of life. As Storey notes, “The best health insurance is staying healthy.”