Retiring Before Medicare: Your Health Insurance Options

If you retire at 60, Medicare is still five years away. If you retire at 63, it is two. In between, you need health insurance that works, and for many people that is the single biggest unknown in the retirement plan.

It matters more for higher earners than most people expect. The strongest help with health insurance premiums comes from the Affordable Care Act (ACA), but it is tied to income, and subsidies stop completely once income passes a set limit. If your retirement income is solid, you may land above that limit and pay full price.

This post walks through the main ways to cover the gap before Medicare: the ACA Marketplace and how its income limit works, COBRA and other employer coverage, and a few other options worth knowing about. Open enrollment for 2027 coverage is running right now, so the timing is useful if you are planning a retirement in the coming year.

The gap before Medicare

Medicare generally starts at 65. If you leave work earlier, you are responsible for your own coverage until then. A few things make that gap more expensive than it used to be:

• Premiums keep rising. For 2027, the average benchmark Marketplace premium is rising about 13%, following a 26% increase from 2025 to 2026, according to KFF. Illinois insurers' individual plan rates are rising a weighted average of 14.1% for 2027, according to the Illinois Department of Insurance.
• Age is priced in. Federal rules allow insurers to charge a 64-year-old up to about three times what they charge a young adult for the same plan. Early retirees sit at the expensive end.
• Your employer was paying much of the bill. Many people do not realize how much of their current premium their employer covers until they see the full price.
• The extra help has shrunk. The enhanced ACA subsidies that made Marketplace coverage affordable for many middle and upper incomes expired at the end of 2025. As of early November 2026 they have not been renewed.

The result is that for a couple retiring early, health insurance can be one of the largest budget items for the first several years, and it deserves its own line in the retirement plan.

The ACA Marketplace and its income limit

The Marketplace, called Get Covered Illinois here, is where individuals buy their own plans. Anyone who is not yet eligible for Medicare can buy there, and insurers cannot turn you down or charge you more because of your health. Prices depend on your age, county, tobacco use, and the plan you choose.

How the subsidy works. The government offers a premium tax credit that lowers your monthly cost. The credit is the difference between the price of a benchmark plan in your area and a set percentage of your income. For 2027, that percentage runs from 2.15% of income at the lowest incomes up to 10.22% for incomes between 300% and 400% of the federal poverty level.

The limit. Above 400% of the federal poverty level, the credit is $0. For 2027 coverage, that line is:

• About $63,840 for a single person
• About $86,560 for a couple
• About $132,000 for a household of four

It is a true cliff. One dollar over the limit and the entire credit disappears. Between 2021 and 2025, temporary rules removed the cliff and capped what people paid at 8.5% of income. Those rules expired at the end of 2025, so the cliff is back.

A hypothetical example. Suppose a couple in their early 60s would pay $28,800 a year ($2,400 a month) for the benchmark plan in their area. Real prices vary widely by age, county, and plan.

One extra $1,000 of income, in this example, costs about $20,000 in help with premiums.

Two newer rules to know.

• No cap on repayment. If you take the credit in advance and your income ends up over the limit, you must repay all of it. Starting with the 2026 tax year, the old repayment caps are gone. People will see this for the first time when they file their 2026 taxes in early 2027.
• Open enrollment is now. For 2027 coverage, open enrollment in Illinois runs from November 1, 2026 through January 15, 2027. If you retire and lose employer coverage in the middle of a year, you generally have 60 days to enroll through a special enrollment period.

Can you stay under the limit?

For a higher earner, the first honest question is whether it is realistic to land under the limit during the years before Medicare. For some people it is, because retirement income is something you largely control: you choose which accounts to spend from, and in what order. For others, pensions, required withdrawals, rental income, or a business make it unrealistic. It is worth running the numbers before assuming either answer.

The income the Marketplace looks at is called modified adjusted gross income, or MAGI. For this purpose it is your adjusted gross income plus a few items, such as tax-exempt interest and the untaxed part of Social Security.

Generally counts toward MAGI

• Withdrawals from traditional IRAs and 401(k)s
• Roth conversions
• Interest, dividends, and capital gains
• Pension income and taxable Social Security
• Business and rental income
• Tax-exempt interest, such as municipal bond interest

Generally does not count

• Qualified withdrawals from a Roth IRA
• The cost basis (what you originally paid) when you sell investments in a taxable account
• Qualified withdrawals from a Health Savings Account (HSA) used for medical costs
• Money from savings and checking

This is why the order of withdrawals matters so much in the bridge years. Living on cash, Roth money, and basis from taxable accounts can keep MAGI low, while large IRA withdrawals or a big capital gain can push it over.

The trade-off. Staying under the limit often means not doing things that are otherwise attractive, such as large Roth conversions in the low-income years before Social Security and required withdrawals begin. A conversion that saves taxes over the long run can cost far more than it saves if it pushes you over the limit. The reverse can also be true: giving up a conversion to keep a $20,000 credit may be the better deal. The right answer depends on your numbers, which is why it is worth modeling with your CPA before year-end.

Two practical cautions.

• Plan for surprises. A home sale, business sale, bonus, or year-end fund distribution can push income over the limit. Because the credit is all or nothing, one event can cancel it.
• Update your income estimate. If your income changes during the year, update the Marketplace. With no cap on repayment, an estimate that is too low can lead to a large bill at tax time.

COBRA and continued employer coverage

COBRA lets you keep the health plan you had at work after you leave. For many early retirees it is the simplest first step, though rarely the cheapest.

