Early retirees and health care
Key takeaways
1. Look into coverage through COBRA.
COBRA, or the Consolidated Omnibus Budget Reconciliation Act, allows individuals to temporarily continue their employer-sponsored health insurance after they retire. This coverage is available for up to 18 months (and can be extended to 36 months in some cases). While it covers the same health services your client had access to while working, it also comes with higher costs. Typically, retirees pay the entire premium themselves, plus a small administrative fee (whereas while they were working, their employer probably paid the majority of the premium).
Though COBRA is often more expensive than what people pay as employees, it can still be a convenient way to bridge the gap until Medicare coverage begins. Retirees don’t have to change doctors or deal with a new insurance plan, which simplifies things during the transition into retirement.
That said, it’s important to compare the cost of COBRA with other coverage options, such as plans through the Health Insurance Marketplace, to ensure the most cost-effective choice.
Encourage early retirement clients to review their COBRA eligibility and costs with their former employer’s benefits department. Then work with them to weigh the pros and cons of sticking with their current plan versus exploring other coverage options.
2. Use money saved in a health savings account (HSA).
For clients who contributed to an HSA during their working years, that account could be a valuable resource to help them cover health care expenses before Medicare. HSAs offer a triple tax advantage — contributions are tax-deductible, earnings grow tax-free and withdrawals for qualified medical expenses are also tax-free. This makes them one of the most efficient tools for managing health care costs in retirement.
HSA funds can be used for a wide range of qualified expenses, including doctor visits, prescription medications and even long-term care premiums. Unlike flexible spending accounts (FSAs), HSAs have no “use-it-or-lose-it” rule, meaning any unspent funds roll over each year and remain available even after retirement.
Suggest that your clients review their HSA balances and eligible expenses. Create a personalized health care cost assessment to help estimate how much of a client's income may go toward health care once they retire. Then consult with them on how and when to use any HSA funds for maximum tax efficiency.
3. Find a part-time job that offers health care benefits.
One way to bridge the gap in health care coverage before Medicare is to take a part-time job that offers health insurance benefits. Many employers offer health coverage to part-time employees. This option not only helps retirees manage health care costs but also gives them an opportunity to stay active and supplement their retirement income.
Additionally, as of 2025, individuals can earn up to $23,400 per year during retirement without impacting their Social Security benefits. If retirement earnings exceed this limit, benefits may be reduced — but your clients can recoup those amounts once they reach full retirement age.
Advise your clients to research part-time opportunities in their area that offer health care benefits. Help them factor in how much income they can earn while still collecting Social Security.
4. Purchase private health insurance.
If COBRA or a part-time job with benefits isn’t available, purchasing private health insurance is another option to cover health care expenses until Medicare kicks in. The Health Insurance Marketplace, created under the Affordable Care Act (ACA), offers a variety of plans that cater to different budgets and health needs. Depending on each client’s income level, they might even qualify for a subsidy to help lower their monthly premium.
One key advantage of purchasing private insurance is the flexibility to choose a plan that best fits each person’s medical needs. Coverage can be chosen based on factors like deductibles, co-pays and provider networks. However, private insurance can be expensive, so it’s important to shop around and compare costs carefully, especially for those who have ongoing medical needs.
Direct clients to the Health Insurance Marketplace to compare plans and find out if they qualify for a subsidy.
5. Consider annuity options.
Annuities can be a useful tool for generating income to help cover health care expenses before Medicare. With certain annuities, clients can ensure a steady stream of income that can help them bridge the gap during their retirement years. There are several types of annuities that can meet different needs:
- Single-premium immediate annuity (SPIA): With a SPIA, clients make a one-time payment and begin receiving income right away. This can be a good way to match health care expenses with a reliable source of income.
- Deferred income annuity (DIA): A DIA works similarly to a SPIA, but instead of starting payments immediately, clients can defer them to a future date — perfect for covering expenses in the years leading up to Medicare.
- Fixed indexed annuity (FIA): An FIA offers the potential for growth by linking to a market index while providing protection against market losses. Clients can also add an income rider for guaranteed income, which may help to fund health care costs for the long term. This rider allows clients to withdraw a certain amount of income each year. It can also be a valuable way to make sure they have a stable income source to cover health care costs without worrying about outliving their savings.
Review annuity options with your clients. Annuities are complex, so it’s important to help them understand how each type works and what income guarantees each offers to help meet their health care needs.