If you’re planning to retire before age 65, health insurance is one of the first gaps you have to fill yourself. Medicare doesn’t start early just because you do, and the choices you make in the years leading up to 65 — and the ones you make right at 65 — can affect your costs for the rest of retirement.
Your Options If You Retire Before 65
There are three main paths to coverage before Medicare eligibility. COBRA lets you continue your employer’s group plan, usually for up to 18 months, but you pay the full premium plus a 2% administrative fee. ACA marketplace plans (bronze, silver, gold, or platinum) are worth comparing against COBRA because they may qualify you for premium tax credits — COBRA does not disqualify you from ACA plans, but it’s worth pricing both. Off-exchange plans, purchased directly through a broker rather than the marketplace, are a third option if you don’t expect to qualify for tax credits and want access to a different provider network.
The metal tiers (bronze through platinum) all cover the same categories of care — the difference is cost-sharing. As you move up in tier, your deductible and co-pays go down and your premium goes up. There’s no tier that covers more; there’s only a tier that shifts more of the cost to your monthly premium versus your out-of-pocket spending.
Tax Credits and Cost-Sharing Reductions Depend on How You Draw Income
Premium tax credits and cost-sharing reductions are calculated based on your modified adjusted gross income (MAGI) relative to the federal poverty level — not simply the cash flow you live on. This creates real planning opportunities. For example, a maturing CD isn’t taxable income when it comes due, so if you’re structuring withdrawals in advance, it’s possible to keep MAGI below the relevant thresholds even with a substantial amount of assets, provided you have both qualified and non-qualified accounts to draw from. In 2026, the tax credit cliff sits at 400% of the federal poverty level — cross that threshold and you pay 100% of your premium, so it’s worth knowing where that line falls for your household size before you finalize a withdrawal strategy.
Health Savings Accounts Before 65 — And a Retroactive Trap to Watch
If you have a high-deductible health plan, an HSA is one of the more efficient accounts available before Medicare, since contributions are tax-deductible going in and withdrawals are tax-free for qualified medical expenses — including Medicare Part B premiums later on. (See our guide on funding an HSA from an IRA for another way to build HSA balances.)
The trap: if you delay Medicare Part A past 65 specifically to keep contributing to an HSA, Medicare backdates your Part A coverage up to six months once you do enroll. If you kept making HSA contributions during that backdated window, those contributions become retroactively ineligible — a timing issue that needs to be worked out with a tax professional. The fix is simple once you know about it: stop HSA contributions before that six-month lookback window begins, not after.
The Transition to Medicare: Parts A, B, C, and D
At 65 (or later, if you’re still working and covered by a qualifying employer plan), you become eligible for Medicare. Part A is hospital insurance and is premium-free if you’ve worked 10 years or 40 quarters. Part B covers routine visits, surgeries, and outpatient care, and carries a monthly premium. Part D is prescription drug coverage. Part C — Medicare Advantage — is a different path entirely: it’s a private-insurance alternative to A, B, and D combined, not an add-on to them. (For a fuller walkthrough of how the parts fit together, see our overview of Medicare’s key points for retirement planning.)
If your employer has 20 or more employees and provides creditable coverage, you can delay Medicare enrollment without a penalty while you keep working. Under 20 employees, you generally need to enroll in Medicare even if you keep your job’s health plan, since the small-group plan becomes secondary. Miss your enrollment window entirely, and the Part B penalty is permanent: roughly 10% more for every 12-month period you went without coverage you should have had.
Medigap vs. Medicare Advantage
Once you’re on Medicare, the biggest single decision is Medigap (a private supplement that fills the gaps in original Medicare) versus Medicare Advantage (a private plan that replaces original Medicare entirely). Medigap generally means higher premiums but more freedom — any provider nationwide that accepts Medicare, no network, no prior authorization. Medicare Advantage typically costs less month to month but comes with a network and potential prior-authorization requirements. The tradeoff matters most if your health changes: developing a chronic condition after enrolling in Medicare Advantage can make it difficult to switch to Medigap later, since a switch back generally requires medical underwriting.
What the Real Numbers Look Like
In a sample projection, a couple retiring at 62 and 63 and paying full price for an ACA marketplace plan saw their combined health insurance costs run close to $44,000 a year. Once both spouses transitioned to Medicare, that combined cost fell to roughly $19,000 a year — even before factoring in any tax credits they might have qualified for along the way. That gap is a useful benchmark for anyone budgeting for the years before 65: health insurance costs typically run higher in early retirement and come down, not up, once Medicare starts.
