The Healthcare Gap Between 62 and 65: Funding the Years Before Medicare

Image description: A dark green editorial illustration shows a bridge connecting age 62 and age 65, with healthcare and retirement planning symbols along the path.

Retiring at 62 can sound like a clear milestone. However, for many professionals, business owners, and their families, the years between retirement and Medicare eligibility create a major planning question:

How will you pay for health insurance before age 65?

Medicare generally begins at 65 for eligible individuals. If you leave an employer-sponsored plan earlier, you may need to fund several years of premiums, deductibles, copayments, and other medical expenses on your own. The cost can influence when you retire, how much income your portfolio must produce, and which accounts you use first.

This is not a reason to abandon an early-retirement goal. It is a reason to treat healthcare as a central part of the retirement income plan rather than an afterthought.

Why the pre-Medicare gap matters

The healthcare gap may last anywhere from a few months to six years or more, depending on your retirement age and personal circumstances.

For example:

• Someone retiring at 64 may need coverage for approximately one year.
• Someone retiring at 62 may need a three-year bridge.
• Someone retiring at 59 or 60 may need to plan for five or six years.
• A spouse who is younger than 65 may need coverage even after the primary retiree becomes eligible for Medicare.

The cost includes more than the monthly insurance premium. A realistic healthcare line item may also include:

• Deductibles
• Coinsurance and copayments
• Prescription costs
• Dental and vision expenses
• Travel to out-of-network providers
• Health-related transportation or home modifications
• Unexpected medical costs

A hypothetical household paying $1,200 per month for premiums and setting aside $4,000 annually for out-of-pocket expenses would spend approximately $18,400 per year on healthcare. Over four years, that equals $73,600 before considering inflation or changes in coverage.

This is only an illustration. Actual costs vary based on age, location, household size, income, plan selection, health needs, and available subsidies.

The main coverage options before Medicare

There is no single best solution for every early retiree. The right option depends on your employer, household, health needs, income, provider preferences, and the length of the bridge.

ACA Marketplace coverage

The Health Insurance Marketplace can provide coverage for people who retire before 65 and lose job-based insurance. According to HealthCare.gov’s guidance for retirees, losing employer coverage generally creates a Special Enrollment Period.

A Special Enrollment Period is a window outside the annual Open Enrollment Period when you may enroll because of a qualifying life event. Losing job-based coverage may allow enrollment during the 60 days before or after the separation date. Details and deadlines matter, so confirm the timing directly through HealthCare.gov.

Marketplace plans differ in:

• Monthly premiums
• Deductibles
• Maximum out-of-pocket limits
• Provider networks
• Prescription formularies
• Coverage levels and cost-sharing

Depending on household income and size, you may qualify for premium tax credits or other savings. Retirement income can affect eligibility calculations. Withdrawals from retirement accounts may generally count as income for Marketplace purposes, so individual questions about tax treatment or income reporting should be directed to a qualified tax professional.

Marketplace coverage may be the most practical option for a multi-year bridge, but it should be evaluated based on both premium cost and potential out-of-pocket exposure.

COBRA continuation coverage

COBRA may allow you to continue your former employer’s group health plan temporarily after leaving employment. Its primary advantage is continuity. You may be able to keep the same doctors, network, and coverage structure.

The tradeoff is cost. Under COBRA, you generally pay the full premium that was previously shared with your employer, plus an administrative fee of up to 2%. The U.S. Department of Labor explains COBRA rights and eligibility through its official COBRA resources.

Standard COBRA coverage generally lasts up to 18 months, although certain circumstances may allow extensions. It is important not to assume COBRA will carry you all the way to 65.

COBRA may be useful when:

• You are retiring close to age 65.
• You need to preserve access to a specific provider network.
• You are in the middle of treatment.
• You need a short-term bridge while comparing Marketplace plans.

Before electing COBRA, compare its total cost with available Marketplace coverage. Also, be cautious about voluntarily ending COBRA early. According to HealthCare.gov’s COBRA guidance, voluntarily dropping COBRA may not create a new Special Enrollment Period outside Open Enrollment.

Coverage through a spouse

If your spouse continues working, joining their employer plan may be an option. The timing of your loss of coverage may create a special enrollment opportunity under that plan.

Compare:

• The additional premium for dependent coverage
• The plan’s deductible and out-of-pocket maximum
• Provider and hospital networks
• Prescription coverage
• Employer contributions
• How long the working spouse expects to remain employed

For business owners and couples planning a joint exit, this option may be particularly important. One spouse may continue working for a period of time, not because the household needs employment income, but because employer-sponsored health coverage remains valuable.

Other possible sources of coverage

Depending on your situation, you may also investigate:

• Retiree health benefits from a former employer
• Coverage through a current business or professional arrangement
• Medicaid, if household income and state eligibility rules permit
• An individual plan purchased outside the Marketplace

Each option has different eligibility rules and limitations. Confirm details with the insurer, employer benefits department, or appropriate government agency.

