Retirement Health Insurance 101

Health insurance is one of the biggest financial question marks in retirement. Premiums, deductibles, and coverage rules can all shift just as your paycheck stops, and that combination can feel intimidating.

The good news is that you don’t have to figure it out alone or all at once. By understanding the key milestones before and after age 65, and coordinating your health insurance decisions with your income plan, you can turn a major source of uncertainty into something clear, intentional, and manageable.

Understanding Your Retirement Health Insurance Timeline

Your health insurance needs will look very different depending on when you leave the workforce. Retiring before or after 65 changes which programs you’re eligible for, how you pay premiums, and how important income planning becomes. Here’s how the big milestones typically line up so you can see the road ahead clearly:

If You Retire Before 65

• You’re not yet eligible for Medicare based on age.

• Your main paths usually include ACA marketplace plans, COBRA as a short-term bridge, an employer-sponsored retiree plan, a working spouse’s plan, or (for certain Latter-day Saint full-time missionaries) a church senior service medical plan.

• How you pull money from IRAs, 401(k)s, and taxable accounts can dramatically change what you pay for coverage.

If You Retire At Or After 65

• For most people, age 65 is when Medicare becomes the foundation of their health coverage.

• You may choose between staying on a large employer plan (if you keep working) or transitioning fully to Medicare coverage with either a Medigap supplement or a Medicare Advantage plan.

• Enrolling at the right time is important; missing deadlines can lead to lifelong penalties or unpaid claims.
  

Why The Focus On Income Planning

• Health insurance agents specialize in plan details: networks, drug lists, copays, and deductibles.

• A retirement planner focuses on what shows up on your tax return each year: how much “income” you create and from which accounts.

• When those two perspectives work together, you can often reduce premiums, avoid subsidies and IRMAA cliffs, and keep your overall retirement planning on track.

Health Insurance for Retirees Under 65: Marketplace, COBRA, and Bridge Options

If you stop working before Medicare begins, you’ll need a bridge to get you to 65. That bridge might be only a few months long, or it might need to carry you for several years. These are the main options you’ll typically weigh so you can coordinate them with your retirement date and cash-flow needs:

Affordable Care Act (ACA) Marketplace Plans

• For many early retirees, the ACA marketplace becomes the primary solution.

• In Utah and many other states, you’ll shop for health insurance through healthcare.gov.

• Premium tax credits (subsidies) can be worth tens of thousands of dollars per year for a couple in their early 60s if income is managed carefully.

COBRA As A Short-Term Bridge

• When you leave an employer, you may be able to extend your former group health insurance coverage for a limited time under COBRA options.

• It’s commonly more expensive because you’re paying the full premium along with an administrative fee.

• For short periods (like retiring at 64½ and just needing to reach 65), it can be a simple, familiar bridge.

Retiree Coverage Through A Former Employer Or Working Spouse

• Some employers still offer retiree coverage or allow you to stay on the group health plan until Medicare begins.

• If your spouse continues to work, joining their plan is often straightforward and may cost less than coverage found on the health insurance marketplace.

• Reviewing premiums, deductibles, and max-out-of-pocket amounts side-by-side with marketplace health insurance options is key.

Church Senior Service Medical Plan For Missionaries

• For certain full-time away-from-home missionaries under 65, a church senior service medical plan can provide bridge coverage.

• It is designed to offer adequate protection during the mission, with Medicare becoming primary later.

Please Note: Often, marketplace plans end up being the main long-term bridge for early retirees, while COBRA, employer plans, and missionary coverage fill shorter gaps. The most important piece is aligning these choices with your retirement date, your cash-flow needs, and your longer-term income strategy.

How the ACA Marketplace Works for Pre-65 Retirees

The Affordable Care Act created online marketplaces where individuals and families can buy health insurance and, in many cases, receive help paying for it. For retirees without employer coverage, understanding how healthcare.gov works can turn confusion into opportunity. Here’s what really happens when you plug in your numbers:

Where You Apply And What You Enter

• In Utah and most states, you go to marketplace healthcare.gov and either apply or use the “preview plans and prices” tool.

