Health Insurance Before Medicare

Medicare starts at 65. Anyone who stops working earlier, or whose employer coverage ends earlier, has to cover the gap some other way, and for many early retirees health insurance becomes one of the largest costs in the budget. This chapter walks through the options in the order most people meet them, COBRA, the ACA marketplace and Medicaid, explains how marketplace subsidies depend on the income you report, and shows how your withdrawal plan controls that income.

The options before 65

• A spouse's employer plan. If a spouse is still working, joining their plan when you lose your own coverage is often the simplest and cheapest route. Losing coverage is a qualifying event that lets you join outside the plan's normal enrollment period.
• Retiree coverage from your employer. Some employers, and many public employers, offer health coverage to retirees until Medicare. Ask before you set a retirement date; eligibility often depends on age and years of service on the last day of work.
• COBRA. Lets you keep your former employer's group plan, usually for 18 months (longer in some cases).
• The ACA marketplace. Individual plans at healthcare.gov or your state's exchange, with a premium tax credit that depends on income.
• Medicaid. In states that expanded it, adults under 65 with low income can qualify.

Plans sold outside these routes, such as short-term plans and health care sharing ministries, are not required to cover pre-existing conditions or the full set of essential benefits, and a sharing ministry is not insurance at all: it does not promise to pay. They can leave large bills uncovered, so read the terms closely before relying on one.

COBRA: the same plan, at full price

COBRA keeps exactly the coverage you had, with the same doctors, network and deductible progress for the year. The cost is the full premium, the part your employer used to pay plus your own, plus up to a 2% administrative charge. That is often a shock to people used to seeing only their share on a pay stub.

A few rules shape how COBRA is used:

• You have at least 60 days to elect COBRA after you are notified, and coverage is retroactive to the day your job coverage ended once you elect and pay. Some people wait to see whether they need care before electing; if a large bill arrives in that window, they elect and pay the back premiums. This works only if you can afford those premiums and meet every deadline.
• Losing job-based coverage opens a 60-day window to enroll in a marketplace plan instead. Dropping COBRA voluntarily later in the year does not open a new window; you would wait for open enrollment. So the choice between COBRA and the marketplace is best made at the start.
• COBRA tends to make sense when you are in the middle of treatment, have already met much of this year's deductible, or are close enough to 65 that it covers most of the gap. It makes less sense when your income will be low enough for a large marketplace subsidy.

The marketplace and the premium tax credit

The premium tax credit lowers the cost of a marketplace plan so that you pay no more than a set share of your household income for the benchmark plan, the second-lowest-cost silver plan in your area. For 2026 that share runs from 2.1% of income at the bottom of the range up to 9.96% between 300% and 400% of the poverty line. You can use the credit on any metal level; buying a cheaper plan than the benchmark lowers your cost further, and buying a richer one raises it.

The credit is measured against the federal poverty guidelines. Coverage for 2026 uses the 2025 guidelines: in the 48 contiguous states, $15,650 for one person plus $5,500 for each additional person. Alaska and Hawaii have higher figures.

The 400% cliff is back. From 2021 through 2025 a temporary law removed the upper income limit. It expired on December 31, 2025, and as of late September 2026 no extension had been enacted. For 2026 coverage the credit ends entirely above 400% of the poverty line: $62,600 for a household of one and $84,600 for a household of two. One dollar of income over the line can cost the whole credit, which for an older couple can be a very large sum because premiums rise with age. Congress could still change this, so check the current law before each open enrollment.

Two more rules matter. The credit is usually paid in advance, based on the income you estimate when you enroll, and settled on your tax return. From tax year 2026, if your actual income turns out higher, you repay any excess advance credit in full; the old caps on repayment are gone. And below 250% of the poverty line, silver plans come with cost-sharing reductions that lower the deductible and copays, which can make silver the best value at those incomes.

Medicaid. In states that expanded Medicaid, adults with income up to 138% of the poverty line generally qualify, and Medicaid for this group does not count assets. Medicaid looks at current monthly income, while the marketplace looks at income for the whole year, so someone with low income early in the year and higher income later can be treated differently by each. Check your state's rules.

Your withdrawals set your income

For the premium tax credit, income means modified adjusted gross income: your adjusted gross income plus tax-exempt interest, the untaxed part of any Social Security benefit and excluded foreign income. An early retiree living on savings has unusual control over that figure, because different sources of cash count very differently:

• Traditional 401(k) and IRA withdrawals, and Roth conversions, count in full.
• Selling investments in a taxable account counts only the gain, not the part that returns your original cost.
• Cash savings do not count, and only the interest they earn does.
• Withdrawals of Roth IRA contributions (not earnings) do not count.

Mixing these sources lets a household land its income where it wants it: above 138% of the poverty line if it wants marketplace coverage rather than Medicaid, and below 400% to keep the credit. This is also why Roth conversions in the years before 65 need care: each converted dollar raises the income the credit is based on. The ACA subsidy calculator shows the credit at any income, and the withdrawal order calculator compares orders of drawing on your accounts.

Budgeting for the gap

A realistic health budget before 65 has two parts. The first is premiums after any credit, which you can estimate from marketplace quotes at your expected income. The second is what you pay when you use care, which can be anywhere from almost nothing to the plan's out-of-pocket maximum. Budgeting for premiums plus a meaningful share of the out-of-pocket maximum, and keeping the maximum itself available in cash, means a bad health year does not force you to sell investments at a bad time or take a large taxable withdrawal that cuts your credit.

Timing helps too. Deductibles reset on January 1, so leaving a job late in the year can mean meeting two deductibles in a few months. And an extra year or two of work with employer coverage shortens the gap, sometimes by more than the cost of that coverage would suggest.