How to handle healthcare before Medicare eligibility

Allworth financial advisor Darren Dindinger, MBA, CFP®, CRPC®, outlines practical strategies for retirees under 65 to manage healthcare coverage until they become eligible for Medicare.

 

Retirement is supposed to be a time to enjoy life on your own terms, but if you retire before 65, there’s one big question that often looms large: What will I do about healthcare until Medicare kicks in?

It’s an important consideration, especially with rising medical costs. The good news? You have options. With a little planning and understanding of what’s available, you can navigate the gap and ensure your healthcare needs are covered without derailing your retirement plans.

Here’s a breakdown of the strategies you can use to handle healthcare before Medicare eligibility.

1. Stay on COBRA (If It’s Available)

If you’re retiring from a company that offered health insurance, COBRA (Consolidated Omnibus Budget Reconciliation Act) allows you to continue your employer’s plan for up to 18 months. While it’s often more expensive than what you paid as an employee (since you’ll now cover the employer’s portion), it’s a straightforward way to keep the same coverage during the transition.

 Things to Consider:

• COBRA can be a good short-term solution if you’re only a year or two away from Medicare.
• It’s worth comparing the cost of COBRA with other options, like ACA marketplace plans, to see which is most affordable for your needs.

2. Explore the ACA Marketplace

The Affordable Care Act (ACA) marketplace offers a range of health insurance plans, and retirees often qualify for subsidies if their taxable income is low enough. This is an excellent option for many early retirees because you can tailor the plan to fit your specific health needs and budget.

Tips for ACA Plans:

• Lower your taxable income to maximize subsidies. This could mean tapping into Roth IRAs or using cash savings instead of withdrawing from tax-deferred accounts like 401(k)s.
• Compare plan options carefully. Bronze plans have lower premiums but higher out-of-pocket costs, while Gold and Platinum plans may cost more upfront but cover more expenses.

3. Consider a Health Sharing Plan

Health sharing plans aren’t insurance, but they can be an affordable alternative for healthy retirees. These plans involve a group of people pooling their resources to cover medical expenses. While they’re not regulated like traditional insurance, they often cost less for those who rarely use medical services.

 Things to Know:

• These plans work best for individuals with minimal ongoing healthcare needs.
• Since they’re not insurance, they may not cover pre-existing conditions or offer comprehensive protection.

4. Tap Into a Health Savings Account (HSA)

If you’ve been contributing to an HSA during your working years, now is the time to take advantage of it. HSAs allow you to pay for qualified medical expenses tax-free, and the funds roll over year to year.

 Why It’s a Great Option:

• You can use your HSA to cover premiums for ACA plans, COBRA, or other out-of-pocket medical expenses.
• If you’re no longer working, tapping into your HSA can reduce the need to withdraw from other retirement accounts.

5. Look Into Spousal Coverage

If your spouse is still working and has access to employer-sponsored health insurance, you might be able to join their plan. This can be one of the easiest and most cost-effective ways to bridge the gap until Medicare eligibility.

 Steps to Take:

• Check with your spouse’s employer to confirm whether their plan allows for dependent coverage.
• Compare costs and coverage levels to other options like COBRA or ACA plans to see what makes the most sense.

6. Budget for Healthcare Costs

Regardless of which option you choose, it’s essential to plan for healthcare as a key part of your retirement budget. Medical costs can add up quickly, especially if you’re managing a chronic condition or planning for long-term care.

 Pro Tip:

• Set aside a specific portion of your budget for healthcare expenses, including premiums, co-pays, and prescriptions.
• Review your retirement plan with an advisor to ensure these costs won’t derail your long-term financial goals.

7. Plan Ahead for Medicare

It’s never too early to start thinking about Medicare. Once you hit 65, you’ll need to make decisions about which parts of Medicare to enroll in and whether you’ll want supplemental coverage like Medigap or a Medicare Advantage plan.

 Key Steps:

• Mark your calendar for Medicare enrollment at age 65. Missing your initial enrollment window can result in penalties.
• Learn the difference between Original Medicare (Parts A and B) and Medicare Advantage, and decide which fits your needs.

Final Thoughts: Don’t Let Healthcare Be a Stressor

Handling healthcare before Medicare can feel like a challenge, but it’s manageable with the right approach. Whether it’s COBRA, ACA plans, or an HSA, there are plenty of ways to ensure you’re covered without compromising your financial security.

If you’re navigating this transition—or just want to make sure your retirement plan accounts for healthcare costs—I’m here to help. Let’s take a closer look at your options and build a plan that works for you.

Retirement is your time to enjoy life. Let’s ensure healthcare is a part of the plan, not a stressor.

Darren Dindinger, MBA, CFP®, CRPC®

Financial Advisor

I remember seeing my father nearly lose everything during the dot-com bubble. Although he was working with an advisor, he felt ignored and alone during this life changing event.

That’s why I’m passionate about educating my clients every step of the way. I don’t view financial planning as just a job. My goal is to help you to appreciate the wealth you’ve created and use it towards your passions as you transition into your retirement years.

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