North County San Diego
How do I pay for health insurance if I retire before 65?
There are four ways to stay covered until Medicare. Which one is cheapest for you depends less on the plans than on a number you control.
There are four ways to stay covered until Medicare. Which one is cheapest for you depends less on the plans than on a number you control.
You have four ways to stay covered between your last day of work and Medicare at 65: keep your employer plan through COBRA, buy a plan through Covered California, join your spouse's plan, or pay full price. For most early retirees the marketplace is the cheapest, but only while your income stays under a hard line.
For 2027 coverage that line is $63,840 for one person and $86,560 for a couple. It is not a phase out. Earn one dollar more and the subsidy becomes zero.
That makes this different from every other retirement decision. The cost of your health insurance is not really set by the insurer. It is set by how much income you report in the year you are covered, and for a retiree that number is far more adjustable than it was while you were working.
Watch: Why Ages 59.5 to 65 are Crucial in Retirement
Almost everyone retiring before 65 ends up in one of these four. They are not equally good, and the ranking changes with your income.
You keep the exact plan you had, with the same doctors and the same deductible already partly met. You pay the whole premium yourself, including the share your employer used to cover, plus up to a two percent administrative fee. It runs up to 18 months after you leave.
The only option with a subsidy attached. For a household under the income line, the premium tax credit is usually worth more than every other factor combined. Above the line it is worth nothing at all.
If your spouse is still working and their plan covers dependents, this is frequently the cheapest answer available, and it is the one people forget to price. Leaving a job is a qualifying event, so you can join their plan outside open enrollment.
Buying the same marketplace plan without a credit, because your income is over the line. This is where the surprise lives, and the rest of this page is mostly about avoiding it.
Notice what is missing from that list. There is no option where someone else absorbs the cost. Between your last paycheck and your 65th birthday, you are paying what an employer used to pay on your behalf, and in California for a couple in their sixties that is one of the largest line items in the whole retirement budget.
From 2021 through 2025 a temporary rule capped what anyone paid for a benchmark plan at 8.5% of income, no matter how high that income was. That rule expired at the end of 2025 and was not renewed. The original structure returned, and with it a cliff.
400% of the federal poverty level for a household of one.
400% for a household of two. A retired couple on a marketplace plan is usually this household.
2027 coverage uses the 2026 poverty guidelines under Treasury regulation 26 CFR 1.36B-1(h), because the guidelines in force when open enrollment opens are the ones that govern. The 2026 guidelines for the 48 contiguous states are $15,960 for one person and $21,640 for two, published at 91 FR 1797 on January 15, 2026.
Below that line, the benchmark silver plan is capped at a percentage of your income. Anywhere from 300% of the poverty level up to the line itself, that cap is a flat 10.22% for 2027, set by Revenue Procedure 2026-26. For the couple at $86,560, the most they can be asked to pay for the benchmark plan is $8,846 for the year.
Above the line there is no cap, because there is no credit. They pay the entire premium.
Covered California's published 2027 benchmark silver premium for San Diego County is $561 a month at age 40. Applying the federal standard age curve, a couple both aged 62 would pay roughly $2,500 a month, or about $30,000 for the year.
At $86,560 of income, that couple pays $8,846. At $86,561 they pay the full premium. The difference is in the region of $21,000 for a single dollar of income, and the unsubsidized premium would consume roughly a third of their gross income.
The age 62 figure is an estimate, not a quote. Covered California publishes 2027 rates only at ages 25 and 40, and its 2027 rates remain preliminary pending review by the Department of Managed Health Care. Your own number depends on your ZIP code, the plans available to you and your actual ages. Get a real quote before relying on any of this.
There is a second trap inside the first. The credit is paid monthly, in advance, straight to your insurer. At tax time it is reconciled against what you actually earned. Go over the line and you repay all of it, and above 400% that repayment is not capped. A year of subsidy you have already spent becomes a bill.
The figure the marketplace uses is modified adjusted gross income, and its definition for this purpose is narrow and specific. It is your adjusted gross income plus exactly three things: tax exempt interest, the untaxed portion of your Social Security, and excluded foreign earned income. Nothing else is added back.
Read those two lists next to each other and the planning move becomes obvious. A retiree with money in a Roth, in an HSA, and in a taxable account holding assets at or near their cost basis can live on a perfectly comfortable amount while reporting an income that keeps the subsidy intact. A retiree whose entire net worth sits in a traditional IRA has far less room, because every dollar they spend is a dollar of reported income.
