Health Insurance Options If You Retire Before Age 65
I hope you're 2025 is off to a great start!
Various studies that are done on the biggest concerns of pre-retirees and retirees found, that this group was most worried about their health and the costs associated with it.
If you plan on retiring before age 65, I will be talking about some of the following insurance topics that could impact you:
What your insurance options are.
The cost of these options
Ways to potentially lower premium costs.
Some have a goal of retiring before age 65, and along with this goal comes the challenges of figuring out how to handle your health insurance.
#1: NOT HAVING HEALTH INSURANCE
This list will be going in order of least desirability. So, starting at number one it is just skipping health insurance altogether.
For a long time, there was a penalty for not having health insurance, but that penalty went away and has not been put back into place. We will have to see if anything changes, but I would be surprised if we see it go back into place.
Obviously, it's not a great idea to not have any health insurance. There could be a little accident that could become very expensive very quickly and throw off your retirement plans.
#2: MEDICAID
Medicaid tends to be for individuals with a very low income. In my home state of Connecticut, there is a program for younger people who are not yet on Medicare.
HUSKY
Husky is generally for people who have minor children or are in financial need. To qualify married couples need an income below $25,000 and a single person would need to be under $17,000. However, if you have a child in the household then your income can be higher and you could still qualify.
What counts as income?
Earned income from working.
Income from portfolio distributions.
Income from dividends or interest.
In some cases, people have a lot of cash saved up, so it would be possible to live off that cash and draw it out. Then get husky insurance in place, which tends to be very low cost or even free in some situations.
Peace of mind through trusted advice - Check out this week’s episode on: Navigating the 1031 Exchange with Eric Brecher, #241
#3: CONTINUE YOUR EXISTING HEALTH INSURANCE
If you had health insurance through your employer, you could continue to use the same insurance but with a few changes.
COBRA
The biggest difference is that with COBRA insurance, you're paying the full amount of the premium plus a 2% additional surcharge of the monthly costs.
Let's just say, you're working for a company and paying $200 a month for your health insurance because your employer is subsidizing a large portion of that cost. While the full cost would be $1000.
If you retired and went on COBRA to keep your health insurance. The difference now is, you pay $1000 a month plus the premium compared to $200.
This can get rather expensive but in some cases, it might make sense. Maybe you had retired or left your job close to the end of the year and you'd already met your deductible on that plan.
It just depends on your situation and if it makes sense for you.
HOW LONG CAN YOU KEEP COBRA INSURANCE?
You can keep COBRA insurance for up to 18 months. If you plan on retiring within 18 months of turning 65, keeping your insurance might make sense, even with the full cost.
Reasons people use COBRA:
They like their health insurance.
The administrators are easy to deal with.
They have good benefits with a low deductible.
They avoid the hassle of getting into a new plan.
If you prefer to learn in video format. Make sure to check out my YouTube channel! Don’t forget to subscribe!
#4: INVESTIGATE INDIVIDUAL PLANS
You can do some research on your own about plans that are offered within your home state.
In my opinion, the best thing to do if you want to go down this path is to speak with an insurance agent and have them guide you through this process.
AN EXAMPLE COULD LOOK LIKE THIS:
You're looking at an individual plan that would cost $500 a month, and it would have a $6000 out-of-pocket deductible. While your COBRA insurance was only a $3000 deductible but would cost you $1000 a month.
You'd have to weigh the pros and cons of each and do this with the help of an agent to help decide which policy will be best for you. Again it all depends on the person and how often they go to the doctor or what their health history is.
#5: GETTING AN INDIVIDUAL HEALTH INSURANCE PLAN THROUGH THE AFFORDABLE CARE EXCHANGE
If you're considering health insurance options, one of the best choices could be getting an individual health insurance plan through the Affordable Care Exchange. We've discussed Obamacare before, which led to the creation of the Affordable Care Act (ACA).
This exchange offers plans not just for you, but for your spouse, children, and other dependents as well. The most significant advantage? You may be eligible for a subsidy based on your income—similar to option #2 with the Husky program.
Unfortunately, not every state has its own healthcare exchange. However, the following states have their own programs:
California
Colorado
Connecticut
District of Columbia
Idaho
Maryland
Massachusetts
Minnesota
New Jersey
New York
Pennsylvania
Rhode Island
Washington
If you live in one of these states, you can access your state's exchange directly. For example, in Connecticut, it’s called Access Health. You’ll need to input your information, including your county, age, family members' ages, and income. This will help determine what subsidy you qualify for.
Shipped to your door!
Available on Amazon Marketplace (click the image)
HOW SUBSIDIES WORK
The subsidy you receive will depend on your projected income for the year. A few years ago, subsidies were stricter—if your income went just one dollar above the threshold for your family size, you lost your subsidy completely.
Thankfully, subsidies are now tiered. This means that if you go over the threshold, you won’t lose the subsidy altogether; it’ll just be reduced.
If you live in a state without an exchange, you can visit healthcare.gov, which works similarly to provide quotes and subsidy estimates.
Click here to check out HEALTHCARE.GOV
WHY YOU SHOULD CHECK YOUR ELIGIBILITY
If you're retiring soon (or even planning for retirement in the next few years), it's definitely worth checking the exchange. You can enter your projected income to see what subsidy you might qualify for. Even with a relatively high income, you could still receive a subsidy.
HOW TO LOWER YOUR PREMIUMS AND QUALIFY FOR A SUBSIDY
If you’re hoping to qualify for a subsidy, there are a few strategies to consider, especially if you’re retiring and have substantial savings in IRAs, 401(k)s, or taxable investment accounts.
One of the most effective ways to lower your income is to control where it comes from. For instance, you could withdraw a smaller amount from your retirement accounts and take more from your taxable investments or savings. By doing this, you’ll have a lower income on paper, which may make you eligible for a higher subsidy.
It's important to note that subsidies are not based on your net worth. Even if you have millions of dollars saved up, if you're not withdrawing from those savings, you can still have a lower income and qualify for a subsidy.
CONSIDER YOUR INCOME STRATEGY
If you're retiring at 60 and plan to use the Affordable Care Exchange for a couple of years, you could structure your income so that you qualify for a higher subsidy. By taking less income during these years, you could qualify for more assistance.
Once you reach 65 and switch to Medicare, you’ll have different financial rules and higher income thresholds, so this could be a short-term strategy to take advantage of subsidies before you transition to Medicare.
Take my course at your pace through an on demand video library.
FUTURE UNCERTAINTY AND PLANNING
One of the biggest uncertainties with the Affordable Care Exchange is whether the subsidies will remain as they are today.
These subsidies are set to expire soon, and we don’t know if Congress will extend them or revert to the previous system. It’s important to stay informed on what changes may occur.
WORKING WITH PROFESSIONALS
It’s highly recommended to work with a financial advisor to structure your income in a way that maximizes your eligibility for subsidies. An experienced insurance agent can also help guide you through the exchange options, ensuring you select a plan that fits your needs.
Ultimately, the key is to plan ahead. Whether you’re trying to qualify for a subsidy now or want to make sure you’re prepared for future changes, having a strategy in place can make all the difference.
If you have a question or topic that you’d like to have considered for a future episode/blog post, you can request it by going to www.retirewithryan.com and clicking on ask a question.
As always, have a great day, a better week, and I look forward to talking with you on the next blog post, podcast, YouTube video, or wherever we have the pleasure of connecting!
Written by Ryan Morrissey
Founder & CEO of Morrissey Wealth Management
Host of the Retire with Ryan Podcast