Retiring Before 65? How to Bridge the Healthcare Gap Until Medicare Kicks In

Medicare eligibility begins at 65. Retirement often happens earlier. The gap between those two dates — which can span from a few months to a decade or more — is one of the most expensive and least-planned periods in the transition to retirement. Understanding the options, what they cost, and how to manage that cost is the work of this article.

Four Ways to Cover the Gap

There are four primary coverage options for early retirees: ACA Marketplace plans, COBRA continuation coverage, coverage through a working spouse's employer plan, and union or retiree health benefits. Each has a different cost structure, and the right choice depends heavily on your income, health status, and how far you are from 65. **The ACA Marketplace: The Most Flexible Option — If Managed Correctly** The Affordable Care Act (ACA) Marketplace offers individual health insurance plans to anyone regardless of health status. For early retirees, the Marketplace is typically the most flexible option — but its cost varies dramatically based on income. Advanced Premium Tax Credits (subsidies) reduce monthly premiums for households whose Modified Adjusted Gross Income (MAGI) falls between 100% and 400% of the Federal Poverty Level (FPL). In 2026, 400% of FPL for a two-person household is approximately $83,000. Below this threshold, subsidies can reduce premiums by hundreds of dollars per month. Above it, you pay the full unsubsidized rate — which for a 62-year-old can reach $1,200 to $2,000+ per month depending on the plan and location.

The Income Management Strategy

The subsidy cliff — the sharp premium increase that occurs when income crosses 400% of FPL — makes income management particularly valuable in the pre-Medicare years. Early retirees who have multiple income sources (traditional IRA, taxable accounts, Roth IRA) can often sequence withdrawals to stay below the cliff. Drawing from Roth IRAs produces no MAGI. Drawing principal from taxable brokerage accounts produces only the capital gain portion as income, not the return of principal. Drawing from traditional IRAs increases MAGI dollar-for-dollar. Understanding which account adds to MAGI and which does not is how income management in this phase works. This is also the period where Roth conversion strategy intersects with ACA subsidy strategy. Converting traditional IRA assets to Roth creates taxable income — which counts as MAGI — and can push you above the subsidy threshold. Sequencing conversions carefully around healthcare cost thresholds is one of the most valuable planning moves available to early retirees.

COBRA: Useful for Short Gaps, Expensive for Longer Ones

COBRA continuation coverage allows you to stay on your former employer's health plan for up to 18 months after leaving employment. The coverage is identical to what you had as an employee. The cost is not: you pay the full premium — both the employee portion and the employer subsidy portion — plus up to 2% administrative fee. For a plan where your employer was paying $600/month and you were paying $200/month, COBRA costs $816/month (full $800 premium plus 2% fee). For the first month or two after retirement, COBRA can be useful as a bridge while Marketplace enrollment is arranged. For a multi-year pre-Medicare period, the cost typically exceeds what a subsidized Marketplace plan would cost. Important: COBRA must be elected within 60 days of losing coverage. Missing that window closes the option.

Spouse's Employer Coverage: Often the Best Deal Available

If your spouse is still working and their employer offers family coverage, enrolling on their plan is typically the best value available. Your retirement from your own job is a qualifying life event that allows you to enroll in a spouse's employer plan outside of that plan's normal open enrollment period. The enrollment window is 30 days from the qualifying event. Employer-subsidized coverage routinely costs less than any individual market alternative — because the employer is absorbing part of the premium. If this option is available, it is generally the first one to evaluate.