Health Insurance Before Medicare: How to Cover the Gap From Early Retirement to 65

Retire at 55 and you have a ten-year bridge to build before Medicare starts. Retire at 60 and it is five. Retire at 62 and it is three. Here’s what it costs, and the one number that quietly decides the price.

What Happens to Your Health Insurance When You Retire at 55, 60 or 62?

Can I ask you the question that stops a lot of early retirements cold? What are you going to do for health insurance until Medicare kicks in?

Medicare starts at 65. Retire at 62, and that’s roughly three years with no employer plan behind you. Retire at 60 and it is five years. Retire at 55 and it is ten, and a ten-year bridge is a different problem than a three-year one. Picture it as a bridge you have to build across a gap. Walk out onto it without one, and a single bad diagnosis can drain the savings you just retired on. Build the bridge first, and those gap years stop being the thing that keeps you working two years longer than you wanted to.

The good news for most people: the bridge is more affordable than they fear, once they understand what sets the price.

What Are Your Options to Cover the Gap Years?

There are five ways across the gap. Here they are in the order most people should look at them, and the fourth and fifth are the two nobody shows you.

1. The ACA marketplace at healthcare.gov

This is where most early retirees land, and it is the only place the income-based subsidies live. It is guaranteed coverage. Nobody can turn you down and nothing can be excluded for a condition you already have.

What you pay comes down to your income, not your savings, and for 2026 the rules got harder. The extra subsidies that had been in place expired at the end of 2025, so the cliff is back and it is a hard line. Go over it by a dollar and you lose all of the help, not part of it, and you can be asked to repay the entire advance credit at tax time. There is no cap on that repayment anymore. The next section on this page walks through the number that decides it, because that is the part almost nobody explains.

2. COBRA

COBRA lets you keep the employer plan you already have. Same plan, same doctors, no new underwriting, which matters if you are in the middle of treatment or attached to a specialist.

When you leave a job, the coverage runs 18 months. Other events, like a divorce or a death, run 36. The catch is the price: the plan can charge you up to 102 percent of the full premium, meaning the whole cost including the share your employer used to pay, plus 2 percent. That is usually a large jump from what was coming out of your paycheck. For a three-year bridge it rarely goes the distance on its own, but it can cover the first stretch while you sort out the rest.

3. A spouse’s plan

If one of you is still working and carries coverage, that plan can usually carry you both, and it is often the cheapest answer available. Leaving your job is a qualifying event, so you get a window to join your spouse’s plan outside of open enrollment. Ask the employer how long that window is before you set your retirement date.

4. Indemnity plans

This is the one most people have never heard of, and the one most people dismiss before they understand it. I used to sell these. I don’t anymore, and that is exactly why I am willing to explain them.

An indemnity plan pays a set dollar amount for a covered service instead of a percentage after a deductible. They are issued by life and health insurance companies. They are not major medical, you have to qualify on your health, and a condition you already have generally is not covered for the first 12 months. In exchange the premium is a fraction of an ACA plan and there is no clock on how long you can keep one. There is more on how they work further down this page, because a paragraph is not enough to judge them on.

5. Short-term medical plans

These are temporary medical plans, a different product from indemnity, and they are the other non-ACA option you will run into. They are also medically underwritten and they are not major medical.

The rules on how long you can keep one have moved twice in two years, and right now they are genuinely unsettled. The federal rule on the books caps them at four months. On August 7, 2025 the Departments of Labor, Health and Human Services and the Treasury said they do not intend to prioritize enforcing that limit while they write new rules, and encouraged states to take the same approach. What that means for you in practice is that your own state’s law is what governs, and the five states I am licensed in do not agree with each other. Before you buy one, call your state insurance department and ask what the limit is there. I am not going to print a number for your state that could be wrong by the time you read this.

Comparing the actual plans and signing up happens at healthcare.gov, and that part’s straightforward once you know the number that drives the cost. Which brings us to the part almost nobody walks you through.

How the ACA Subsidy Decides What You Pay

Here’s something the industry won’t tell you up front. The marketplace doesn’t price your help off how much you’ve saved. It prices it off your income, a number called MAGI, short for Modified Adjusted Gross Income.

In plain terms, MAGI is your Adjusted Gross Income (the income that lands on your tax return, before your standard deduction) plus your full Social Security benefit, including the part that’s normally tax-free. That second piece catches people off guard. Even the slice of Social Security you don’t pay tax on gets added back in for this one calculation.

And that “income on your tax return” piece is broader than most folks picture. It’s wages from a job or a part-time gig. It’s capital gains when you sell something at a profit. It’s interest, dividends, and rental income, right alongside withdrawals from a traditional IRA or an annuity. Even tax-free municipal bond interest gets counted here. Nearly anything taxable, plus a few things that usually aren’t, lands in the number that sets your price.

