Funding health care when retiring before Medicare

Clients who dream of retiring early have various health insurance options for the gap years.
By Kelley C. Long, CPA/PFS


When CPA financial planners ask clients who are otherwise financially prepared for retirement when the clients plan to retire, they often hear that health insurance coverage is the deciding factor. Many clients, particularly those who’ve spent their working years with employers where benefits are a valuable part of compensation, believe that until they are eligible for Medicare, they must continue working to remain covered by health insurance.

Many clients in this situation, when asked, admit that they haven’t really explored alternative health insurance options. They may balk at the suggestion of choosing health insurance provided via COBRA, for instance, because they see the price tag of the coverage as astronomical. Or clients may have only priced plans that are similar to those provided by their employer, typically the gold or silver plans on the Affordable Care Act (ACA) marketplace, and found those to be unaffordable. And they may not know how to navigate access to other health insurance options, so they neglect to explore choices that might be more affordable — albeit offering less coverage — when they do research insurance.

While the average age of retirement in the United States today is 61, millions of people remain in the workforce beyond the point of financial retirement readiness, strictly to access employer-provided health insurance until their Medicare eligibility begins at age 65. According to the University of Michigan’s National Poll on Healthy Aging, roughly 11% of adults ages 50–64 have delayed or considered delaying retirement specifically to have employer-provided health insurance. And a Forbes Advisor survey found that 20% of people with health insurance through their employer chose to work full time rather than part time to get those benefits. It’s also quite common to encounter a couple where one spouse is retired while the other continues working almost exclusively for access to employer-provided health insurance.

Yet, options for funding health care costs do exist that clients who dream of retiring before Medicare eligibility may not have explored. But first they may need to adopt a new perspective.


Helping clients successfully plan for health care coverage until Medicare requires a strategic funding plan but also, in some cases, a shift in their thinking around health insurance.

Many people believe that they need robust health insurance coverage to feel financially secure. But is this true?

Granted, the fears many people have around health care funding are valid — everyone has heard horror stories of families left bankrupt due to medical bills. A quick search of fundraising site GoFundMe yields thousands of requests for help with health care costs. And, for the many Americans living with chronic conditions like multiple sclerosis, diabetes, and even recurrent cancers, having subsidized health insurance is non-negotiable.

However, people who typically require little health care beyond annual screenings and occasional treatment for acute illness or injury may want to rethink how much insurance they really need.

Data shows that most people pay far more for health insurance than they would for the health care services they actually consume through their health insurance. While the nature of insurance is sharing risks, the point is that they may be overinsuring. Many people choose plans that provide more coverage from the first dollar, but at a higher price each month, rather than high-deductible, lower-premium plans. This typically means that they are contributing significantly higher on the front end through premiums but fail to use the health care services that their insurance pays for on the back end.

One reason people choose plans with high premiums is because they believe these plans give them more protection against catastrophic events. This is true regarding the initial costs. However, they may not realize that all ACA-compliant plans have an out-of-pocket maximum of less than $10,000 for an individual, meaning that if an individual accesses in-network care for any purpose, including expensive services like surgeries or cancer treatments, all costs are covered for the Rremainder of the plan year once that out-of-pocket amount is reached.


Once clients realize that there are viable choices beyond employer-provided health insurance, they may be open to alternatives that could allow them to retire before Medicare eligibility. The options that early retirees can explore for covering their risk of health-related costs include the following:

Retiree coverage through an employer or union

Certain employers provide health care coverage for retired employees. These are typically public service jobs that are union-based or larger companies with an employee population that tends to be older.

Spousal coverage

Obtaining coverage through a spouse’s plan is a common solution for individuals who want to retire early, although misconceptions may exist about timing and qualifying for coverage.

If a client isn’t already on their spouse’s plan, they may think they need to wait until open enrollment to retire and join, but this is not true. The loss of coverage by a spouse is one of the exceptions to changing benefits elections outside of the open enrollment period, meaning the retiree can join a spouse’s plan midyear.

For clients who are not married but are in committed partnerships, it’s worth checking on the availability of domestic partner coverage. Though this is less common than before same-sex marriage was legalized, some employer plans still extend health insurance coverage to employees’ domestic partners as long as they can demonstrate a level of financial interdependence and a certain longevity of their relationship. This includes providing proof such as a shared lease agreement, joint home ownership, joint bank accounts, etc.

Marketplace plans

Turning to the marketplace is an obvious option for early retirement that is sometimes unexamined. Because insurance is state regulated beyond the ACA requirements, each state’s insurance marketplace options, providers, plans, and costs will vary, which is a crucial consideration when it comes to obtaining coverage through the marketplace. Depending on how serious a client is about retiring early, establishing residency in a state with better plan options may be worth considering.

Beyond that, clients may be eliminating the marketplace as an option strictly because they are comparing the costs of (unsubsidized) plans that are similar to their employerbased plan. However, for healthy clients who generally only see doctors for preventive care visits and occasionally for acute illness or injury, a more affordable bronze-level plan with a higher deductible may be adequate for a couple years.

This is where the perspective shift comes in toward accepting a lower level of coverage upfront in return for higher costs only when services are needed (and where having a well-funded health savings account can ease some of the sting from out-of-pocket costs; on that topic, see “9 Facts About HSAs That Might Surprise Your Clients,” JofA, Jan. 24, 2023).


