If you retire before 65, your early retirement health insurance options before Medicare come down to five paths: COBRA continuation of your old job’s plan, an ACA marketplace plan, enrollment on a working spouse’s employer plan, Medicaid if your income is low enough, or a policy bought directly from an insurer. The right choice in 2026 depends heavily on your income, because the enhanced premium tax credits that softened ACA pricing through 2025 have expired. Subsidies are smaller, and above 400% of the federal poverty level they disappear entirely.
COBRA as a Short Bridge
COBRA keeps you on the exact plan you had at work, with the same doctors and benefits. Under federal law, employers with 20 or more employees must offer departing workers the option to continue group coverage.1Office of the Law Revision Counsel. 29 USC 1161 – Plans Must Provide Continuation Coverage For most retirees that coverage lasts up to 18 months.
The price is the problem. You pay the full plan cost, including the share your employer used to cover, plus a 2% administrative surcharge, up to 102% of the total plan cost.2Office of the Law Revision Counsel. 29 USC 1162 – Continuation Coverage For someone whose employer was picking up 70–80% of a family plan, monthly premiums of $1,500 to $2,500 or more are not unusual.
You have 60 days from the date you receive the COBRA election notice to enroll.3Centers for Medicare and Medicaid Services. COBRA Continuation Coverage Questions and Answers Once you elect, you have 45 days to make the initial premium payment, and that payment must cover everything owed from your COBRA start date through the current month. Miss it, and the coverage is permanently gone. COBRA works best as a few-month bridge while you set up a marketplace plan or sort out your income projection, not as a long-term solution.
ACA Marketplace Plans
For most early retirees, marketplace coverage is the primary option between the last day of work and Medicare. Losing employer-sponsored insurance qualifies you for a special enrollment period, giving you 60 days from the date coverage ends to sign up.4HealthCare.gov. See Your Options If You Lose Job-Based Health Insurance You can start the process up to 60 days before coverage actually ends.5Centers for Medicare and Medicaid Services. Understanding Special Enrollment Periods
Enrollment starts at HealthCare.gov, which routes you to your state exchange if one exists.6USAGov. How to Get Insurance Through the ACA Health Insurance Marketplace The application asks for Social Security numbers for everyone in your household and your projected Modified Adjusted Gross Income (MAGI) for the year, which is your adjusted gross income plus any tax-exempt interest and non-taxable Social Security benefits.7HealthCare.gov. What to Include as Income Coverage doesn’t start until you make the first premium payment (the “binder payment”) by the insurer’s deadline.8Centers for Medicare and Medicaid Services. Making Health Plan Premium Payments Miss that payment and you have no coverage.
What Changed for 2026
The enhanced premium tax credits from the Inflation Reduction Act expired at the end of 2025. Under the enhanced credits, there was no upper income limit and no household paid more than 8.5% of income toward a benchmark plan. Starting in 2026, the original ACA subsidy rules are back. Premium tax credits are available only if your household income falls between 100% and 400% of the federal poverty level. For a single person in 2026, 400% of FPL is roughly $63,840; for a couple, about $86,560.9HHS ASPE. 2026 Poverty Guidelines One dollar above the threshold and the entire subsidy disappears. For early retirees with pensions, 401(k) withdrawals, or investment income, that cliff is easy to walk off without planning.
Managing Your Income to Keep Subsidies
The most valuable financial move many early retirees can make is controlling which accounts they draw from and when. Your MAGI determines subsidy eligibility, and in early retirement you often have more control over MAGI than you did while working.
Traditional IRA and 401(k) withdrawals count as taxable income and push MAGI up. Qualified Roth IRA withdrawals do not, because they aren’t included in adjusted gross income. If you have both account types, leaning on Roth withdrawals during the years you need marketplace subsidies can keep you under the 400% FPL ceiling. Taxable brokerage withdrawals only partially count toward MAGI, since only the capital gains portion is included.
Roth conversions create a tension. Converting traditional IRA money to a Roth generates taxable income the year of the conversion, which inflates MAGI and can wipe out the subsidy. Some retirees do large conversions in the first year or two while still on COBRA and not relying on marketplace subsidies, then switch to Roth withdrawals once on a marketplace plan. Others do smaller conversions each year, staying under the cliff. The right answer depends on your total savings, your future required minimum distributions, and how many years you need to bridge.
Social Security timing matters too. Delaying benefits keeps that income out of MAGI. Once you claim, the full benefit counts toward MAGI for marketplace purposes, including the portion that isn’t federally taxable.7HealthCare.gov. What to Include as Income
If Your Income Estimate Turns Out Wrong
Marketplace subsidies are advanced to the insurer based on your projected income. If your actual income comes in higher, you owe some or all of the excess credits back at tax time. Starting with the 2026 tax year, there are no repayment caps. You repay the full difference between what you received in advance and what your actual income entitled you to.10Internal Revenue Service. Questions and Answers on the Premium Tax Credit In prior years, repayment was capped at $350 to $3,000 depending on income. That safety net is gone.
Estimate too low, collect generous credits all year, then sell some stock or take an unplanned IRA distribution, and you can owe thousands in April. Land above 400% FPL and you owe back every dollar. Update your income estimate on the marketplace during the year rather than waiting; a midyear adjustment is far less painful than a lump-sum repayment.