Where an HSA may fit

A Health Savings Account, or HSA, is available only to individuals who meet specific eligibility requirements, including enrollment in an HSA-eligible high-deductible health plan and not being enrolled in Medicare.

An HSA can help create a dedicated reserve for eligible medical expenses. Under IRS Publication 969, distributions used for qualified medical expenses can generally receive favorable tax treatment under applicable rules.

Before Medicare, HSA funds may generally be used for eligible expenses such as deductibles, copayments, and qualified medical services. HSA funds may also be used for COBRA premiums in certain circumstances. However, Marketplace premiums are generally not eligible for HSA payment before Medicare, subject to limited exceptions.

Once enrolled in Medicare, you generally cannot continue making HSA contributions, although existing HSA funds may still be available for qualified expenses and certain Medicare-related costs. Rules can be detailed, especially around enrollment timing and retroactive coverage. Consult a qualified tax professional for advice about your specific situation.

An HSA should not be viewed as a substitute for health insurance. It is a potential funding resource that may work alongside an appropriate insurance plan.

Image description: A clean financial illustration presents three potential coverage paths before Medicare, alongside a calendar and household budget worksheet.

Build healthcare into the retirement income plan

Healthcare should appear as its own line item in your retirement projection. Combining it with general living expenses can make the true cost of early retirement harder to see.

A useful planning worksheet may show each year separately:

Review the plan annually because premiums, household income, provider needs, and coverage rules can change.

A retirement planner or fiduciary financial advisor can help integrate healthcare costs with portfolio withdrawals, asset allocation, and income needs. A registered investment adviser should also explain how assumptions affect the plan rather than presenting a single projection as certain.

Why a four-to-six-year bridge can change withdrawal sequencing

A short pre-Medicare period can have an outsized impact on portfolio decisions.

Suppose a household retires at 60 and expects to spend five years before Medicare eligibility. The portfolio may need to provide both regular living expenses and a substantial healthcare budget during those years. That can change:

• How much liquidity is held outside long-term investments
• Which accounts are used for near-term spending
• How portfolio risk is aligned with the withdrawal schedule
• Whether a household can tolerate a market decline early in retirement
• How much flexibility exists to delay or adjust discretionary spending

This does not mean there is one universal withdrawal sequence. It means the sequence should reflect the household’s income sources, account types, tax circumstances, risk tolerance, and healthcare obligations.

Selling investments after a significant market decline can make a temporary downturn more damaging to a retirement plan. Some households therefore evaluate whether they have enough liquid resources for near-term healthcare and essential expenses, while maintaining a diversified portfolio for longer-term needs. The appropriate balance depends on the household’s overall plan.

Image description: A layered retirement timeline highlights healthcare premiums and out-of-pocket expenses as a separate line item alongside regular living costs and portfolio income.

Questions to answer before leaving work

Before retiring before 65, consider documenting answers to these questions:

1. What coverage will begin on the day employer coverage ends?
2. Does the plan cover both spouses and any dependents?
3. How much will premiums cost each year?
4. What are the deductible and maximum out-of-pocket costs?
5. Are your preferred doctors and prescriptions covered?
6. How could retirement income affect Marketplace eligibility?
7. If using COBRA, when will it end?
8. What happens if your spouse continues working?
9. How much is already available in an HSA for eligible expenses?
10. When and how will you transition to Medicare?

Medicare provides official enrollment information through Medicare.gov. Do not assume that COBRA or another temporary arrangement automatically replaces the need to review Medicare enrollment timing at 65.

The takeaway

Retiring before 65 requires more than estimating everyday spending. It requires a deliberate plan for the years before Medicare.

Compare Marketplace coverage, COBRA, spousal coverage, and other potential options. Estimate premiums and out-of-pocket costs separately. Review HSA rules carefully. Then connect the healthcare bridge to your portfolio, cash-flow needs, and withdrawal strategy.

If you are considering an early retirement or business exit, schedule a conversation with Portafolio Capital Management dba Mau Sanchez Capital or call (512) 593-8380. A fiduciary planning discussion can help you evaluate how healthcare costs fit into your broader retirement income plan. A conversation does not guarantee a particular investment result.

Sources

• HealthCare.gov: Health coverage for retirees
• HealthCare.gov: COBRA coverage when you’re unemployed
• HealthCare.gov: Special Enrollment Period
• U.S. Department of Labor: COBRA
• Medicare.gov: Get started with Medicare
• IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans

Portafolio Capital Management LLC dba Mau Sanchez Capital is a Texas-registered investment adviser. This content is provided for informational and educational purposes only and does not constitute personalized investment advice, tax advice, legal advice, or a solicitation to buy or sell any security. Investing involves risk, including the possible loss of principal. Advisory services are provided only pursuant to a written advisory agreement. Past performance is not indicative of future results.