Health Insurance Between Early Retirement and Medicare

Medicare coverage generally begins at age 65. People who retire earlier have to arrange health insurance for the years in between, and the cost can be one of the larger items in an early retirement budget. The options differ in cost, in enrollment windows and in how income affects the price.

COBRA continuation coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) lets people who lose job-based coverage because of a job change or retirement continue the employer’s group plan, generally for up to 18 months, if the employer had 20 or more employees. The person pays the full premium plus up to 2% for administration, so the monthly cost is often much higher than what the employee paid while working. The election notice gives a person at least 60 days to elect coverage, and the first premium is generally due within 45 days after that election.

COBRA keeps the same plan, doctors and deductible progress, which can matter for someone midway through treatment. It is time-limited, though, and 18 months may not reach age 65. Employers too small for COBRA may be subject to state continuation rules, which in Texas are described by the Texas Department of Insurance.

Marketplace coverage and special enrollment

Losing job-based coverage triggers a special enrollment period, generally 60 days before or after the loss, in which a person can enroll in a marketplace plan outside the regular open enrollment period. Texas residents use HealthCare.gov. Open enrollment for 2027 coverage runs from November 1, 2026 to January 15, 2027. A person who enrolls by December 15 generally has coverage starting on January 1, and enrollment from December 16 to January 15 generally starts coverage on February 1.

Voluntarily dropping coverage generally does not trigger a special enrollment period, while losing job-based coverage, including when employment ends, generally does. A spouse’s employer plan can also be an option, and a spouse’s plan generally offers its own special enrollment window after a loss of other coverage.

Premium tax credits

Marketplace plans may be eligible for premium tax credits, which reduce the monthly premium based on household income. The credit is calculated using modified adjusted gross income (MAGI), which for people in early retirement can include withdrawals from traditional retirement accounts, interest, dividends and capital gains. Because the credit is based on income, the way a household draws on its accounts in a given year can change the premium it pays.

Enhanced credits, first put in place in 2021 and later extended through the Inflation Reduction Act, expired at the end of 2025. The House passed a three-year extension on January 8, 2026, but it has not become law, so the original rules apply. Under the enhanced rules, there was no upper income limit, and benchmark premiums were capped at a share of income that topped out at 8.5%. Under the original rules, credits are available only to households with income up to 400% of the federal poverty level, and above that line the credit drops to zero, a feature often called the subsidy cliff. The expected contribution for households from 300% to 400% of the poverty level is 9.96% of income for 2026 and 10.22% for 2027 (Internal Revenue Service). The poverty guidelines are published each year by the Department of Health and Human Services, and the coverage year uses the guidelines for the prior year.

Beginning with tax year 2026, a person who received advance payments of the credit must repay the full amount of any excess when filing Form 8962, because the earlier repayment caps no longer apply (Internal Revenue Service). Income that ends up higher than estimated, for example from large withdrawals or capital gains, can therefore change the amount owed as well as the premium.

Health savings accounts

A person enrolled in a high-deductible health plan can contribute to a health savings account (HSA), and contributions are deductible, growth is tax-free and withdrawals are tax-free when used for qualified medical expenses (IRC Section 223). For 2026, the contribution limit is $4,400 for self-only coverage and $8,750 for family coverage, plus $1,000 for those age 55 or older. Since January 1, 2026, bronze and catastrophic plans sold through a marketplace are treated as high-deductible health plans for this purpose (IRS Notice 2026-5). HSA funds can pay COBRA premiums. After age 65, HSA funds can pay Medicare premiums, including Part B and Part D, but not Medigap premiums. Contributions to an HSA must stop once the person enrolls in Medicare, and Medicare Part A coverage can begin retroactively for up to six months, which can affect the last contributions. Medicare.gov describes the enrollment periods for each part of Medicare.

Points that affect the cost

• The number of months until Medicare eligibility and whether COBRA would cover the whole gap.
• Premiums, deductibles and out-of-pocket limits for each option, along with provider networks and prescription coverage.
• Expected MAGI for the year, including the effect of retirement account withdrawals and capital gains on subsidies.
• Whether the household is near the 400% line that applies now that the enhanced credits have expired.
• Whether a spouse’s employer plan or retiree coverage is available.
• The special enrollment deadlines after a loss of coverage.
• Whether an HSA is available and how it can be used for premiums.

Your adviser can discuss how health coverage costs sit within an early retirement budget. For the plans, premiums and subsidy rules that apply to you, a licensed insurance professional is the right source.

This article is provided by Austin Wealth Management for general educational purposes only. It is not financial, investment, tax or legal advice, it does not consider your individual circumstances, and it does not create an advisory relationship. Austin Wealth Management provides advice and services only under a signed advisory agreement, and the terms of that agreement govern. Rules and limits change, so information here may not be current. Consult a qualified financial professional before making financial decisions.