For 2026, the rules got stricter. The enhanced subsidies that had been in place expired at the end of 2025, which brought back what’s called the subsidy cliff. Cross a single income line, around $84,600 for a couple in 2026, and you don’t lose a little help. You lose all of it. It’s a hard cutoff, not a gentle slope. Go over by even a small amount and you can owe the entire subsidy back at tax time. (These figures change, so confirm the current threshold at healthcare.gov. As of June 2026.)

Now here’s where it gets better for the people I usually work with. A couple with around $400,000 saved, claiming Social Security and drawing a sensible income, often sits nowhere near that cliff. More like halfway to it. That keeps you subsidized and keeps the bridge affordable, frequently a few hundred dollars a month rather than the four-figure premiums that land on households over the line. Illustrative and hypothetical, as of June 2026.

Why the Shape of Your Income Changes the Cost, Not Just the Size

Two couples retire at 62 with the same $400,000. One pays a few hundred a month for coverage. The other pays four times that and owes money back in April. Same savings. What’s different?

How they drew their income. The second couple took one big IRA withdrawal to fund a year of fun, spiked their MAGI, and tipped over the cliff. The first couple drew a steady, partly-protected income and stayed under it. The savings were identical. The shape of the income wasn’t.

This is where a protected income floor does quiet work. Protected Lifetime Income (PLI) turns part of your savings into a level, predictable income you can’t outlive. Sized right, it covers the life you actually want, your essentials, your adventures and experiences, and the memories with loved ones. A level income is far easier to keep under a subsidy line than lumpy, unpredictable withdrawals.

The point was never to protect everything. For most people the protected piece is around half, enough to floor the life you care about, while the rest stays liquid and growing for upgrades, surprises, and what you leave behind. The right amount, never all of it.

And here’s the real trade, named plainly. The dollars you move into protected income aren’t sitting in an account you can raid on a whim anymore. You give up some flexibility on that slice. In return you get income you can’t outlive and a steadier number on the line the marketplace cares about. One bill you choose, instead of a surprise one you didn’t. Whether managing that income number makes sense for your particular situation is a conversation for your tax pro. We keep our work to the income design.

More on indemnity plans, because a paragraph isn’t enough

This section is bigger than it probably deserves, but I felt it was something you should be aware of, and it takes this much to explain it so you actually understand how it works. It is not a perfect solution. It is a potential solution, and one you should understand well enough to decide whether it could help you retire when you want with adequate coverage for the years between your last day of work and the day Medicare starts.

Every dollar figure in this section is what I remember from 2014 and 2015, when I was doing this work. It is here to show you how the math worked, not what anything costs today.

I stopped offering these. Not because they were bad, but because they were hard to sell. Everybody was afraid of them, every conversation took an hour, and my time was worth more than what I earned on them. So I have nothing to gain by telling you this. I am telling you because if health insurance is the only thing standing between you and the retirement you planned, you ought to know the whole menu.

How the money moves

The provider bills for the service. The plan pays a set amount. Say your plan pays $400 for an X-ray. If the X-ray is $500, you owe the $100 difference. If the X-ray is $300, the provider gets $300 and you keep the $100. That does not happen every time, and when it did I always told clients the same thing: set it aside, you will probably need it later.

You build it in pieces

This is not one product. You stack supplemental policies to cover your biggest risks. A hospital admission policy was around $30 a month for a family and paid a flat $5,000 once a year on an admission, which covers most of a deductible on a big bill. There were cheap pieces for the routine things too, so you could stack six or seven depending on what you needed.

The most powerful piece is the negotiation. If a bill is going to run over $2,500, the insurer works with a company that negotiates a cash price. If you know a surgery is coming you set it up in advance. You obviously cannot pre-plan a heart attack, so for those they negotiate after the fact.

That works because cash is worth more than insurance to a lot of providers. I used it myself. My youngest daughter got hurt in a basketball game her senior year and we needed to know whether her wrist was broken. The MRI cost me $500 in cash. Through the plan my ex carried for her it would have been $2,000. Same scan, four times the price to run it through insurance.

The $115,000 heart attack

I had a couple who came to me three years before they turned 65, so we were building the bridge to Medicare. At 64, one year out, the husband had a heart attack and was hospitalized. His wife called me in a panic, and I reminded her what I had told her at the start: you make a few phone calls, and we get it handled.

The bill was about $115,000. The first call went to the company that negotiates. It took about six weeks, and if I remember right the bill came down into the upper thirties or low forties, because they were essentially paying cash for all of it. Their out of pocket was about $2,500.

Their premiums were about a third of what an ACA plan would have cost them. Within four or five months the premium savings alone had covered that $2,500.

What you are trading away

You have to qualify on your health. If you are not healthy enough, this is not available to you at all. A condition you already have generally is not covered for the first 12 months. That is the single biggest difference from an ACA plan, which cannot turn you down or exclude anything.

You will also make phone calls. When a bill does not get paid you call, ask what happened, and they find the missed charge. That is not arguing, it is asking a question. I used to put it to clients this way: if this saves you $12,000 a year, would you spend two hours a year on the phone? If you are on an ACA plan you are probably already making those calls anyway.

