Retiring Before 65? 5 Health Insurance Misconceptions to Avoid

6 min read3 hours ago

You’ve done the hard part. You saved, you invested, and you can afford to retire early. Then someone asks the question that stops a lot of people cold: what are you doing for health insurance until Medicare?

For many early retirees, that one question keeps them working years longer than they need to. And the advice they hear, often from a trusted financial advisor, sounds reasonable.

It isn’t wrong. It’s incomplete.

The short answer: If you retire before 65, buy health insurance to protect your savings from a major medical bill, not to save on taxes or premiums. Many ACA plans won’t cover you outside their network, so pair your plan with a supplement: a separate policy that fills the gaps your main plan leaves, like care outside its network. And take COBRA only when it actually gets you to Medicare.

Here are the five misconceptions we see most often:

Get an HSA-eligible plan
Focus on the premium and out-of-pocket max
Keep your income low for ACA subsidies
The ACA is your only option
Just take COBRA

#1 “Get an HSA-eligible plan”

An HSA is a great account. It’s a poor reason to pick a health plan at 60.

A health savings account (HSA) is triple tax-advantaged: money goes in pre-tax, grows tax-free, and comes out tax-free for qualified medical expenses. For 2026, you can contribute up to $8,750 for a family or $4,400 for yourself, plus a $1,000 catch-up at 55+.

But at 60, the math changes:

Less time to grow.A few years of contributions won’t build much.
You likely don’t need the tax break.You’re retiring early because you already saved well.
It narrows your plan choices.You need a high deductible plan to contribute. On the ACA marketplace, that usually means a bronze plan, often with a narrow HMO or EPO network.

That last point is the real risk. Your work plan was probably a PPO that covered you almost anywhere. A narrow-network plan generally won’t cover you outside its network, except in an emergency.

The real threat to early retirement isn’t a missed tax break. It’s a $300,000 brain tumor you want treated at the Mayo Clinic, and a plan that won’t let you go there.

#2 “Focus on the premium and the out-of-pocket max”

At your job, those two numbers told you your worst case. On many ACA plans, they don’t.

On an ACA HMO, the out-of-pocket max only covers in-network care. Outside the network, your worst case is unlimited.

Before you compare premiums, ask what happens if:

You get sick on vacation.Care away from home may be out of network.
You spend winters in another state.An Illinois marketplace plan won’t cover three months in Florida.
You want a top specialist.A second opinion at the Cleveland Clinic, MD Anderson, or the Mayo Clinic may not be covered.

This gap helps explain why insured people still go broke from medical bills. A 2019 study in the American Journal of Public Health found illness or medical bills contributed to 66.5% of bankruptcies. Earlier research by the same team found 77.9% of medically bankrupt filers had insurance when they got sick.

The problem usually isn’t a lack of health insurance. It’s the wrong health insurance.

The fix is a supplement that covers care outside your plan’s network. Medicare needs a supplement. So does the ACA.

#3 “Keep your income low for ACA subsidies”

The subsidy is a great deal when it fits your life. It shouldn’t run your retirement.

ACA tax credits can lower your premium enough to afford a supplement and still beat COBRA. In one client example, that saved about $1,000 a month. But the rules got stricter in 2026:

The enhanced subsidies expiredon December 31, 2025.
There’s a hard cutoffat 400% of the federal poverty level: no credit above $62,600 (single) or $84,600 (couple) for 2026 coverage.
Guess wrong and you pay it back.If your income lands above your estimate, you repay the credit in full. One large withdrawal or Roth conversion can push you over.

If living off savings or a Roth IRA for a few years works for you, great. But if staying under the line means capping yourself at $4,500 a month, skip it. You didn’t retire early to pinch pennies, and full-price options exist.

#4 “The ACA is your only option until Medicare”

About half of the early retirees we work with never use the ACA.

Believing it’s “ACA or bust” keeps people working until 65 just to hold on to an employer plan, even when they have more than enough saved.

The ACA fits if you have a pre-existing condition, expensive medications, or qualify for a tax credit. Confirm your doctors, hospitals, and prescriptions are covered, add a supplement, and move to a Medicare Plan G at 65.

Look elsewhere if you’re healthy and don’t qualify for a tax credit. Private, non-ACA plans vary by insurer and state, but the ones we recommend typically offer:

No network restrictions
Lower premiums and deductibles than a full-price ACA plan
Guaranteed renewable coverage, with no annual re-enrollment
Pricing that ignores your income

They have two drawbacks. A supplement handles both:

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Private plan drawback-With a supplement

12-month wait on serious pre-existing conditions — Waived for certain conditions, like blood pressure and cholesterol

$1 million annual cap — Removed

You won’t find these plans on HealthCare.gov or your state’s exchange. That’s why most people have never heard of them.

#5 “You can afford it, so just take COBRA”

COBRA lets you keep your work plan for up to 18 months. You pay the full premium plus a 2% fee. It feels safe because it’s familiar, but it’s the right call less often than people think.

Retiring at 63½ or older? Take COBRA. It bridges you to Medicare.

Can’t pass medical underwriting, income too high for a tax credit? Take COBRA. Use all 18 months, then move to the ACA.

Healthy, no tax credit? Skip COBRA. Go straight to a private plan.

You qualify for a tax credit. Skip COBRA. An ACA plan plus a supplement costs less.

Running out of COBRA opens a special enrollment period for the ACA. Dropping it early does not.

The risk of waiting: Say you’re 58 and healthy. In one client example, a private plan cost a couple $1,400 a month and COBRA cost $1,500. Taking COBRA first feels safer. But if you get sick during those 18 months, you may no longer qualify for the private plan. You’d land on a full-price ACA plan plus a supplement, for far more than COBRA cost.

A private plan is guaranteed renewable. Take it on day one, and it can carry you all seven years to Medicare, even if your health changes.

Key Takeaways

Choose coverage to protect your savings, not to save on taxes.
Check out-of-network coverage before you compare premiums.
Pair an ACA or private plan with a supplement.
Chase ACA subsidies only if the income limit fits your life.
Take COBRA only if it gets you to Medicare or you can’t pass underwriting.
Plan coverage for everyone in your household, all the way to 65.

Your Next Step

Every early retirement is different, and the right plan depends on your health, your income, and where you want to spend your time. Plan Shaman’s free education program walks you through each option, step by step, so you can build your bridge to Medicare with confidence.

Join Plan Shaman’s free education program →

FAQs

What health insurance should I get if I retire at 60?

It depends on your health and income. ACA plans with a supplement fit people with pre-existing conditions or tax credits. Healthy early retirees without a tax credit often do better with a private, guaranteed-renewable plan.

What is a supplement?

A supplement is a separate policy that works alongside your main health plan. It fills gaps your plan leaves, such as care outside its network, waiting periods, or coverage caps.

Does an ACA out-of-pocket maximum cover out-of-network care?

On HMO and EPO plans, generally no. Those plans usually don’t cover out-of-network care except emergencies, so your costs outside the network have no cap.

Can I switch from COBRA to an ACA plan?

Yes. When COBRA runs out, you get a special enrollment period. If you drop COBRA early, you have to wait for open enrollment.

What is the ACA subsidy cliff in 2026?

For 2026 coverage, households earning more than 400% of the federal poverty level get no premium tax credit. That’s $62,600 for one person or $84,600 for a couple.