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  • Writer's pictureKyle Rolek, Retirement Planning Specialist

Health Insurance When Retiring Before Age 65

Updated: Sep 5, 2023



If you're thinking about retiring before age 65, how will you get health insurance prior to reaching Medicare eligibility?


How much will health insurance cost? How can you save money on the premiums?


First, this article discusses health insurance options when retiring before age 65.


Second, the article discusses ways to save money on marketplace health insurance coverage by establishing a good plan to maximize your "Premium Tax Credit", which minimizes health insurance costs.


Obtaining Healthcare When Retiring Before Age 65


Method #1: COBRA Coverage


COBRA is a federal law that requires most employers with at least 20 employees to provide continuing health insurance coverage to employees after employment ends for at least 18 months.


The benefit of COBRA is simplicity. Health insurance stays as-is for up to 18 months.


The primary downside is cost. Although coverage stays the same, costs increase significantly.


Your employer can provide more details about how much COBRA would cost to continue coverage if you stay enrolled in your specific healthcare plan after leaving employment.


Method #2: Spouse's Employer Plan


For married couples, this option is often more cost effective than COBRA coverage, although the quality of the plan may also change.


When one spouse retires before age 65 and the other spouse continues working, the retired spouse will usually find it more cost effective to obtain coverage through their spouse's employer plan rather than continue coverage through their old employer by enrolling in COBRA.


Method #3: Marketplace Coverage


Created after the Affordable Care Act became law in 2010, Healthcare.gov is a resource for those who are shopping for health insurance plans that haven't yet obtained Medicare eligibility.


Healthcare.gov is a national website. The direct website for PA residents is pennie.com


The websites linked above allows you to view marketplace health insurance plans available in your area.


First, you enter some basic information such as zip code, age, income, and if you have dependents or not.


Next, the available health insurance plans are displayed along with their premium cost, deductible, out-of-pocket maximum, and other coverage information.


Last, the websites show how much of a health insurance cost subsidy you'll qualify for (called the "Premium Tax Credit") based on your level of income.


Pennsylvania Healthcare Marketplace Example


As mentioned above, the Pennsylvania healthcare marketplace web address is pennie.com


Here's what the homepage looks like...


Once you get to the home page:


1 - Click "Shop" > "Shop Overview"


2 - Fill in basic information such as zip code, date of birth, and family status


3 - View health insurance plans available in your area. Dozens of options exist in most zip codes.


Example High Deductible Health Insurance Plan:


Here's example "low" premium / high deductible plans for a married couple both age 62 in Chester County, PA...


The lowest premium option in the example about is over $15,000 per year with a deductible of another almost $15,000.


Example High Premium Health Insurance Plan:


Here's example high premium / low deductible plans for a married couple both age 62 in Chester County, PA...



The $0 deductible examples in the image above start at premiums in excess of $30,000 per year!


The Premium Tax Credit


If there's any good news with these plans, it's that a large portion of the premium can be offset by what's called the "Premium Tax Credit".


If income is low enough, all or a large portion of the premiums will be subsidized by the government for those enrolling in marketplace health insurance plans.


The government can either send payment directly to the insurance company on your behalf, or they can provide a tax credit when the tax return is filed.


Further, income doesn't need to be extremely low to qualify, and even those who earned high income during their working years may qualify.


The premium tax credit subsidize health insurance premiums on a sliding scale: the lower your income, the larger the cost subsidy you receive.


Here's an Premium Tax Credit for a married couple both age 62 in Chester County, PA assuming $80k per year income...


In the example above, this person would receive a $1,173 per month subsidy that can be used to reduce health insurance premiums.


This subsidy would almost entirely fund the high deductible health insurance plan premiums in the earlier example.


Here's an Premium Tax Credit for a married couple both age 62 in Chester County, PA assuming $60k per year income...

In the example above, this person would receive a $1,385 per month subsidy that can be used to reduce health insurance premiums.


Clearly, having a good plan to minimize taxable income when getting health insurance through the marketplace can really pay off.


The Premium Tax Credit Summary


1 - Many people qualify: Since the person who is applying for coverage is very likely to be retired at this point, income is likely much lower compared to the working years. As a result, many people including those who were high earners during working years may qualify for some health insurance cost subsidy when getting marketplace insurance coverage.


2 - The subsidy amount follows a sliding scale: The lower the income, the larger the subsidy. Good retirement income planning can help minimize taxable income in the early years of retirement, which also minimizes marketplace health insurance costs.


3 - There is no asset test: Income is all that matters. As a result, with proper planning, even those with a good amount saved for retirement can potentially qualify for a meaningful cost subsidy under current rules.


4 - The bottom line: While enrolled in marketplace health insurance coverage, if you keep taxable income low enough, you may qualify for the government to pay for all or a part of your health insurance premiums. Depending on your health insurance plan and family size, this can be a $15,000+ per year annual savings.


A well-organized retirement income plan can structure distributions in the early years of your retirement to minimize taxable income.


Especially for those retiring before Medicare eligibility at age 65, good retirement planning that minimizes taxable income is particularly valuable because this will also minimize healthcare costs while enrolled in marketplace health insurance coverage.



Want To Discuss This Individually?


1 - For clients: Call or email me any time as always.


2 - For non-clients: Complete the form on the website to request a retirement planning consultation: www.rolekretirement.com


This is article is for informational purposes only and should not be considered as tax or legal advice. Advice is only provided after entering into an Advisory Agreement with the Advisor. See other disclosure here: Disclosures

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