• You’ll enter your ZIP code, who’s in your household, and each person’s age.

• You’ll also indicate whether anyone is eligible for other coverage through a job, Medicare, or Medicaid.

Income Is Based On Next Year, Not Last Year

• The application asks for your best estimate of household income for the coming coverage year.

• It does not automatically use last year’s income, which means retirees can actively shape that number with their withdrawal strategy.

• Your estimate is what determines how large your monthly premium tax credit will be.

How Subsidies Are Calculated

• Subsidies are based on household size and your projected income as a percentage of the federal poverty level (FPL).

• For a retired couple, 400% of FPL lands in the mid–$80,000 range of income (updated annually).

• The lower your income within the eligible band, the larger the shared subsidy that reduces your monthly premium costs.

Avoiding the FPL Cliff: Why 400% of the Federal Poverty Level Matters

One of the most important pre-65 planning concepts is what happens at 400% of FPL. Recent temporary rules softened this threshold, but the system is scheduled to revert to a hard cutoff in 2026. Here’s why that line matters so much and how careful income planning can protect your retirement budget:

How The Cliff Works

• Under temporary rules, some households above 400% of FPL could still receive tapered subsidies.

• When those rules sunset, the system returns to an all-or-nothing cutoff.

• Cross 400% of FPL by even a single dollar, and your premium tax credit drops to zero.

What That Looks Like In Real Life

• A 64-year-old couple with moderate income might see marketplace subsidies of around $25,000 per year.

• As income rises, subsidies shrink until they disappear abruptly once you cross the 400% line.

• That can mean an $18,000+ swing in annual out-of-pocket premiums just from taking too much out of an IRA.

Case Study Example

David and Susan have saved about $900,000 in 401(k)s and IRAs, plus $100,000 in bank and brokerage accounts. They want to spend $96,000 per year in the early years of retirement.

If they take the full $96,000 from their IRA, their income jumps well above 400% of FPL, and they lose valuable subsidies. Instead, they take just enough from their IRA to stay under the line and pull the rest from their bank and brokerage savings.

Their lifestyle doesn’t change at all; they still spend $96,000 per year, but this smarter mix of withdrawals unlocks roughly $18,000 per year in marketplace subsidies during each pre-Medicare year, dramatically lowering their net healthcare costs.

Shopping Plans and Matching Your Income Plan

Once you’ve mapped out your income for the year, the marketplace becomes a comparison tool rather than a guessing game. The idea is to let your income plan drive the subsidy, then choose a specific plan that fits your doctors, prescriptions, and risk tolerance:

Previewing Plans With Your Numbers

• On healthcare.gov, you can “preview plans and prices” without completing a full application.

• A 64-year-old couple entering around $75,000 of income, for example, might see a shared subsidy of more than $1,600 per month.

• That shared credit then applies to whichever plan you choose: bronze, silver, or gold.

Comparing Plan Tiers

• Bronze plans generally have lower premiums but higher deductibles and out-of-pocket costs, acting as more catastrophic protection.

• Silver and gold plans cost more per month but come with more manageable deductibles and cost-sharing.

• You can filter for HSA-eligible designs if that fits your overall strategy.

Division Of Labor That Works Well

• A financial planner helps you dial in the projected income number you’ll enter on healthcare.gov.

• A licensed insurance and healthcare professional guides you through networks, prescription drug coverage, and plan details.

• Together, that team helps you land on the right plan that works not just clinically, but financially.

Projecting and Reconciling Income: What Happens If You Guess Wrong

Because subsidies are based on your income estimate, many retirees worry about “getting it wrong.” The marketplace is designed to true things up at tax time, but careful planning helps you avoid unpleasant surprises. Here’s what happens if your income doesn’t match your original estimate and how to manage that risk:

At Tax Time

• When you file your federal return, the IRS compares your actual income to what you projected on healthcare.gov.

• If your actual income is lower than projected, you may receive an additional tax credit.

• If your income is higher, you may need to repay some or all of the subsidy you received, especially if you crossed above 400% of FPL.

