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Retiring Early? What to do about Health Care for the Gap Years


Planning for health insurance through the time you become eligible for Medicare was thought to be fairly straightforward. You utilize your employer’s health insurance plan (or your spouse’s) until you retire at age 65 and then you file for Medicare. However, whether you have always planned on retiring early or early retirement is forced upon you, it may not be as straightforward as you had hoped. Filling the health insurance gap between the time your job-based coverage ends and your Medicare eligibility is a critical part of your transition into retirement.

Fortunately, you have several options to cover your health insurance gap years, but timing is of the essence. You will need to quickly assess your options in light of your financial situation to determine which one can provide you with the optimum coverage at a reasonable price.


Spousal Coverage

If you’re married and your spouse expects to work for a few more years, the first place to look, and often your best option, is your spouse’s health insurance plan. If you are eligible to join your spouse’s plan, it will likely be the best coverage you can get for the cost. Although your spouse’s premiums will likely increase, they will still be lower than most of the alternatives.


COBRA Coverage

By law, you are able to stay with your former employer’s health insurance after you retire or are laid off under COBRA coverage. That is great if you like your plan and you want to be able to keep your providers. The bad news is that you will see a sharp increase in the amount of premium you’ll pay. Also, COBRA only extends your coverage for 18 months, which means, if that is short of your Medicare eligibility, you will be facing another gap.


Public Marketplace

At least for the moment, the public marketplace established by the Affordable Care Act (ACA) is still in place and it offers plan options for anyone not yet eligible for Medicare. This is the place to look if you have some pre-existing conditions because, under the ACA you can’t be denied coverage and they can’t impact your premium beyond certain limits. If you can qualify, they also offer government-provided subsidies to help cover the premiums.


Private Insurance

Your best option for finding the type of coverage you want is through private insurers. However, it will also be your most expensive option. If you can afford to shell out a higher premium for a few years, you can find a plan with a reasonable co-pay and deductible.

If a higher premium is not in your budget, you can explore the use of a health savings account (HSA). An HSA is similar to an IRA that allows for before-tax contributions and tax-free earnings that can be used to pay for eligible medical expenses.  To qualify, an HSA must also use  a high deductible health insurance plan. The idea is to use your HSA account to cover your co-pays and cover your deductible and the insurance plan is there for catastrophic coverage.


Short-Term Coverage

If your insurance gap is less than a year, you can look into short term health insurance. It’s designed to cover most medical expenses, including emergency room visits and most inpatient and outpatient hospital care.

Whichever option works best for you, don’t forget your supplemental coverage for dental, vision and critical illness coverage. If these plans are not available through the option you select, they can be purchased separately through insurance carriers.