Health coverage if you retire before 65

For most people, health insurance comes through a job until Medicare starts at 65. Leaving work earlier, by choice or not, opens a gap that has to be filled some other way. This article describes the main routes and how they connect to Medicare.

The main options at a glance

COBRA: keeping the employer plan for a while

COBRA is a federal law that lets workers and their families keep an employer's group health plan for a limited time after employment ends. According to USA.gov, it applies to most private-sector employers with 20 or more employees, and coverage after a job loss or reduction in hours can last 18 months. The Department of Labor lists other events, such as divorce or the death of the covered employee, that allow up to 36 months for a spouse and dependent children. Some states have similar laws covering smaller employers.

After a qualifying event, the plan sends an election notice, and the person has 60 days to respond.

COBRA's main advantage is continuity: the same plan, doctors and deductible progress. Its main drawback is cost. An employer usually pays a large share of the premium for active employees and generally stops doing so under COBRA, so the former employee typically pays the full cost of the coverage. COBRA premiums are among the few insurance premiums that a health savings account can pay.

Marketplace plans

The Health Insurance Marketplace, reached through HealthCare.gov or a state's own exchange, sells individual health plans. Someone who retires before 65 and loses job-based coverage can use the Marketplace to buy a plan.

Enrollment timing

Outside the annual Open Enrollment Period, enrollment requires a Special Enrollment Period. Losing job-based coverage qualifies. HealthCare.gov states that a person can apply any time from 60 days before to 60 days after the date coverage is lost.

For 2027 coverage, HealthCare.gov lists Open Enrollment as November 1, 2026 through January 15, 2027, with enrollment by December 15 needed for coverage starting January 1. States that run their own exchanges may use different dates, and federal rules on the length of the window have been revised, so the dates are worth confirming each year.

Premium tax credits and retirement income

Many Marketplace enrollees qualify for a premium tax credit that lowers the monthly premium. The amount depends on household size and on estimated income for the year of coverage, not the prior year's income.

This matters for early retirees because they have some control over their income. HealthCare.gov's guidance on what counts as income says to include most IRA and 401(k) withdrawals and both taxable and non-taxable Social Security benefits. Qualified distributions from a designated Roth account are not included.

Credits taken in advance are reconciled on the tax return. If actual income turns out higher than estimated, some or all of the credit may have to be repaid. A large withdrawal or a Roth conversion late in the year can therefore have an unexpected cost.

The rules that set the size of the credit have changed several times in recent years. HealthCare.gov shows current eligibility when an application is filled out.

Switching from COBRA

The choice between COBRA and a Marketplace plan is not always reversible. HealthCare.gov explains:

• When COBRA runs out, that loss of coverage opens a 60-day Special Enrollment Period for a Marketplace plan.
• Voluntarily dropping COBRA early, or stopping premium payments, does not. The person would generally have to wait for the next Open Enrollment.
• During Open Enrollment, a person can switch from COBRA to a Marketplace plan for any reason.

Other routes: retiree coverage, a spouse's plan and Medicaid

Some employers offer health coverage to retirees. Where it is available, the terms are set by the employer and can change. HealthCare.gov notes two consequences: a person enrolled in retiree coverage cannot get premium tax credits for a Marketplace plan, and voluntarily dropping retiree coverage does not open a Special Enrollment Period.

Losing one's own coverage generally allows enrollment in a working spouse's employer plan outside its normal enrollment window, within a deadline set by that plan.

People with limited income may qualify for Medicaid, a joint federal and state program. Eligibility is based on current income and rules differ by state. A Marketplace application also checks for Medicaid eligibility, and Medicaid enrollment is open year-round.

The handoff to Medicare at 65

Whatever bridges the gap, the transition at 65 has its own rules:

• COBRA does not delay Medicare deadlines. Medicare.gov warns that the window to sign up for Part B without a penalty is not extended by COBRA, and that COBRA may pay very little once a person is eligible for Medicare but not enrolled.
• Marketplace savings end. HealthCare.gov states that premium tax credits stop once a person is eligible for Medicare Part A, and that Marketplace coverage does not end automatically. The enrollee has to end it.
• The enrollment window is fixed. The Initial Enrollment Period for Medicare spans the seven months around the 65th birthday month.

Details are in Medicare enrollment periods and late-enrollment penalties.

A younger spouse who was covered under the retiree's employer plan needs their own bridge to 65 as well. Medicare covers individuals, not families.

Questions worth asking before leaving a job

• On what exact date does employer coverage end: the last day worked, or the end of that month?
• What would COBRA cost per month, and for how long is it available?
• What would a comparable Marketplace plan cost at the expected level of retirement income?