• How long. Up to 18 months after you leave your job. Longer periods apply in a few cases, such as a disability or a second qualifying event.
• What it costs. You can be charged the full cost of the plan, both your share and your employer's, plus up to 2%. That is often a large jump from what came out of your paycheck. Some employers help with the cost for a time as part of a retirement or severance package, so ask.
• Deadlines. You generally have 60 days to elect COBRA and 45 days after electing to make the first payment. Miss a deadline and the option is gone.
• Same plan, same doctors. Because it is your existing plan, your network, prescriptions, and progress toward this year's deductible usually carry over. That can matter a lot if you are mid-treatment or retire late in the year.

Where COBRA fits. COBRA is typically a bridge, not a destination. At 18 months it ends, and at 62 you may still need two or more years of coverage. It is a good fit when you retire late in the year (so the deductible you already met still counts), when you want to keep a specific doctor or hospital, or when you need time to decide on a longer-term plan.

Watch the timing. Choosing COBRA does not stop you from buying a Marketplace plan later, and a Marketplace special enrollment period opens when COBRA runs out. But if you end COBRA early on your own after the 60-day window, you generally cannot switch until the next open enrollment. If you want to move to a Marketplace plan, do it within 60 days of losing your job coverage, or plan to ride COBRA to its end.

Other employer-based options. Ask your HR department about retiree medical coverage. A few employers still offer it, often only to long-tenured workers and sometimes until Medicare begins. If your spouse is still working, their plan may be the lowest-cost route, and you generally have 60 days to join it after you lose your own coverage. Some people also take a part-time or consulting job that offers benefits, but the job needs to meet the plan's eligibility rules.

Other options worth knowing about

• Full-price Marketplace plan with a Health Savings Account. Above the income limit you pay full price, but you still choose among bronze, silver, gold, and platinum plans. Starting in 2026, bronze plans qualify as HSA-compatible plans. That gives healthy people a lower-premium option that also lets them save in an HSA. For 2027, the HSA limits are $4,500 for self-only coverage and $9,000 for family coverage, with an extra $1,000 for those 55 and older. HSA contributions are deductible, growth is tax-free, and withdrawals for qualified medical costs are tax-free. Near 65, HSA contributions generally have to stop six months before you enroll in Medicare.
• Direct primary care. Starting in 2026, a monthly membership with a primary care practice (up to $150 for an individual) can be paid from an HSA without costing you HSA eligibility.
• Catastrophic plans. Eligibility is limited. For 2027 it generally requires being under 30, having a hardship exemption, or facing coverage that would cost more than 8.5% of income, so this is rarely an option for higher earners.
• Short-term plans. These are not a real option in Illinois. The Illinois Department of Insurance says the state has banned the sale of new short-term limited-duration plans to residents since January 1, 2025. They also can deny people with health conditions and often exclude major services.
• Health care sharing ministries. These are not insurance. They typically do not guarantee payment and may exclude pre-existing conditions. We generally suggest treating them with caution and reading the fine print.
• Going without coverage. There is no federal penalty for being uninsured, but a serious illness or accident can cost a lot. For higher-net-worth households, the risk is to the retirement plan as a whole.

The options side by side

Prices and rules vary by plan, county, and year. This table is a starting point for conversations with your insurance agent or the Marketplace.

A practical approach for higher earners

There is no single best answer, but this order of questions works for most households:

1. Estimate your income for each year before Medicare. Include IRA withdrawals, Roth conversions, capital gains, pensions, and interest. Compare it with the limit for that year ($63,840 single and about $86,560 for a couple in 2027). The limit changes each year.
2. Decide whether staying under the limit is realistic and worth it. Compare the value of the credit to the tax cost of keeping income low. If staying under means giving up a large Roth conversion, ask your CPA to model both paths.
3. If you are clearly above the limit, price the employer-based options first. A spouse's plan, retiree coverage, or a job with benefits is often the lowest-cost route because an employer pays part of the premium.
4. Use COBRA as a bridge where it helps. It works well for the first months after leaving, or to avoid disruption in mid-treatment. Check the cost and decide in advance what comes after.
5. For the long haul, pick a Marketplace plan by total expected cost, not just premium. Add the premium to what you would likely pay out of pocket, up to the plan's out-of-pocket maximum. Healthy households may do well with a bronze plan and an HSA. People who use a lot of care may find a gold or silver plan cheaper overall.
6. Check the network and the drugs. Confirm your doctors, your hospital, and your prescriptions are covered before you enroll.
7. Fund an HSA if you have an eligible plan. Contributions are deductible, and the money can pay medical costs tax-free, including after 65.
8. Review it every year. Premiums, limits, and the law all change.

Questions to ask

• Does my employer offer retiree coverage, and what would it cost?
• What would COBRA cost for the first year, and does my employer help?
• What will my income be in each year before 65?
• Are my doctors and hospital in the plan's network?
• If I convert to a Roth or sell an investment, how does it affect my health insurance costs?
• When do I need to enroll in Medicare, and what do I need to do about my HSA before then?

The bottom line

Health coverage before Medicare is one of the largest and least predictable costs of retiring early. For higher earners, the ACA subsidy may be out of reach, but the same decisions that determine your income each year also determine your options. Planning which accounts to draw from, how to use COBRA or employer coverage, and which plan fits your health and budget can make a meaningful difference.

If you are thinking about retiring before 65, it is worth building health coverage into the plan early. We can help you map out your income for the bridge years and prepare questions for your insurance agent, CPA, and other advisers.