Retiring Early? Don’t Overlook Health Insurance

Retirement is all about enjoying your golden years. But what if you want to get a jump start? For those who have been diligent savers, and have prepared well, retiring early can be a great way to enjoy more experiences in your younger, healthier years. Retiring before Medicare kicks in at 65 can sound great, until you consider the cost of health care. But there are numerous options for health insurance for early retirees that can fit various budgets and coverage needs.

Health care costs in America

One thing that isn’t an option: simply choosing to ignore the need for health insurance. Health care costs in America are simply too high to shoulder the burden alone. An estimated 100 million Americans carry at least a collective sum of $195 billion in debt. It follows, then, that more than half a million people declare bankruptcy each year while citing medical debt as at least one factor in their decision. So, we need to have a plan in place.

Options to consider when retiring before 65

With the high cost of health care in the United States, it may feel like early retirement is out of the picture. Fortunately, early retirees do have health insurance options. Let’s look at some options to see which one might fit best into your retirement plans.

Insurance from a spouse

Perhaps the simplest workaround for keeping insurance coverage in early retirement is to stay on your spouse’s insurance plan. If one spouse enjoys their job and doesn’t mind working a few extra years, this is likely the best solution for insurance. It may also be worth negotiating with an employer to keep your benefits with a reduced workload or part-time hours, in lieu of full retirement. If delaying full retirement for either of you is out of the question, there are plenty of other avenues to explore.

Marketplace

Another way to keep insurance coverage is to purchase health care from the Health Insurance Marketplace. If you purchase health insurance from the Marketplace while you’re working, you might expect to find similar high costs during early retirement. However, as an early retiree, your deductibles and copayments could be much cheaper. That’s because certain household sizes and income amounts result in premium tax credits and savings. As such, the premiums you pay as an early retiree may be surprisingly small. You can visit healthcare.gov to see plan options and estimate cost.

The biggest question mark with this option is whether the subsidies will be removed or drastically reduced, as soon as 2026. If they are, premium costs could jump substantially. This is currently one of the sticking points of the government shutdown, so we are likely to have some answers to this question sooner rather than later.

Health share plans

Perhaps a lesser-known option to getting health care coverage is through a health share plan. These plans, sometimes known as health share ministries, aren’t actually health insurance. Instead, health share plans are a group of members who agree to pool their money to cover the costs of medical care for one another. Generally, care coverage is limited to basic health care and catastrophic care, but they often come with lower premiums than traditional insurance.

You also want to note that there are some additional nuances to navigating health share plans. In addition to typically needing to submit a statement of faith, many health share plans do not cover preexisting conditions. As a new member, you may also have to pay into the plan for several months or a year before requesting coverage.

With any type of health care coverage, you want to do your due diligence so you’re not faced with any surprises. This is especially true with health share plans since they are not subject to the same laws as health insurance companies.

Private health insurance

Another option is simply to purchase private health insurance. This process is similar to looking for insurance on the Marketplace. However, since these plans are purchased privately, you may discover there are more plan options available. However, an important consideration with private health insurance is that the premium tax credits do not apply. Therefore, the cost is likely to be higher, depending on the plan and other factors.

Medicaid

Since you are no longer bringing in an income when you retire early, your household income is likely going to drop significantly. Due to this drop in income, you may qualify for Medicaid. Medicaid is a federal program, but it is state run. Therefore, you will want to investigate the offerings specific to your state.

COBRA

Most employers (over 20 employees) are required to offer coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA). However, they are not required to subsidize it. As a result, you would likely be required to cover the full health care premium. Plus, this coverage doesn’t last indefinitely, with a maximum coverage length of 18-36 months in most instances.

COBRA can be helpful when looking to initially bridge the gap between early retirement and when Medicare kicks in. However, it is important to consider the high cost and compare it to other options, such as purchasing a plan through the Marketplace.

Employer-sponsored health insurance benefit

While this option is becoming increasingly rare due to the high cost of health care, some employers offer health insurance as a retirement benefit. In fact, there are some employers who will even continue to cover a portion of the monthly premiums. It is also important to note that this retiree health benefit is usually designed as a supplement to Medicare. When you reach the age when you can sign up for Medicare, you may be able to keep your retiree health plan as a supplemental policy.

Part-time work or Barista FIRE

If you’re interested in retiring early, you may already be familiar with the Financial Independence Retire Early (FIRE) movement. One contingent is Barista FIRE, which still involves part-time work, usually for health care benefits. The biggest perk to Barista FIRE is that you can typically leave the traditional 40-plus-hours workforce much earlier. Why? Because part-time work means you draw down less of your portfolio, meaning you need less saved for retirement. Plus, if you are able to find part-time work that includes health insurance benefits, that’s one less thing to worry about. Some big-name companies like Starbucks and Amazon offer health insurance benefits to part-time employees.

Final thoughts

Although many people are interested in retiring earlier than the traditional retirement age, losing health insurance can often be a roadblock that causes anxiety about taking the leap. Fortunately, there are various options for continued coverage, but it’s important to start exploring them ahead of time, factor the cost into your budget, and have a plan in place that you feel confident in.

*Facts in this article sourced from empower.com/the-currency/life/health-insurance-early-retirees.