During The Year

• If your income picture changes (because of part-time work, a Roth conversion, or a shift in withdrawal strategy), you can update your estimate on healthcare.gov.

• Adjusting mid-year helps keep premiums and subsidies aligned with reality.

How A Retirement Income Plan Helps

• By intentionally choosing which accounts to pull from, you’re not just guessing at income; you’re controlling it.

• Coordinating Social Security, account withdrawals, and conversions gives you more accurate estimates and fewer surprise paybacks.

Medicare Basics After 65: Who Qualifies and How It Differs From Medicaid

Once you reach 65, Medicare becomes central to your retirement health insurance picture. But, it’s important to distinguish Medicare from Medicaid and understand who qualifies for which program so you know what to expect:

Medicare Versus Medicaid

• Medicare is a federal program that is mainly available to individuals aged 65 and older, as well as to some younger people with certain disabilities or diseases.

• Medicaid is a joint federal and state program designed for people with limited income and resources.

• One is about health coverage in retirement; the other is about financial need-based assistance.

Who Is Eligible For Medicare

• Most U.S. citizens and long-term legal residents qualify at 65.

• Some younger people qualify earlier due to disability, ALS, or end-stage renal disease.

• Enrollment is administered by the Social Security Administration, while the Centers for Medicare & Medicaid Services (CMS) runs the program.

Enrolling in Medicare on Time: Windows, Work Coverage, and Penalties

Medicare follows strict timing rules, and the consequences for missing them can be significant. Whether you’re still working or fully retired at 65 will shape when and how you sign up. Understanding the main enrollment windows helps you avoid penalties and coverage gaps:

Original Medicare And Credible Employer Coverage

• “Original Medicare” refers to Part A (hospital) and Part B (medical).

• If you don’t have credible large-employer group coverage, you generally need to enroll at 65.

• Many retiree plans and non-employer arrangements are not considered credible for delaying Medicare.

Key Enrollment Windows

• The Initial Enrollment Period (IEP) for retirement health insurance is a 7-month window. This period includes the three months before your 65th birthday month, your actual birthday month, and the three months immediately following.

• If your birthday falls on the 1st of the month, your Initial Enrollment Period (IEP) is moved up by one month, allowing coverage to begin the month preceding your birthday.

• If you keep working past 65 with credible group coverage, you typically have an eight-month Special Enrollment Period for Part B after coverage ends, and a 63-day window to secure prescription drug coverage.

Why Timing Matters So Much

• Missing deadlines can lead to lifetime late-enrollment penalties on Part B and Part D premiums.

• If Medicare should be primary, but you’re not enrolled, your other coverage may deny claims because it expects Medicare to pay first.

• For most people, signing up is straightforward online, with additional employer forms needed if you’re enrolling after working past 65.

What Original Medicare Covers, and Where the Gaps Are

Medicare is generous in many ways, but it’s not designed to cover everything. Understanding what Parts A and B do, and don’t, cover will help you see why many retirees add a supplement or a Medicare Advantage plan on top:

Part A Hospital Insurance

• Covers inpatient hospital stays, skilled nursing facility care, some limited home health care services, and hospice care.

• Most people pay no premium if they or a spouse paid Medicare taxes for at least 10 years.

• There’s a per-stay deductible and no true annual out-of-pocket maximum; multiple hospitalizations can mean paying that deductible more than once.

Part B Medical Insurance

• Covers doctor visits, outpatient care, ER visits, surgeries, imaging, and more.

• Has a standard monthly premium plus a modest annual deductible.

• After the deductible, you generally pay about 20% of approved charges, with no built-in cap, so multiple major procedures in a year can add up quickly.

What Original Medicare Does Not Cover

• Long-term custodial care in a nursing home or assisted living setting.

• Routine dental, vision, and hearing care.

• Various other services are listed as non-covered in the annual “Medicare & You” handbook.

Please Note: Because there is no maximum out-of-pocket limit under Original Medicare, many retirees turn to Medigap or Medicare Advantage to manage that risk.

