Retiring at 65 or later, Medicare is waiting for you the day you walk out the door. Retiring earlier — like I did — means someone has to cover the gap, and that someone is you, at least until your 65th birthday starts your Medicare clock. I looked at four options before landing on one, and I think the process matters more than which one I picked, because everyone’s gap looks different.
Option one: COBRA. If your former employer offers group coverage, COBRA lets you keep that exact plan for up to 18 months (sometimes longer under specific circumstances) by paying the full premium yourself, plus up to a 2% administrative fee. The appeal is continuity — same doctors, same coverage, no new deductible to satisfy mid-year if you’re already partway through the plan year. The downside is cost: you’re now paying the portion your employer used to cover, which is often the majority of the actual premium, and COBRA doesn’t get cheaper as you age into it.
Option two: ACA Marketplace coverage. Plans through healthcare.gov (or your state’s exchange) are underwritten without regard to health history, and — this is the part that changes the math for a lot of early retirees — premium tax credits are based on your *estimated household income for the year*, not your net worth or your pre-retirement salary. Once you stop earning a paycheck, your reportable income can drop enough to qualify for substantial subsidies, even with meaningful assets sitting in retirement accounts you’re not yet drawing from.
Option three: A spouse’s employer plan, if applicable. If your spouse is still working and has access to group coverage, adding yourself during their next open enrollment (or via a qualifying life event, like your own retirement) can be the simplest and often cheapest option, since group plans typically don’t medically underwrite dependents.
Option four: Private individual coverage purchased off-exchange. This exists but rarely beats a subsidized Marketplace plan unless your income disqualifies you from subsidies entirely and you have a specific reason to avoid the exchange.
The subsidy interaction with income is the part I underestimated going in. Marketplace premium tax credits phase based on your Modified Adjusted Gross Income (MAGI) relative to the federal poverty line, and the math rewards keeping your reportable income lower during these bridge years. That has a real second-order effect: it’s a strong argument for delaying large IRA withdrawals or Roth conversions during the specific years you’re relying on Marketplace subsidies, since a big conversion year can spike your MAGI and shrink or eliminate the subsidy for that year. I’m planning around this directly — treating my ACA bridge years and my Roth conversion strategy as one combined decision, not two separate ones, since they pull against each other.
Practically, here’s what I did: I used the healthcare.gov subsidy estimator with a realistic projected income for my gap years — not my final working-year income, my actual expected retirement income — and compared the subsidized premium against my COBRA quote for the same period. The Marketplace plan came out meaningfully cheaper once the subsidy was factored in, but I want to be clear that COBRA won in my case for one specific circumstance: a procedure already scheduled with a specialist that would have required a new-plan waiting period or network change under a Marketplace plan. So I used COBRA for the first few months to avoid disrupting that care, then plan to shift to a Marketplace plan at my next open enrollment.
There’s no universal right answer here — it’s a genuine multi-variable decision involving your specific health needs, your specific income picture, and how many months you’re actually bridging. But running the actual numbers for your situation, rather than defaulting to whichever option sounds simplest, is worth the afternoon it takes.
One option I’d caution against, even though it shows up in search results constantly: short-term limited-duration insurance plans marketed as a cheap bridge option. These plans aren’t required to comply with ACA protections — they can deny coverage or exclude claims based on pre-existing conditions, cap annual or lifetime benefits, and decline to cover essential health benefits like prescription drugs or maternity care. The premiums look attractive precisely because the coverage is thinner and the underwriting is stricter. For a genuine bridge to Medicare, where an unexpected diagnosis during the gap years would be financially catastrophic without real coverage, I ruled these out early rather than letting the lower premium pull me toward them.
I’m not a financial advisor or insurance broker. Get a personalized subsidy estimate at healthcare.gov and confirm COBRA terms directly with your former employer’s plan administrator.
Frequently Asked Questions
What are my health insurance options if I retire before Medicare eligibility?
The main options are COBRA continuation coverage, ACA Marketplace plans, a spouse’s employer plan if available, or private individual coverage — each with different cost and coverage trade-offs.
Can I get ACA subsidies if I have a lot of retirement savings?
Yes — Marketplace premium tax credits are based on your estimated household income for the year, not your net worth, so stopping a paycheck can qualify you for real subsidies even with substantial retirement account balances.
Should I do a Roth conversion during my ACA coverage years?
Be careful — a large conversion can spike your MAGI and shrink or eliminate that year’s ACA subsidy, so it’s worth coordinating conversion timing with your Marketplace coverage years rather than treating them separately.