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5 options to help bridge the health insurance gap before Medicare kicks in

By

Merrill / Bank Of America

Published

Wednesday, July 10, 2024

Consider these health insurance options if you plan to retire before 65

When you retire early, one new expense can loom large once you leave the ranks of the employed: health insurance. If you’ve been relying on your employer’s group health insurance, your coverage will likely end, although 21% of large firms extend healthcare coverage to retirees, so check to see if your employer is one of them.1

If not, you will be responsible for the full cost of your premiums until you become eligible for Medicare at age 65.

If you’re planning on being one of them (or find yourself in this situation unexpectedly), your financial advisor can help you estimate your healthcare costs in retirement. By weighing the best coverage options available to you until Medicare kicks in, you can bridge the gap of coverage for you and your family if you previously were all covered on your employer’s plan.

Exploring your options
Below are some options you might want to explore with your financial advisor to help you cover your immediate and long-term healthcare needs. To jump to a specific option, click on a link below.

Another employer-sponsored plan

An extension of your coverage through COBRA

A private plan

A high-deductible plan tied to an HSA

Plan ahead for future healthcare costs


#1. Another employer-sponsored plan
Your easiest option, if your partner is still working, might be to sign on to their workplace plan, says Ben Storey, Director, Retirement Research & Insights, Bank of America. It may mean an additional cost to the working partner, depending on the employer’s policy for partner and family coverage, but finding out if you can be added to your partner’s policy, and what the cost would be, should be the first option you investigate.

You might also consider enrolling in a new employer-sponsored plan by taking on a part-time job that offers healthcare benefits. It’s worth noting that as of 2024, you can earn up to $22,320 in retirement and still collect your Social Security benefits. After that, your benefits will be reduced based on the amount you make over the $22,320 limit.3,4

#2. An extension of your coverage through COBRA

Once your last date of employment has been determined, ask your employer’s HR department if you’re entitled to continue your existing coverage for yourself and your family under COBRA (the Consolidated Omnibus Budget Reconciliation Act). You’ll likely pay higher premiums under COBRA than you did when you were working — participants generally have to pay the full cost of the insurance plus up to a 2% administrative fee — but it may be worth considering as a temporary measure.

COBRA coverage typically lasts for up to 18 months after you leave your job, but there are some exceptions related to Medicare, disabilities and other factors that could extend the coverage for you, your spouse and dependents to as long as 36 months. Your financial advisor or HR department can fill you in on the details.

If you turn 65 while covered by COBRA, you can sign up for Medicare Parts A and B. Your COBRA coverage typically ends when you get Medicare, but your spouse (if under 65) and dependents will remain eligible for COBRA until the designated coverage period runs out. For more information on how Medicare eligibility affects COBRA coverage, visit medicare.gov and check out the Department of Labor’s guide to COBRA.

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