Health Insurance Pre-Medicare

Health Insurance Pre-Medicare

If you retire before the age of 65, be that a planned retirement or something else, you will not be eligible to begin Medicare benefits and need to bridge the gap between the time when you retire and that date. Depending on your circumstances you could see a significant increase in healthcare costs during this period. With this in mind, it would be prudent to plan for an increase in annual premiums and additional out-of-pocket costs after your employer-subsidized group health insurance ends.

Healthcare Options Between Retirement and Medicare

COBRA Coverage

The Consolidated Omnibus Budget Reconciliation Act of 1985, COBRA, is available to former employees of employers with 20 or more full-time employees. You will typically pay the full cost of coverage plus a 2% administrative cost. This can result in premiums being 3 to 5 times higher than they were when they were an employee since the cost of coverage is no longer subsidized by the employer.

Since COBRA is continuing the same coverage you had as an employee, you keep your existing network of doctors and have the same copayments, coinsurance, and other plan features. You must sign up for COBRA within 60 days of when you are notified then, you can make the election, and coverage typically lasts for up to 18 months after your separation from employment. 

*One special note is if you are on your spouse’s employer plan and they enroll in Medicare you may be able to continue your coverage under COBRA for up to 36 months.

Coverage through a spouse’s plan

When you retire and were currently covered under your spouse’s employer health insurance plan, you will likely be able to continue your coverage as long as they continue to work.

This could be your least expensive option if it is available to you and like with the COBRA option there should be no change or disruption in your coverage. This option would likely only be available as long as your spouse continues to work.

Public Marketplace

The Affordable Care Act established a public marketplace and provides coverage options to anyone who is not eligible for Medicare yet. The plans are categorized by metal level with “Bronze” being the least expensive and “Platinum” the most. Bronze plans typically have lower premiums and higher deductibles, while Platinum plans have the highest premiums but the most comprehensive coverage. Silver and Gold plans fall in between these two plans.

Open enrollment is from November 1 to December 15 each year for the marketplace. However, there is a special enrollment period for individuals who had “certain life events” such as losing health coverage. The special enrollment period can vary based on the specific life event. 

You could be eligible for Advance Premium Tax Credits (APTC) if you purchase a policy on the exchange and your household income falls between 100% and 400% of the federal poverty level. In most states, you can qualify for a subsidy for a plan in 2021 with an income as much as $51,040 for a single person household, $68,960 for a two-person household, and $104,800 for a 4 person household. *Note these maximums are higher in Hawaii and Alaska.

You can go to to see the coverage available to you in your state and if you may be eligible for federal premium tax credits.

Private Insurance

  • You can also obtain coverage through a local insurance agent who offers plans from multiple carriers through the “private exchanges.” Since these exchanges are not government funded, the Advance Premium Tax Credits cannot be applied but do provide more plan options. You can find a health insurance agent or broker at to help navigate you through the individual market.

Planning for Pre-Medicare Expenses

People are often surprised by the cost of health insurance between the time of employment and Medicare eligibility. That is because their employer often subsidizes a portion of their health insurance, so when they see the price of COBRA coverage or coverage on the public exchange, there can be a sticker shock.

The graph below comes from a 2018 study by Vanguard/Mercer where they estimated that the median cost of a Bronze plan on the exchange for a pre-Medicare 64-year-old, and compared that to the average employer-sponsored plan for the same age group and the cost of Medicare coverage would be for someone age 65 and eligible for Medicare.

They also layered the out-of-pocket costs for their estimates for “medium” and “high” risk individuals. As you can see there is a large difference in cost between employer-sponsored coverage, Marketplace (pre-Medicare) coverage, and Medicare.

Source: Mercer – Vanguard Health Care Cost Model, 2018.

Regardless of the type of coverage you select, you will have to consider two factors:

  • Insurance premiums
  • Out-of-pocket costs (including dental and vision)

Your insurance premiums vary based on the type of plan you select and could vary from year to year but is likely predictable once the initial coverage is established.

The other factor is out-of-pocket costs, which include deductibles, copays, coinsurance, or other services not covered by the plan. These expenses can vary greatly year to year and can depend on your current health levels, predicted future health levels, and the amount of risk you want to take on in your plan.

How Your Health Impacts Your Cost of Coverage

Your current health conditions are relatively straight forward to assess by asking:

  • Do you currently have significant health care out-of-pocket costs? Typically people in poor health, already have higher than average out-of-pocket costs.
  • If you have pre-existing or chronic conditions, do you expect these to continue indefinitely? The more chronic health conditions you have, the worse your health is projected to be.
  • Do you consider your health to be average or below average? Some people are overly optimistic about their current conditions, and while this is a great outlook on life when planning healthcare expenses it is more conservative to have a pessimistic lens.

Your future health level can be based on your family history of chronic disease or based on your current health conditions. Even if you don’t have any current or expect any in the future, it would be prudent to overestimate the out-of-pocket costs rather than not.

The unfortunate fact for most is you are likely the healthiest you will ever be right now and will see a gradual decline as you age. 

How to Plan for Healthcare Costs in Retirement

When planning for healthcare expenses, it is better to look at healthcare expenses as a reoccurring annual cost that may change based on the type of coverage you have. Yes, your total cost of coverage may change year to year due to unforeseen out-of-pocket expenses, but it still better to frame healthcare costs in this way. Healthcare costs also tend to increase at a rate higher than general inflation, and this should be accounted for in your planning assumptions.

Healthcare will be another line-item expense in retirement and although it will be sizable, it should not be overwhelming when planned for accordingly like every other expense in retirement. Factors such as your health, where you live, your age, and marital status should all be considered when you are making decisions on healthcare.

In Summary

Planning for healthcare is highly individualized and the expected costs could vary greatly based on the type of coverage available, your age, gender, health status, and geographic location. Getting a grasp on how these factors affect your situation can help to make more reasonable assumptions when planning for retirement pre-Medicare. 

One final note, planning for health expenses is distinct from planning for long-term care needs in retirement, and this separate issue needs to be considered.

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