IRMAA and Medicare Premium Planning: Income-Related Surcharges

Once you’re on Medicare, what you pay for Part B and Part D depends not only on the standard premiums but also on your income. Higher-income retirees may face surcharges called IRMAA (Income-Related Monthly Adjustment Amount), which are triggered by hitting certain income brackets:

How IRMAA Works

• Both Part B and Part D have income-based brackets for single filers and married couples.

• If your modified adjusted gross income crosses a threshold, your premiums jump to the higher bracket.

• Crossing the line by even one dollar moves you into the new tier; there is no gradual phase-in.

The Two-Year Lookback

• Your current Medicare premiums are based on your tax return from two years ago.

• For example, the premiums you pay in 2025 are determined by your income from 2023.

• That means big income moves today may affect your Medicare premiums two years down the road.

Planning Implications

Big one-time income events (large IRA withdrawals, Roth conversions, or big capital gains) can push you into a higher income-related monthly adjustment amount (IRMAA) tier, increasing premiums for at least a year. These events often trigger a significant spike in your modified adjusted gross income (MAGI), which is what Medicare uses to determine your IRMAA bracket.

Weaving IRMAA into your retirement income plan means leaving a buffer below each threshold and coordinating tax moves with your long-term premium picture, instead of cutting it close and hoping for the best. Proactive planning helps you manage your MAGI strategically over multiple years to avoid unnecessary premium surcharges.

Medigap (Supplement) Plans: Transferring Risk to an Insurance Carrier

One way to handle Original Medicare’s uncapped 20% cost sharing is to buy a Medigap (supplement) plan. These plans don’t replace Medicare; they sit on top of it and cover many of the gaps:

How Medigap Works With Medicare

• You keep paying your Part B premium, and you pay an additional premium for your Medigap plan.

• Plans are standardized by letter (A through N), so a Plan G from one insurer has the same main benefits as another insurer’s Plan G, though prices can vary widely.

• With a popular choice like Plan G, you usually pay the Part B deductible each year, and then the plan covers Medicare’s cost share for approved services.

Pros of a Medigap Approach

• You have the freedom to choose any provider nationwide who accepts Medicare, as there are no network restrictions.

• Very predictable out-of-pocket costs: premiums plus the annual Part B deductible.

• Once issued and premiums are paid, Medigap policies are generally guaranteed renewable.

Cons of a Medigap Approach

• Monthly premiums can increase over time with age and by carrier.

• Medigap does not include prescription coverage, so you’ll need a separate Part D plan.

• If you delay enrollment or try to move from Medicare Advantage into Medigap later, you may face underwriting and possible denial based on health.

Medicare Advantage (Part C): All-In-One Coverage With Networks and Extras

Private insurance companies offer Medicare Advantage plans as an alternative option for receiving your Medicare benefits. Instead of Medicare paying providers directly, Medicare pays the insurance company, and the plan manages your care within a defined structure:

Basic Structure of Medicare Advantage

• Most plans bundle Parts A and B, and often Part D, into a single package.

• They look and feel similar to employer-style insurance, with copays, coinsurance, and an annual maximum out-of-pocket limit.

• Many plans have low or even $0 additional premiums beyond what you pay for Part B.

Networks and Common Plan Types

• HMO plans generally require you to stay in the network and may require referrals for specialists.

• PPO plans allow out-of-network care, but that flexibility often comes with much higher coinsurance, sometimes up to 50%.

• It’s essential to check that your doctors, hospitals, and prescriptions are covered and appropriately tiered.

Extras and Annual Changes

• Many Medicare Advantage plans include dental, vision, hearing, gym memberships, and sometimes over-the-counter or limited grocery benefits for certain conditions.

• Benefits, premiums, and networks can change year to year, which makes annual reviews important.

• You can typically move between Advantage plans or between Advantage and Original Medicare during specific enrollment periods, though moving back to Medigap later may require underwriting.

Comparing Medigap vs. Medicare Advantage: Trade-Offs to Consider

There is no one-size-fits-all Medicare strategy. The “right” choice depends on your health, how much you travel, which doctors you prefer, and how you feel about trading higher premiums for lower surprise bills, or vice versa. Here’s a side-by-side way to think about it:

Doctor Choice and Networks

• Medigap + Original Medicare: see any provider who accepts Medicare nationwide, generally without referrals.

