How to Get Health Insurance if You Retire Early to Bridge Your Coverage Gap

You’ve done it. You are living the dream and retiring early. You’ve worked hard all your life and earned this reward. That is an accomplishment to be proud of! But before you settle into your slippers and pajamas, there are a few things you might want to have in order first, and one of them is healthcare and knowing how to get health insurance if you retire early. If you’re retiring before you’re eligible for Medicare, you’re going to have a window of time without coverage unless you take action now.

If you’ve worked hard and put money aside for early retirement, the last thing you want is for an unexpected medical situation to pop up and deplete your savings. You need to consider how you can protect your financial stability while maintaining your health and wellbeing. You won’t be on your employer’s group plan anymore after retirement, and you’re not yet old enough for Medicare, so what do you do?

Well, it’s time to explore your early retirement health insurance options so you can rest assured you can afford to stay healthy during all that newfound free time you worked so hard toward. This article will help you identify your early retirement and health insurance options and how to retire early with health insurance.

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, which is an act that was passed in 1985. This legislation aims to require that group health plans offered through employers with more than twenty employees allow some individuals to remain on the plan for some time after they have left that workplace. COBRA is a federal law in the United States, so every American can take advantage of it if they need to.

In this scenario, you can extend your employer’s group health care benefits into your early retirement by up to 18 months in most cases. Your previous employer does have the option to extend those 18 months. However, you are on the hook for the full premiums as soon as you retire, and, as you no longer receive a paycheck from that employer, you will have to arrange payment on your own rather than rely on pay deductions. If you can stretch this coverage out until you qualify for Medicare, this could be the perfect solution for you in early retirement. If you plan to retire more than 18 months before you are Medicare eligible, you can still take advantage of COBRA and follow it up with interim health insurance before Medicare.

As the largest source of medical coverage in the United States, Medicaid is an option for many people. However, there are strict income and asset thresholds that have to be met to qualify for the coverage offered by Medicaid. As each state manages Medicaid, you will have to check the specific thresholds for your state to see if you are eligible. As a general rule, however, you will qualify if you have less than $2,000 in assets beyond the necessities of life (home, car, etc.). You’ll also need to prove you are a US citizen or that you have landed immigrant status.

Medicaid is inexpensive, but there are downsides. For instance, Medicaid is not accepted by many health care providers, so you will have to ensure that you can find a health care provider and doctor who takes your insurance plan. You may also live in a state that has Medicaid cost-sharing programs, which means it might not cover as much of the costs associated with health care as you would like. However, the low premiums could potentially offset this, leaving Medicaid one of the best options for interim health insurance for retirees before Medicare.

Finding a part-time job might sound counterproductive for someone who has worked hard to be able to retire early, but hear us out. Part-time jobs can be enjoyable and rewarding for retirees. Many retirees find adjusting to nothing but free time jarring and hard to get used to. They may feel isolated in the first few months of retirement and miss the daily connection with other human beings in the workplace. A part-time job can replace those things you miss about employment, and if you choose an easy, entry-level position, it comes without the burden of heavy responsibility. If you can find a job that offers health care benefits, then you’re also tackling several problems at once. Part-time jobs get you out into the community, interacting with people every day and filling up some of the free time you don’t know what to do with. At the same time, it’s solving your health care insurance problems by providing health insurance options when retiring early. A little extra income during your early retirement is another plus that can help ensure your retirement savings aren’t going too fast during those early years after your career.

Are you a member of any professional associations, networking groups or religious organizations? If so, this could be the answer to finding retirement health insurance before Medicare. Some groups and organizations offer their members access to group health benefits. Such groups and organizations can include chambers of commerce, professional associations, religious organizations and more. If you are a member of a group of any kind, it might be worth it to reach out and ask if they offer any group health care insurance coverage to members. These are often opt-in programs, and members must arrange their payment of premiums. These plans can include coverage as good or better than your previous plan through your employer; however, your premiums may not be the same. Some memberships might afford the policyholder a discount on insurance rates, while others might be more expensive than you are used to. If you are a member of more than one group that offers options for health care insurance, it allows you to compare rates and coverage and choose the one that fits your budget and lifestyle the best. Membership-based health insurance coverage could be your best and most comprehensive choice for health insurance in retirement before Medicare.

Suppose you are married and your partner plans to continue working after your early retirement. In that case, you may be able to rely on their employer’s group insurance benefits to fill the gap until you qualify for Medicare. One of the most significant advantages of this option is that you will be able to get your insurance for far less than you would if you bought a policy on your own. Even if you did not qualify for your spouse's plan before your retirement, you might still consider this option. Often unemployment can help you meet the qualifications needed to be added to your spouse’s health care plan. However, before choosing this route, it may be worth your while to compare prices and coverage as each health care insurance plan is different and may not be what you need.

When planning early retirement and health insurance before Medicare, this can be a great place to start. Speak to your spouse, get the details on what you need to qualify, and then price out the cost. It can make things much easier to be on the same plan as everyone else in your family.

Some employers offer retiree health insurance benefits, so it’s worth your time to reach out to your employer as you prepare to retire. Find out if they offer a retiree health care insurance plan. You might be pleasantly surprised that your employer is one of the few who cover part of your premiums until you qualify for Medicare, too. You may even be able to carry over your retiree health care benefits from your employer into the period after you are eligible for Medicare as a form of supplemental health care benefits. The more coverage you have, the less you will have to pay out of pocket when unexpected medical events happen, making supplemental health care insurance worth hanging onto when you have the opportunity. However, once you qualify for Medicare, you would have to enroll and use it as your primary coverage. To find out if you have this option, contact your employer’s human resources department and ask for more details if they offer this plan.

No matter which option you choose for health care coverage before you qualify for Medicare, you will have to plan for the cost. Health care can be one of your most significant expenses in retirement, and statistical estimates have put averages as high as $300,000 in out-of-pocket medical expenses for retirees. There is no doubt it pays to have a solid plan in place to cover these expenses. A great starting place is to create a retirement budget and set aside at least 10-15% for medical expenses.

How can we ensure we will meet these costs? One way to do so is to have a health savings account. Your health insurance plan and some financial institutions offer such accounts. Withdrawals are tax-free when used to pay for medical expenses.

There is also the possibility that your employer may offer a Retirement Health Reimbursement Account (RHRA). An RHRA is a savings account funded by your employer and used to pay for your medical expenses in retirement.

Another option is to use a penalty-free IRA withdrawal. There are two ways to do this. One is to withdraw from your IRA on the grounds that you are unemployed and need the money to pay for your health care coverage. The other is to find out if you are eligible for a hardship withdrawal. This type of withdrawal can pay for medical expenses not covered by insurance. Each type of withdrawal avoids the 10% early withdrawal penalty.