Health insurance is an essential tool throughout our lives. However, the kind of health insurance people need and use can change depending on age, work, and other variables. Choices that are best for seniors are different than for young people, especially since most seniors face retirement.

Health insurance for seniors 

Not all seniors arrive at retirement age in the same boat. Many plan to retire from their jobs, while others will continue working. Some seniors may have retired early. As a result, there is no single correct choice for health insurance. Navigating the health insurance maze can be confusing, but the key is to stick with it until you find the coverage you need. Some seniors avoid obtaining health insurance at all because they feel it is too confusing or cost-prohibitive, but that can be a mistake at a time in life when health insurance is more crucial than ever. 

Let’s take a look at some of your health insurance options as a senior. 

Employer-sponsored retiree health insurance 

Not everyone is faced with losing their employer-sponsored health insurance when they retire. Some companies offer specific programs for retirees as part of their overall benefits or retirement package. Most often, these programs are group health insurance plans not much different from what the employee had while actively working with their company. There are even cases where the company will continue paying a portion of the premiums. However, this type of health insurance option is less common than it once was. According to the Kaiser Foundation, by 2017, only about 25 percent of larger employers offered employer-sponsored retiree health insurance. 

Early retirement health insurance options 

At the age of 65, seniors can enroll in Medicare. But many seniors take early retirement and may be left with an insurance gap. The official retirement age is 67 for people born after 1960, but they can choose to “retire early,” starting at 62.

For some, there is an option to retain an employer-sponsored healthcare plan. But for others, no such plan is available, and they must consider other methods.  

COBRA: One option is to continue the health insurance coverage you had when you were an active employee through the Consolidated Omnibus Budget Reconciliation Act (COBRA). However, there are some significant limitations to using COBRA. For instance, you can only continue through COBRA for up to 18 months if you are not yet eligible for Medicare. In addition, insurance through COBRA is costly since you’ll no longer receive your employer subsidy. 

The ACA: Before the Affordable Care Act (ACA), it was often highly cost-prohibitive to retire early because of sky-high health insurance premiums, denials because of pre-existing conditions, and caps on insurance payouts. Now, seniors can shop for plans and possibly qualify for income-based subsidies through their state’s health insurance marketplace or the federal marketplace. And while many people must wait until open enrollment to obtain a new policy, early retirement is considered a qualifying event and will allow you to opt into a new health insurance policy. 

The average cost of health insurance ages 62-65  

One of the biggest mistakes seniors make is underestimating the costs associated with health insurance—or the lack thereof–while waiting for Medicare eligibility. Many financial experts admonish seniors to earmark at least 15 percent of their monthly budget for healthcare costs, but that’s an average.  

In 2014, Fidelity estimated that a couple retiring at 62 with an active health insurance policy could still easily be paying around $17,000 per year in out-of-pocket costs until they are eligible for Medicare. While some may qualify for insurance marketplace subsidies that lessen the financial burden, early retirement can still present a sticker shock.  

Seniors must shift their perspective on the role of healthcare within their personal budgets. In addition, your average costs may be less or more depending on your health needs when you decide to retire. However, you should also factor in the possibility of a major health event. Consider family history, current health habits, and where you live when estimating what your healthcare costs will be while bridging the gap between early retirement and Medicare eligibility. 

Retiree health insurance and Medicare 

As you approach Medicare eligibility and the enrollment period, you’ll need to decide if you want to keep your retiree health insurance. Most of the time, if you enroll in Medicare, your other health insurance will be billed second, and Medicare will become your primary insurance. In some cases, your retiree health insurance can help cover the out-of-pocket costs of Medicare, including deductibles, copayments, and coinsurance. 

Many people prepare to terminate their retiree health insurance once they enroll in Medicare because it can be expensive. However, you may want to look at the numbers first to determine whether there are any cost savings in keeping the secondary insurance. Don’t forget to consider dental and vision care costs, which Medicare does not cover at all. As a result of these care gaps, many seniors prefer to obtain or retain retiree health insurance in the form of Medicare Advantage or Medigap.  

Consider your retiree health insurance options 

If you’re thinking about early retirement, it’s vital to consider your healthcare insurance needs and how they may change. Even retiring a few years before 65 can make a huge difference in your finances and profoundly affect your lifestyle. Ensure you are prepared for any eventuality with the best healthcare safety net so you aren’t faced with steep medical bills.