• Medicare Advantage: typically uses network providers; out-of-network care can be limited or much more expensive.

Costs and Risk Profile

• Medigap: higher, more predictable monthly premiums; very low out-of-pocket costs when you receive care.

• Advantage: lower premiums (sometimes zero beyond Part B) but more pay-as-you-go cost sharing up to the plan’s maximum each year.

Drug Coverage and Extras

• Medigap: requires a stand-alone Part D plan; extras like dental and vision are often purchased separately.

• Advantage: usually includes Part D and may bundle in dental, vision, hearing, fitness, and other extras, with the trade-off of more moving parts and potential annual changes.

Retirement Health Insurance FAQs

1. If I’m on a Medicare Advantage plan now, can I switch back to Original Medicare later?

Yes, you can switch back during certain enrollment periods. Just remember that if you want a Medigap supplement at that point, the insurer may require underwriting and could decline your application based on health.

2. If I choose a PPO Advantage plan, do I really have out-of-network flexibility, and what might it cost me?

You generally can see out-of-network providers on a PPO, but out-of-network coinsurance can be much higher, often up to 50%, so the “flexibility” can be quite expensive if used frequently.

3. How early should I start talking with a health insurance professional about Medicare enrollment?

It’s wise to start the conversation at least a year before turning 65, especially if you’re considering working past 65 or comparing employer coverage with Medicare. That gives you time to understand options without making rushed decisions.

4. What happens if I keep contributing to an HSA or FSA after I’m on Medicare?

Once you’re enrolled in Medicare, contributing to an HSA can trigger tax penalties and extra paperwork, so contributions usually need to stop before Medicare begins. FSAs have their own rules, so coordinate timing with your benefits and tax professionals.

5. Is my church or employer retiree coverage more like a supplement or an Advantage plan?

Many institutional retiree plans function somewhat like a supplement layered on top of Original Medicare, but each plan has its own rules and networks. It’s important to understand exactly how your specific plan coordinates with Medicare and drug coverage.

6. When does it make sense to stay on employer coverage past 65 instead of moving to Medicare?

If you’re still working for a large employer and have strong health benefits with reasonable premiums and out-of-pocket limits, staying on that plan can make sense. In other cases, Medicare plus a supplement or Advantage plan may be more cost-effective, so comparing them side by side is important.

7. What if I misjudge my income for marketplace subsidies or IRMAA brackets? Can anything be fixed later?

Marketplace subsidies reconcile on your tax return: you may owe some back or receive more, depending on the final income. IRMAA surcharges adjust over time as your reported income changes, which is why planning and leaving buffers around the thresholds is so valuable.

8. Do I always need a separate Part D drug plan, or is it built into my coverage?

If you use a Medigap supplement, you’ll almost always need a separate Part D plan. With Medicare Advantage, drug coverage is usually built into the same plan, although there are some other options.

Next Steps for Your Retirement Health Insurance Plan

Retirement health insurance decisions fall into two broad phases: before 65 and after 65. Before 65, the focus is on bridging wisely with the marketplace or other options, managing the FPL cliff, and coordinating subsidies with your withdrawal strategy. After 65, it’s about enrolling in Medicare on time, keeping an eye on IRMAA, and deciding whether Medigap or Medicare Advantage fits your needs and budget.

At Peterson Wealth Advisors, our role is to help you see how all of this fits into your broader financial picture. We map out when you might stop working, when to claim Social Security, which accounts to draw from, and how those choices affect not only your taxes but also your premiums, subsidies, and out-of-pocket exposure across decades of retirement. We then coordinate with experienced health insurance professionals who live in the Medicare and marketplace world every day.

Together, we’ll walk through your specific situation, help you understand your retirement health insurance options in plain language, and show you how to integrate them into a retirement plan built so you can confidently plan on living the life you’ve worked for. If you’re approaching one of these key transitions and want clarity, please schedule a complimentary consultation call with our team.