If I Retire at 62, What About Health Insurance?

Retiring before becoming eligible for Medicare presents a significant challenge regarding health insurance coverage. Many individuals consider leaving the workforce at age 62, which introduces a three-year period without access to the federal health insurance program. Planning for health coverage during these years is a key component of a comprehensive retirement strategy. Understanding the available options and their implications can help manage this transition, ensuring continuous access to necessary medical care until Medicare eligibility at age 65.

Understanding the Health Insurance Landscape at Age 62

For most individuals, Medicare, the federal health insurance program, begins when they reach age 65. This eligibility is primarily age-based, not tied to retirement status. This creates a distinct gap for those who retire at age 62, as they face a three-year period without Medicare coverage. Individuals in this situation must proactively secure coverage to avoid significant financial risks associated with unexpected medical expenses.

Exploring Coverage Options Before Medicare Eligibility

Securing health insurance between early retirement at age 62 and Medicare eligibility at age 65 involves several pathways.

COBRA (Consolidated Omnibus Budget Reconciliation Act): This allows individuals to temporarily continue their employer-sponsored health coverage. COBRA typically provides coverage for 18 months, though it can extend up to 36 months for dependents under certain qualifying events. Employers are required to offer COBRA continuation coverage if they maintain a group health plan and meet specific size requirements. Contact your former employer’s human resources or benefits department to understand eligibility and the election process.

ACA (Affordable Care Act) Marketplace: Accessible through HealthCare.gov or a state’s equivalent website, the Marketplace offers health plans categorized by “metal tiers” (Bronze, Silver, Gold, Platinum). A benefit of the ACA Marketplace is the availability of financial assistance through Premium Tax Credits and Cost-Sharing Reductions. These subsidies make coverage more affordable based on household income, generally for those with incomes between 100% and 400% of the federal poverty level. Explore plans and determine subsidy eligibility by visiting the official Marketplace website.

Joining a Spouse’s Employer-Sponsored Health Plan: This can be a practical and often cost-effective solution if a spouse is still actively working. Many employer plans allow for spousal coverage, providing a seamless transition. This option typically involves enrolling during a special enrollment period triggered by the loss of other coverage. Consult with your spouse’s employer’s human resources department to ascertain eligibility, enrollment procedures, and associated costs.

Retiree Health Plans: Some former employers may offer retiree health plans, though these have become less common. These plans can provide a continuation of health coverage, sometimes with employer contributions. Inquire directly with your former employer’s benefits or human resources department to determine if such a plan is available and what its terms entail.

Private Health Insurance: Purchasing private health insurance directly from an insurance company, outside of the ACA Marketplace, is an option. While these plans offer flexibility, they do not qualify for the Premium Tax Credits or Cost-Sharing Reductions available through the Marketplace. This means the full premium amount would be the individual’s responsibility. Contact insurance brokers or individual insurance carriers directly to compare plans and rates.

Medicaid: A joint federal and state program, Medicaid provides health coverage to low-income individuals and families. Eligibility is determined by income and asset levels, which vary by state. It can be a safety net for those who meet the financial criteria. Find information regarding eligibility and the application process by visiting your state’s Medicaid agency website.

Navigating the Transition to Medicare

As individuals approach their 65th birthday, understanding the transition to Medicare is important for uninterrupted health coverage. Medicare covers individuals aged 65 or older, U.S. citizens, or legal residents who have lived in the country for at least five years. Eligibility can also extend to younger individuals with certain disabilities or end-stage renal disease.

Medicare is structured into several parts, each covering different types of services. Part A, often premium-free for most, covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health services. Part B covers medically necessary doctors’ services, outpatient care, durable medical equipment, and some preventive services, requiring a monthly premium. Part C, known as Medicare Advantage, offers an alternative way to receive Medicare benefits through private insurance companies, often bundling Part A, Part B, and usually Part D coverage. Part D provides prescription drug coverage through private plans.

Enrollment in Medicare involves specific timeframes to avoid potential penalties and ensure timely coverage. The Initial Enrollment Period (IEP) is a seven-month window that begins three months before the month an individual turns 65, includes their birth month, and extends for three months after. Enrolling during this period is important. If an individual misses their IEP and does not qualify for a Special Enrollment Period (SEP), they may have to wait for the General Enrollment Period (GEP), which runs from January 1 to March 31 each year, with coverage starting the month after enrollment. Late enrollment in Part B or Part D can result in higher premiums for the duration of coverage.

The Social Security Administration (SSA) handles Medicare enrollment. Individuals can sign up for Medicare online through the SSA website, by phone, or in person at a local Social Security office. For those already receiving Social Security benefits, Part A enrollment is often automatic. However, active enrollment is typically required for Part B and other parts of Medicare. Coordinating the end of any pre-Medicare coverage, such as an ACA Marketplace plan or COBRA, with the start of Medicare helps prevent gaps in coverage.

Financial Aspects of Health Coverage in Retirement

Healthcare expenses represent a substantial financial consideration in retirement. The cost of health coverage during the three-year period between age 62 and 65 can be significant. COBRA continuation coverage, while offering continuity, requires individuals to pay the full premium, including the employer’s portion, plus a 2% administrative fee. This can result in monthly premiums ranging from several hundred to over a thousand dollars, making it a costly option.

Affordable Care Act (ACA) Marketplace plans can be more financially manageable, particularly due to the availability of Premium Tax Credits and Cost-Sharing Reductions. These subsidies can substantially lower monthly premiums and out-of-pocket expenses for eligible individuals based on their income and household size. Without subsidies, the full cost of an ACA plan can be comparable to, or even exceed, COBRA premiums. Private health insurance purchased outside the Marketplace involves paying the full, unsubsidized premium.

Upon transitioning to Medicare at age 65, new cost structures come into play. Most individuals do not pay a premium for Medicare Part A if they or their spouse paid Medicare taxes through employment for a sufficient period, typically 10 years. Medicare Part B carries a standard monthly premium, which is $185.00 in 2025. Additionally, Part B has an annual deductible, set at $257 in 2025, after which Medicare pays 80% of approved costs, leaving the individual responsible for the remaining 20% coinsurance.

Higher-income beneficiaries may pay an Income-Related Monthly Adjustment Amount (IRMAA) for both Medicare Part B and Part D. This surcharge is added to the standard premiums, based on modified adjusted gross income reported on tax returns from two years prior. For example, in 2025, individuals with a 2023 modified adjusted gross income exceeding $106,000 (or $212,000 for married couples filing jointly) will pay higher Part B and Part D premiums, with surcharges ranging from $74.00 to $443.90 for Part B. These adjustments mean that total Medicare premiums can vary significantly based on income levels.

Medicare Advantage (Part C) and Part D (prescription drug) plans also have their own premiums, deductibles, copayments, and coinsurance, which vary by plan. Medigap policies, which supplement Original Medicare by covering some out-of-pocket costs like deductibles and coinsurance, also carry separate monthly premiums. Factoring these potential expenses, including premiums, deductibles, copayments, and coinsurance, into a retirement budget is important.

Medicare does not cover most long-term care services, such as extended stays in nursing homes or assistance with daily living activities. While Medicare may cover short-term skilled nursing facility care after a qualifying hospital stay, or certain home health services, it does not cover custodial care. Planning for potential long-term care needs requires separate financial strategies, such as long-term care insurance or personal savings.