Bridging the Medicare Gap: Healthcare Before 65

You're 60, ready to retire, and can afford it—based on your retirement savings. But there's a problem: Medicare doesn't start until 65. Five years of healthcare costs without employer coverage can easily exceed $100,000. For many early retirees, this "Medicare gap" is the single biggest obstacle to leaving work before 65.

The Scope of the Problem

Employer-sponsored health insurance typically costs $7,000-$8,000 per year for an individual, with the employer covering most of the premium. Once you leave, you're responsible for the entire cost yourself.

For a 60-year-old couple purchasing coverage on the ACA marketplace without subsidies, premiums can exceed $25,000-$35,000 annually—before deductibles and out-of-pocket costs. That's $125,000-$175,000 over five years, and potentially more if healthcare costs continue rising.

This expense alone can push back retirement dates or derail early retirement plans entirely. Understanding your options is essential.

Option 1: COBRA Coverage

COBRA allows you to continue your employer's health plan for up to 18 months after leaving (36 months in some circumstances). You pay the full premium—what you paid plus what your employer paid—plus a 2% administrative fee.

Pros:

• Same coverage you had while employed
• No medical underwriting—you're guaranteed coverage
• Keeps your doctors and network

Cons:

• Expensive—often $600-$2,000+/month per person
• Limited to 18 months (usually)
• Doesn't solve the whole gap for early retirees

COBRA can be useful as a bridge while you explore other options or if you retire close to 65. But for a 60-year-old, it only covers until age 61.5.

Option 2: ACA Marketplace Plans

The Affordable Care Act marketplace (Healthcare.gov or state exchanges) is the primary option for most early retirees. Plans can't deny coverage or charge more for pre-existing conditions.

The subsidy opportunity:

ACA premium subsidies are based on income, not assets. A retiree with $3 million in savings but modest retirement income may qualify for significant subsidies. This creates planning opportunities:

• Keep income below 400% of the Federal Poverty Level for standard subsidies
• Income above 400% FPL is capped at 8.5% of income for premiums (through 2025)
• Manage income by controlling retirement account withdrawals and capital gains

Practical example: A married couple at 250% FPL (about $52,000 in 2025) might pay $300-$500/month for a Silver plan instead of $2,500/month without subsidies. That's $25,000+/year in savings.

The income management strategy:

• Draw from taxable accounts (capital gains can be managed)
• Use Roth accounts (withdrawals don't count as income)
• Delay large traditional IRA/401(k) withdrawals
• Be strategic about Roth conversions (they add to income)

Option 3: Spouse's Employer Coverage

If your spouse is still working and has employer coverage, you may be able to join their plan. Losing your own employer coverage is a qualifying life event that allows mid-year enrollment.

This is often the most economical option—you get employer-subsidized coverage without the full cost. Some couples stagger retirement specifically to maintain coverage: one spouse retires while the other works until both reach 65.

Option 4: Part-Time Work with Benefits

Some employers offer health benefits to part-time workers. Costco, Starbucks, UPS, and some retailers are known for this. Working 20-25 hours per week might provide coverage while leaving time for other pursuits.

This approach also provides income (reducing portfolio withdrawals), social engagement, and a gentler transition to full retirement.

Option 5: Health Care Sharing Ministries

These faith-based organizations aren't insurance—members share medical costs. Monthly costs are typically lower than insurance premiums.

Significant caveats:

• Pre-existing conditions often excluded or limited
• No guarantee of payment—sharing is voluntary
• May not cover certain treatments or conditions
• Not regulated as insurance

For healthy individuals with religious alignment, these can work. But they carry meaningful risk and shouldn't be viewed as equivalent to insurance.

Option 6: Short-Term Health Insurance

Short-term plans offer temporary coverage, typically 3-12 months. They're cheaper than ACA plans but provide less protection:

• Can deny coverage for pre-existing conditions
• Often exclude mental health, maternity, prescription drugs
• Have annual and lifetime maximums
• Don't count as minimum essential coverage

These are best used as true short-term bridges—not as primary coverage for the entire Medicare gap.

Budgeting for the Gap

When planning early retirement, build healthcare costs into your projections:

Conservative estimate: $15,000-$25,000 per person per year, including premiums, deductibles, and out-of-pocket costs. For a couple, that's $30,000-$50,000 annually.

If managing for ACA subsidies: Potentially $5,000-$15,000 per person per year, depending on how effectively you control income.

Build in buffers for:

• Healthcare inflation (historically 5-7% annually)
• Unexpected medical needs
• Policy changes (subsidies could change)
• Prescription drug costs

The Transition to Medicare

Plan ahead for Medicare enrollment at 65. Key dates:

• Initial Enrollment Period: 7 months around your 65th birthday
• Don't miss it: Late enrollment penalties apply to Part B and Part D
• Medigap timing: Best rates during the 6-month Medigap Open Enrollment

If you're on an ACA plan, you'll transition to Medicare. If on a spouse's employer plan, Medicare becomes primary at 65.

Action Steps

1. Project your healthcare costs for each year from retirement to 65
2. Model your income to see if ACA subsidies are achievable
3. Explore all options: marketplace, spouse's plan, part-time work
4. Build a dedicated healthcare fund if retiring before 65
5. Work with a financial advisor who understands the ACA income dynamics
6. Review annually: Plans, subsidies, and your situation change

The Bottom Line

The Medicare gap is a solvable problem, but it requires planning. For many early retirees, managing income for ACA subsidies is the key strategy. For others, a spouse's coverage or part-time work provides the bridge.

Whatever your approach, don't underestimate healthcare costs. They're often the difference between a comfortable early retirement and one that's perpetually stressed about money. Plan for them explicitly, build in margins, and revisit your strategy each year.