How Do You Pay for Health Insurance If You Retire Before 65?

The three real options

If you're retiring before 65, assuming you're going to carry some amount of health insurance, which almost everyone should, there are three real paths. One is COBRA coverage. Two is a healthcare.gov, or marketplace, plan. Three is a plan that requires medical underwriting, usually through membership in some kind of group. There are other paths, but these are the big three, and understanding what each one actually costs is the difference between waiting to retire and being able to retire on schedule.

COBRA: the simple continuation

COBRA lets you stay on your employer's health insurance plan for up to 18 months after your employment ends. You lose the portion your employer was paying, so your premium goes up in effect, but the coverage itself just continues. That usually makes it a relatively simple equation: if you were taking, say, 3.8% out of your retirement accounts for distributions, now you might take 3.9% to cover the difference. It's an added budgetary line item, and the coverage you already know stays in place.

If you're retiring at age 63 and a half or later, the gap before Medicare isn't that big, and COBRA is often the best option for that stretch. If you're retiring earlier than that, COBRA may not be on the table for other reasons, and that's when the other two options matter more.

The marketplace plan and the subsidy cliff

A healthcare.gov marketplace plan can be a wonderful option, because part of your premium may be paid for by the government in the form of a tax credit. But there's a cliff. The exact numbers change every year, so treat this as the concept rather than a number to hold anyone to: at 400% of the federal poverty limit, which in 2026 is roughly $85,000 of modified adjusted gross income for a married couple (around $63,000 for a single filer), the subsidy disappears entirely. Below that line, you get a subsidy, and the further below it you are, the more of your premium is covered. One dollar over it, and you lose the subsidy for that year. If you took the credit in advance through the year, you pay it back when you file your return, and starting in 2026 there's no cap on that repayment.

The membership plan with medical underwriting

The third option runs through a group, often something like a property and casualty insurance company, where a small membership fee gives you access to join their health insurance plan. The catch is medical underwriting. If you have any kind of pre-existing condition, it's usually not a good plan for you. A lot of people around age 62 have something going on, an ache they went to the doctor about that's now on the record, and that's exactly the kind of thing most likely to cause an actual healthcare event, so insurers tend to exclude it.

There's usually no cost to go through underwriting and find out whether you'd have exclusions. It isn't uncommon for one spouse to qualify for an underwritten plan while the other uses a marketplace plan instead. The upside of medical underwriting, for what it's worth, is that if you're healthy, the insurer isn't grouping you in with less healthy people, so your premium tends to be lower.

Why this decision doesn't live in its own room

Here's the key point: this is a clear example of how one part of your financial plan connects to another part of your tax plan, which connects to your investment plan. The pace at which you do Roth conversions, the timing of when you claim Social Security, and the type of investments you hold in a taxable account can each push your income over that 400% federal poverty line threshold, sometimes by a single dollar, without you realizing it until the bill shows up. And once you're over it, that's locked in for the year.

This is also one of the biggest opportunities in the plan. If the marketplace limit is around $85,000, you may be able to convert Roth dollars up to just under that line each year until age 65, using the space carefully rather than filling it by accident. The healthcare decision, the tax decision, and the investment decision need to get made together, at one table.

Building the bridge: taxable account and HSA

Think of the years before 65 as needing a bridge, usually a taxable account, and sometimes an HSA. An HSA is the only account that's triple tax advantaged: you get a deduction when the money goes in, you don't pay tax when qualified money comes out, and the growth inside is tax free the whole time it's invested. Ideally you fund it while you're still working, invest it aggressively, and leave it alone for a long time, often to offset long-term care costs later. You can use HSA dollars for premiums before 65 if you need to, but I tend to reserve the HSA for later in life rather than lean on it early.

That leaves the taxable account as the workhorse. A taxable account is simply an investment account outside of a retirement account, the same idea as your checking account, where interest and gains get taxed along the way. The advantage for this purpose is that there's no early withdrawal penalty pulling money out before age 59 and a half, unlike a retirement account. So if you're retiring before 65, and especially before 59 and a half, building up a taxable account ahead of time so it can cover your premiums means you don't tip the IRS: no early withdrawal penalty, and no bumping into extra tax brackets you didn't plan for.

Running the real math

The biggest takeaway is this. When people actually add up what health insurance will cost to buy on their own, it can be a genuinely large number, tens of thousands of dollars a year. And a lot of people conclude their plan can't afford that, so they keep working. But run the full math, and the real question is usually whether you'd rather start living the way you want to live now, free to travel and do the things you've been waiting for, or keep working so that money passes to the next generation after you're gone at 94, unspent, because you never let the plan pay for the premium that would have let you retire in the first place.

That scenario is common, and people have a hard time getting over the hurdle of not having employer health insurance. But most of the time they can afford it, and the fear is bigger than the number. Mapping out a full retirement income plan gives you permission to spend money, and sometimes the spending it permits is the insurance premium that was keeping you from retiring at all.

Deciding well

Health insurance before 65 is rarely a single decision. It's COBRA, a marketplace plan, or an underwritten plan, funded by a taxable account or an HSA, coordinated with how you time Roth conversions and Social Security so you don't cross a threshold you didn't mean to cross. If you want help mapping out what your own bridge years would actually look like, a free Explore Call is a good place to start that conversation.

This is general education. Your situation is your own, and the right move depends on your whole picture.