And if you go this direction, park $20,000 to $30,000 somewhere safe and leave it. If you need it, use it. If you don’t, it sits and earns. That buffer is what turns a plan with more moving parts into one you can sleep on.

About the argument that this isn’t insurance

You will hear it. There is more to it than people think. Twice the federal government tried to shut this product down or label it, and twice a carrier beat it in court. In 2014 the rule would have required you to attest that you already had ACA coverage before you could buy an indemnity policy, which would have ended it for the exact use I am describing. A federal appeals court struck that down in 2016. In 2024 a new rule required the words “NOT health insurance” on the first page of the policy and application. A carrier sued on the grounds that these policies do provide health insurance, and in December 2024 a federal court declared the rule unlawful and vacated it entirely.

I am not telling you to buy one of these, and I am not telling you not to. I am telling you it exists, that it worked for people I know, and that it belongs on the list you look at. You may decide it is not for you. That is fine. What is not fine is deciding without knowing it was there.

If you want to look into it, reach out. I don’t sell these, so I won’t be writing you a policy. What I will do is learn your situation and try to point you toward somebody who still does this work and knows it well.

More on short-term medical plans

Same reason as the last section. People dismiss these without understanding them, and you should at least know what they are before you rule them out.

A short-term medical plan is temporary medical coverage. It looks and behaves more like the insurance you are used to than an indemnity plan does, with a deductible and coinsurance rather than a set dollar amount per service. What it is not is major medical. It does not have to cover the ACA essential health benefits, and it does not have to cover a condition you already have.

Like indemnity, it is medically underwritten, so you have to qualify on your health and you can be declined.

The reason I cannot give you a clean answer on how long you can keep one is that the rules have moved twice in two years and are moving again. The federal rule on the books says three months, extendable to four. On August 7, 2025 the Departments of Labor, Health and Human Services and the Treasury said they do not intend to prioritize enforcing that limit while they write new rules, and told states they would not be penalized for taking the same approach or for applying their own state definition instead.

What that means for you is simple even though the situation is not: your state decides this right now, and the five states I am licensed in do not agree with each other. Call your state insurance department and ask what the limit is there before you buy one.

One thing to understand about how these are built. Where a state allows something like three years, that is not one three-year policy. It is a series of terms, each one up to 364 days, stacked to whatever total the state permits. Kansas, for example, allows fewer. You qualify on your health to get the first term. When I looked at these in Missouri back in 2014, that is exactly how they were structured: three years total, you medically qualified for the first year, and the next two renewed automatically. That was one state, more than ten years ago, and it varies, so take it as the typical shape rather than a rule. If you reach the end of what your state allows and want to keep going, you are starting over and qualifying again from scratch.

So ask it directly: at each renewal, do you look at my health again? Anything that happened to you in the meantime can be excluded or can get you declined if the answer is yes. I am not going to tell you how your state works today, because these rules move and I would rather you hear it from the source than take my word for something I have not checked this year. None of this should be signed without checking it first. I am not selling you anything here. I am trying to make sure you understand it.

The same buffer advice applies here as with indemnity. If you go this route, keep cash set aside.

It Is Not Your Fault the Gap Years Feel Like a Trap

Nobody sat you down and connected these dots, and the system isn’t built to. Washington writes the subsidy rules and rewrites them. The marketplace prices off a number most people never think about. And the financial model most folks retire inside is built to keep your money in the market, not to walk you across a three-year bridge.

None of that is one person’s doing, and it isn’t yours either. The fix isn’t outsmarting anybody. It’s seeing the structure before you’re standing on it, the income, the number, the bridge, so the gap years are a plan instead of a scramble.

Where This Fits in Your Bigger Plan

The gap years are one piece of a larger picture. If you’re running the at-62 numbers, see Can You Retire at 62 With $400,000? for the full income breakdown, with this health bridge shown in context. And the income floor that funds the bridge is the same floor that funds the rest of retirement, which is the whole idea behind your retirement paycheck.

For the full retirement-at-62 picture at every savings level, start here: Can I Retire at 62?

If your gap is longer than three years, that changes the size of the problem. Start with Can I Retire at 60? for a five-year bridge, or Can I Retire at 55? for a ten-year one.

Check Your Number

The easiest place to start costs nothing and asks nothing of you. See what a protected income floor could look like for your savings, and get a feel for the steady income that keeps a bridge like this affordable.

Frequently Asked Questions

This material is for educational purposes only and is not tax, legal, or investment advice. Kurt H. Jackson is licensed for life and health insurance only and does not manage investments or recommend specific securities or funds. Health insurance rules, subsidy thresholds, and the federal poverty guidelines change, so confirm current figures and enroll at healthcare.gov, and review your own income and tax situation with a qualified tax professional. Figures referenced are illustrative and hypothetical, as of June 2026, and may differ for your situation based on age, household size, income, and where you live. Guarantees related to any insurance-based strategies mentioned rely on the claims-paying ability of the issuing insurance company.

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