Budget for Health Insurance Before Medicare Eligibility
When it’s time to calculate your insurance premium before Medicare eligibility, know what options to consider and when to ask for help
Reviewed by: Stephanie Demus, Licensed Insurance Agent. Written by: Bryan Strickland.
If you want to retire before becoming eligible for Medicare at age 65, you need to plan for managing your healthcare insurance costs.
Private health insurance can be expensive, but premium tax credits related to your post-retirement level of income can significantly lower costs.
There also are lower-cost insurance options for bridging the gap, including High Deductible Health PlansA High Deductible Health Plan (HDHP) is a type of health insurance plan that features higher-than-normal deductibles. These high deductible amounts are usually intended to lower your monthly premium payments. and short-term insurance.
This page’s information may assist you before deciding on health insurance or Medicare but does not advise financial decisions or financial planning.
You’re planning to retire before 65. It’s a significant decision that may lead down a tricky path: how much health insurance do I need before I’m eligible for Medicare?
With some careful planning, there are ways to successfully bridge the gap between early retirement health insurance and Medicare at 65. Let’s get started.
You won’t find a standard cost for all health insurance premiums. Several factors determine your monthly premium. Suppose you retire before 65 and visit Healthcare.gov to select an Affordable Care Act-compliant policy to replace your employer-sponsored group plan. In that case, you will see a wide variety of insurance options and costs.
How is a health insurance premium calculated?
Insurance carriers consider life factors like location, age, dependents, etc., before setting plan premiums. Gold plans set the standard in the government-sponsored Marketplace, followed by silver and then bronze plans. For example, here are a few options directly from the Marketplace (gender, age, the location selected at random):
An individual male, age 62, living in Illinois and paying the lowest full-price premium in Jan. 2021:
- $602.89 a month for bronze ($7,400 deductible, $8,550 out-of-pocket maximum)
- $757.12 a month for silver ($5,000 deductible, $8,550 out-of-pocket maximum)
- $925.89 a month for gold ($750 deductible, $8,550 out-of-pocket maximum)
If your healthcare spending is high and you’re looking for ways to reduce your costs,
- Start by using all your benefits.
- Take advantage of preventive care.
- Make sure you’re not overpaying for things like prescription drugs.
There are several ways for you to reduce the amount you spend on your health. If you have questions about using all your benefits, a licensed insurance agent can help review your plan.
Can I buy health insurance on my own?
During Open Enrollment or a Special Enrollment Period, you can purchase an individual plan. Depending on what you need, this option may be affordable or possibly expensive. If you didn’t qualify for any savings on ACA plans at Healthcare.gov, it may be worth your time to research plans outside of the federal marketplace.
Premium tax credits can bring your bottom line down significantly. To qualify, you must select your plan at Healthcare.gov. And for someone newly retired, those tax credits could change the game. 
How does the premium tax credit work?
The premium tax credit is a refundable tax credit designed to make health insurance affordable for people with moderate to low income. To qualify for the premium tax credit, you must enroll in your health insurance plan through the Health Insurance Marketplace, also called the Exchange.
Your annual income will determine your eligibility for the tax credit. If you are eligible, you have options to either take the credit amount in advance or wait until you file taxes.
Can I use retirement savings?
If you’re retiring before 65, another option to pay for health insurance before Medicare is saved or entitled money for retirement. Cashing in some of your retirement could make health insurance more affordable, but may not be for everyone. Some retirement sources count as taxable income.
- Distributions from a 401k and traditional IRA count as taxable income and could therefore help you qualify for premium tax credits in the healthcare marketplace.
- While not taxable, Social Security payments also count as taxable income, but your payments will be smaller if you begin receiving them before full retirement age.
- Roth IRA distributions made after age 59 ½ do not count as taxable income.
Another way to afford health insurance before becoming eligible for Medicare is a more affordable option like a High Deductible Health Plan (HDHP). Especially if you’re in good health, a High Deductible Health Plan has lower monthly premiums and the ability to save money tax-free in a Health Savings Account. Still, you take on more of your out-of-pocket medical costs. HDHPs are available inside and outside of the Healthcare.gov marketplace, but all are required to be ACA-compliant.
Do I have to pay for preventive care?
In most instances, your High Deductible Health Plan will cover preventive services. As long as the provider or facility is part of your plan, you won’t be responsible for out-of-pocket costs. Health insurance is required to cover ten essential benefits, including screenings.
If you’re near Medicare eligibility and want to save costs on premiums, a short-term health insurance policy may offer lower premiums. Short-term policies aren’t required to be ACA-compliant, which means pre-existing conditions may prevent you from a policy.
How does short-term insurance work?
Short-term policies, with terms ranging from one month to one year, generally have more affordable premiums with a relatively easy approval process. They are not required to cover pre-existing conditions, preventive care and other things required of ACA policies, but they could be a good fit leading up to Medicare eligibility.
Your health is unpredictable, health insurance protects you from unexpected costs that could range in the thousands or higher. Finding an affordable healthcare plan is vital to the well-being of an early retiree. If you’re not sure how to compare benefits and plans, a GoHealth licensed insurance agent can help you find an option to meet your health needs and budget.
How do you qualify for Medicare before 65?
If you are under 65 but living with a disability and receiving social security benefits, you may be able to qualify for Medicare. If you qualify for Medicare under 65, you must receive Social Security for 24 months before you can enroll. Some diseases may allow you to qualify for Medicare before 65, including:
End Stage Renal Disease (ESRD)
- Regardless of your age, if all of the following apply, you qualify for Medicare before 65:
- Your kidneys no longer work.
- You need regular dialysis or have had a kidney transplant.
- One of these applies to you:
- You’ve worked the required amount of time under Social Security, the Railroad Retirement Board (RRB), or as a government employee.
- You’re already getting or are eligible for Social Security or Railroad Retirement benefits.
- You’re the spouse or dependent child of a person who meets either of the requirements listed above.
Amyotrophic Lateral Sclerosis (ALS)
Amyotrophic Lateral Sclerosis (ALS), also known as Lou Gehrig’s, qualifies you to receive Medicare as soon as you begin receiving Social Security Disability Income (SSDI).
Does household income impact premium tax credits for healthcare insurance?
Yes, your option to qualify for premium income tax credit depends on individual or joint household income. You are responsible for estimating your income when you apply for the premium tax credit, and if your income exceeds the amount you provide when applying, you will be required to pay back some of the credit on your taxes the next year (or could possibly get more back if you make less).
Is there ACA-compliant healthcare insurance available outside of Healthcare.gov?
Outside of Healthcare.gov, you can find insurance options that meet Affordable Care Act standards as well as policies that do not. If cost is a top priority for you, it makes sense to explore all of your options, even policies outside of Healthcare.gov. You can only get premium tax credits on policies purchased at Healthcare.gov, but you may be able to find a more affordable policy outside of Healthcare.gov if you don’t qualify for premium tax credits.