Question:
Question from Gina: My husband and I are both 61 and want to retire next year when we’re first eligible for Social Security. We currently get our health insurance from my employer which we’ll lose when I resign. What’s the best way for us to bridge the gap until we get to Medicare?
Answer:
Answer: Currently, unless you qualify for Medical Assistance or VA coverage, there are literally only two choices in health insurance for people who retire before turning 65, the Medicare eligible age: Electing COBRA or going with the Affordable Care Act (ACA) which is also often referred to as Obamacare.
COBRA is an extension of your employer health insurance coverage, although at full cost to you. There are two issues with COBRA: It can be very expensive, from around $750 to $1,500 per month per person, and it only lasts 18 months. So, if Gina and her husband retired at exactly 62 and went on COBRA, they would still need an ACA plan to bridge the remaining gap until Medicare age. I often advise those whose better choice is COBRA to consider waiting until 18 months before their 65th birthday to retire, making it a smoother transition.
From March 2021 up until December of 2025, when there were “Enhanced Subsidies” that eliminated income limits to get help paying premiums for ACA plans, going that route was a no-brainer for the vast majority of early retirees. Married couples making $150,000 a year, or even more, got very generous subsidies which kept premiums reasonable. However, Enhanced Subsidies were written into the Inflation Reduction Act to be temporary and with much controversy, weren’t extended past the January 1, 2026 expiration date.
With the income limits to qualify now back in effect, those who have a Modified Adjusted Gross Income (MAGI) over 400% of the Federal Poverty Level no longer qualify to get subsidies that help lower ACA health plan premiums. This means single individuals with a MAGI of $63,840 or more, and married couples who have a MAGI of $86,560 or greater, now pay full cost for ACA plans, which are also very expensive, especially for those in their 60s. In Western PA, for example, a full cost plan for a 62-year-old with a huge deductible ($6,700 to $9,200) is $690 to $720 per month. The most popular plans in Western PA have $0 deductibles with full cost ranging from $1,011 to $1034 per month.
However, the premiums for someone who has a MAGI of $62,000 and qualifies for subsidies are much more reasonable. Those same high-deductible plans would have premiums of just $112 to $132. $0 deductible plans would cost between $430 to $454. Premiums are even lower for those with a MAGI less than $62,000. As you can see, the ACA would be the much better option for those who are eligible for subsidies than COBRA.
Please be advised. THERE ARE NO LESS EXPENSIVE ALTERNATIVES TO COBRA AND THE ACA! I’ve been warning people about this for almost a year now. My agency would be offering other plans if they were something less expensive that protected people in the event of a major illness or accident.
DO NOT FALL FOR THE MISLEADING ADVERTISEMENTS for any other type of health insurance that are all over social media and the radio! Buying one of these garbage plans that have preexisting condition clauses, lots of fine print, and don’t put a limit on what you can be billed in a year can be catastrophic, and not just in terms of the possibility of tens or even hundreds of thousands of dollars in unpaid medical bills. It’s also likely that if you, your spouse, or a child had a serious diagnosis such as cancer or another life-threatening disease, you would not be able to access care without paying the full bill prior to receiving services!
My advice for those who want to retire early is to start planning well in advance, at least six months to a year before your goal date. Make an appointment with us at The Health Insurance Store as your first course of action. We offer no cost consultations to help you choose the best time to retire and we’re experts on the rules and regulations of the ACA. There are also strategies and loopholes to legally manipulate income during the years between early retirement and Medicare that we’re well-versed in.
With questions regarding today’s topic or to make an appointment to meet with an agent, give us a call, 724-603-3403 or email me personally, Aaron@GetYourBestPlan.com.