Joining a Spouse’s Employer Plan
If your spouse still works and has access to employer coverage, enrolling there is often the simplest path. Losing your own coverage is a qualifying life event that opens a special enrollment window on the spouse’s plan.11HealthCare.gov. Qualifying Life Event (QLE) Federal rules require employer plans to offer at least 30 days for this enrollment.12HealthCare.gov. Special Enrollment Period Many plans give 60; check the plan documents.
Retirement itself isn’t the qualifying event. The loss of coverage that results from retirement is. The spouse’s HR department will ask for proof the prior coverage ended, so have a termination-of-coverage letter or your COBRA election notice ready. Group plan rates are generally more affordable than individual market plans of comparable quality, especially for retirees whose income puts them above the subsidy threshold.
Buying Directly From an Insurer
You can buy health insurance directly from an insurer without going through the marketplace. These off-exchange plans must comply with the same ACA requirements and cover the same essential health benefits. The tradeoff: off-exchange plans are not eligible for premium tax credits or cost-sharing reductions.13HealthCare.gov. How to Apply if Your Income Is Too High for the Premium Tax Credit That makes them a reasonable choice only when your income is already above any subsidy, or when you want a specific provider network the exchange doesn’t offer.
Short-term health insurance is a different animal and a poor fit for most early retirees. Under the current federal rule, short-term plans can last no more than three months, with a maximum total duration of four months including renewals or extensions within a 12-month period.14Federal Register. Short-Term, Limited-Duration Insurance Final Rule They aren’t required to cover pre-existing conditions, can exclude entire categories of benefits, and don’t count as minimum essential coverage. Some states tighten these rules further or ban the plans entirely. For a gap that may run five to ten years, this is the wrong tool.
Medicaid for Lower-Income Retirees
In states that expanded Medicaid under the ACA, adults with MAGI at or below 138% of the federal poverty level are generally eligible.15HealthCare.gov. Medicaid Expansion and What It Means for You For a single person in 2026, that’s roughly $22,025; for a couple, about $29,863.9HHS ASPE. 2026 Poverty Guidelines Not every state has expanded, so this option depends on where you live.
One point surprises many early retirees: MAGI-based Medicaid for adults under 65 looks only at income, not assets. A retiree with a $1.5 million portfolio but minimal annual income can qualify, because Medicaid eligibility in the expansion population doesn’t examine savings accounts, investment balances, or home equity. That’s different from the asset-tested Medicaid used for long-term care, which does.
Estate Recovery
Medicaid isn’t free in the long run for everyone who receives it. Federal law requires states to seek repayment from the estates of beneficiaries who were 55 or older when they received benefits.16Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets At minimum, states must recover costs for nursing facility services and home-based care, and many states exercise their option to recover for all Medicaid-covered services. Recovery happens only after the beneficiary dies, and there are protections for surviving spouses, minor children, and disabled children. But for a healthy 58-year-old who enrolls, every dollar the program spends on their care over the next seven years can become a claim against the estate.
For retirees with significant assets but low current income, that reality complicates the Medicaid choice. The coverage itself is excellent with minimal out-of-pocket costs, but a retiree who can manage MAGI into the subsidy range on the marketplace may prefer that route, even at a higher monthly premium, to avoid estate recovery exposure.
Putting an HSA to Work
If you built an HSA balance while working, those funds are especially useful during the gap years. HSA withdrawals for qualified medical expenses are tax-free at any age, and the qualified list is broader than most people assume. COBRA premiums and health insurance premiums paid while you’re receiving unemployment compensation both count. Once you turn 65, HSA funds can also pay Medicare premiums tax-free, except for Medigap policies.17Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
One hard cutoff: you cannot contribute to an HSA once you enroll in any part of Medicare. Contributions must stop the month Medicare coverage begins, and continuing afterward triggers a 6% excise tax on the excess for as long as it stays in the account. Spending down an existing HSA balance tax-free on qualified expenses after Medicare enrollment is still fine.
Don’t Trip on the Medicare Transition
Early retirees sometimes assume they can delay Medicare if they already have COBRA or a marketplace plan. That assumption is expensive.
COBRA Does Not Protect You From Medicare Penalties
COBRA is not considered coverage based on current employment for Medicare purposes.18Social Security Administration. Special Enrollment Period If you’re 65 and Medicare-eligible but stay on COBRA instead of enrolling in Part B, you don’t get a special enrollment period when COBRA ends. You’d have to wait for the general enrollment period from January through March, with coverage not starting until July. And you’d face a lifetime late enrollment penalty: 10% added to your monthly Part B premium for every 12-month period you were eligible but didn’t enroll.19Medicare. COBRA Coverage That penalty never comes off. A two-year delay means paying 20% more for Part B for the rest of your life. The only coverage that protects you from this penalty is a group plan based on your or your spouse’s current active employment. Retiree plans and COBRA don’t count.
Ending Marketplace Coverage on Time
Marketplace coverage does not end automatically when you become Medicare-eligible. You have to update your marketplace application to terminate coverage, ideally setting the end date to the day before Medicare starts. You can report the upcoming Medicare start date up to three months in advance. Keep a marketplace plan after you’re eligible for Medicare Part A and you lose premium tax credit eligibility; you’ll owe the full unsubsidized price.20HealthCare.gov. Changing From Marketplace to Medicare Paying full freight for a marketplace plan while also paying Medicare premiums is a waste that catches people every year.