Many people write off COBRA as an option for early retirees due to the assumption that it is too expensive and the fact that it typically only lasts for 18 months, but it is worth a look. COBRA can be a short-term option to give clients time to transition to a different network of providers or adjust to a new mindset of paying for services at the point of sale once they move to a lower-cost plan on the marketplace.

And while COBRA can be expensive, this is an example of when a psychological shift may be needed. Adding a $700 monthly insurance premium to the budget can feel painful, but when asked if they would buy an extra year of retirement for less than $10,000, many clients are likely to answer yes without hesitation. Note that COBRA premiums can also be paid tax-free from a health savings account, if available.

After the 18 months of COBRA is up, or when a client opts out of COBRA and seeks other coverage immediately, they will need to consider other solutions.

Short-term health insurance

Depending on the length of time that funding for health care expenses is necessary, clients might also explore short-term health insurance offered by most major carriers. Coverage lengths vary by state — and plans aren’t available in all states (such as California, where they are banned) — but typically run between one and 12 months, although some plans offer up to 36 months of coverage through renewals.

These plans, which cost significantly less than regular health insurance, are not ACA-compliant, which means underwriting will be necessary and clients with certain preexisting conditions may not qualify. Depending on the state of residency, plans can be customized to cover all health care events or limited to just certain things such as hospital and surgical coverage. For clients in good health seeking a cheap option for catastrophic coverage, this is an option worth exploring.

Cost-sharing plans

Another non–ACA-compliant option offered through certain church and faith communities is known as a medical cost-sharing plan, in which community members share their risk of large medical bills by making monthly payments into a pooled fund that pays the bills up to a certain amount. It’s important to note that cost-sharing plans are not insurance and are not subject to state insurance regulation, so clients who choose this option must be well educated on the pros and cons.

For example, most cost-sharing plans don’t provide the zero-cost preventive care that ACA-compliant plans do, including immunizations, wellness visits, and screenings. They also don’t have a legal mandate to cover any costs at all, particularly those that may conflict with the values of the sponsor religious organization, which is important to understand before joining.

Most also exclude coverage for certain preexisting conditions for at least the first couple years of enrollment. Plans do, however, offer a discount on services for in-network providers similar to most insurance plans, and as long as members stay in-network with care, they are protected against large health care events such as hospital visits or surgeries.

Cost-sharing plans can be a good solution for folks who are in good health and rarely use health care services or people who prefer to manage their health with typically out-of-network providers anyway, such as naturopathic providers and other alternative services like acupuncture, chiropractic care, etc. Joining typically requires an application and membership in the group community.

Part-time jobs

Taking a part-time job may not fit the technical definition of retirement, but a position with a company that offers benefits to part-timers can be an excellent choice for people who are ready to leave their full-time career but still want employer-provided health care coverage, perhaps because they have minors they need to cover. It can provide an alternative to the high cost of family coverage for even the least expensive ACA plans in some states.

Moving abroad

Depending on the choice of country and its rules for establishing legal residency and accessing government-run health care, moving abroad can help to plug the gap while also adding some adventure if the situation is right. For instance, some retirees may be able to obtain dual citizenship in a European country, entitling them to health care there and a European Health Insurance Card (see “Stretching Retirement Dollars by Living Abroad,” JofA, Sept. 20, 2022).

Medicare coverage does not apply outside the United States, but clients will still need to enroll upon reaching age 65 to avoid the lifetime late enrollment penalties if they ever plan to return to the United States.

Going uninsured

Going without insurance is the riskiest option. It’s worth noting that many health care providers offer a lower billing rate to patients who are deemed “self-pay” than those who are insured. In other words, a patient who has insurance but hasn’t yet met their deductible will still pay the full cost of the service, often at a higher rate than if they didn’t use their insurance. Nonetheless, being uninsured is taking a major risk.


When discussing alternatives for the gap period before Medicare, it’s important for advisers to realize that clients who have only had employer-provided coverage and then choose one of the other options during early retirement may require education about how to use their plan. One of the downsides of employer-provided coverage is that it can isolate people from how health care costs really work. For example, many consumers are unaware that the cost of a hip replacement or other outpatient surgery is typically significantly lower at a surgical clinic compared to a hospital.

This can cause problems if clients who are retiring before they are eligible for Medicare choose coverage with a higher deductible or out-of-pocket costs, and then consume health care services the way they always did when coverage was lower-deductible and only included copays. They can be surprised by high medical bills or overpay for services.

Encouraging clients to shop for certain health care services can save them thousands of dollars in out-of-pocket costs. This and other advice can help make the dream of early retirement a reality for those who are working only to maintain health care coverage.


The most important takeaway here is that clients seeking early retirement often must shift their perspective on what they truly need in the area of health care for those gap years. By helping healthy clients to de-prioritize having abundant coverage no matter what and instead encouraging them to view insurance as a backstop, advisers can help them overcome the belief that they must continue working strictly for health insurance.

About the author

Kelley C. Long, CPA/PFS, CFP, is a personal financial coach in Arizona. To comment on this article or to suggest an idea for another article, contact Courtney Vien at


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