That is a reason to care about which accounts you fill long before you retire, and it is the single most valuable thing on this page.
This catches people. The untaxed portion of your benefit is added back for this calculation, so claiming early can push a household over the line even though that same benefit is partly invisible on the tax return. We wrote about the claiming decision itself in Should I take Social Security at 62 or wait?
Here is the genuine tension in early retirement planning, and almost nobody states it plainly.
The years between your last paycheck and your first required distribution are the cheapest years you will ever have to move money from a traditional IRA into a Roth. Your income is at its lifetime low, so the conversion is taxed at rates you will not see again.
Those are the same years you are buying your own health insurance, where every dollar of that conversion counts against the subsidy line.
A conversion large enough to matter will usually push a household of two over $86,560. The tax on the conversion is the visible cost. The lost subsidy, which for our illustrated couple runs in the region of $21,000, is the invisible one, and it is frequently larger.
Which way that nets out depends on your balances, your age and how many years you have before Medicare. It is genuinely different for different people, and it is not a decision to make from a rule of thumb.
Two things follow from this. One is that the conversion question and the health coverage question cannot be answered separately, even though almost every article treats them as different topics. The other is that for many people the right answer is to convert very little before 65 and a great deal after, once the subsidy is no longer at stake and Medicare has taken over.
We worked through the sizing of a conversion in full, including the other ceilings that bind, in How much should I convert to a Roth this year?
COBRA lets you keep your employer plan after you leave. You pay the entire premium, employer share included, plus up to two percent on top for administration. What was a $200 monthly deduction can become a $1,700 bill for the same coverage, because you were never seeing the real price.
Voluntary or involuntary, as long as it was not for gross misconduct. Other qualifying events, such as divorce or the death of the covered employee, can run to 36 months.
Counted from the later of the date your coverage ends or the date you are given the election notice. Miss it and the option is gone.
After you elect. Coverage is retroactive to the day your old plan ended, which is the feature that makes the deadlines useful.
COBRA wins in three situations. You are mid treatment and changing networks would mean changing doctors. You have already met a large deductible this year and starting over in January would cost more than the premium difference. Or you are retiring late in the year and only need a bridge of a few months before a marketplace plan starts in January.
Because you have 60 days to elect and another 45 to pay, and because coverage reaches back to the day your old plan ended, you can decline to pay, stay technically uncovered, and still elect COBRA retroactively if something happens in that window. It is not a strategy to rely on casually, and it fails if you miss a deadline, but it means the decision does not have to be made on your last day of work.
Three things work differently if you retire in North County San Diego rather than most other states.
California funds its own premium subsidy on top of the federal credit, and raised it to $300 million for 2027. It reaches households between 100% and 200% of the federal poverty level, which for 2027 tops out at $31,920 for an individual. A retired couple with a normal retirement income sits far above that. Covered California has said plainly that the state program does not fill the gap left by the federal credits expiring.
California also still has an individual mandate. Going without coverage carries a state penalty, which for the 2025 tax year was $950 per adult and $475 per dependent child, or 2.5% of household income above the filing threshold, whichever is greater. The dollar amounts are indexed each year.
Covered California runs its own open enrollment from November 1 through January 31, where the federal marketplace closes on January 15. To have coverage in place on January 1, enroll by December 31. Retiring is a qualifying life event, so if you leave work mid year you do not have to wait for open enrollment at all.
One more number worth knowing before you budget. Covered California's preliminary 2027 rates are up 9.9% on average across the individual market, after a much larger increase into 2026. Whatever you are paying now is not what you will pay next year.
A health savings account is the only account that goes in untaxed, grows untaxed, and comes out untaxed when it is spent on medical care. For someone planning to retire before 65 it is close to purpose built, because the money it pays out does not count toward the income line that governs your subsidy.
Requires a qualifying high deductible plan, with a deductible of at least $1,750.
Minimum deductible of $3,500 for the plan to qualify.
Not 50. The health savings account catch up starts five years later than the one on your retirement plan, and it is not indexed.
The deadline is real. Once you enroll in any part of Medicare you can no longer contribute, and if you claim Social Security after 65 you are enrolled in Part A automatically. The years before 65 are the last ones in which this account can be filled, and the dollars you put in now are dollars you can spend later without touching the subsidy line.
Medicare starts at 65. Your initial enrollment period runs seven months: the three months before the month you turn 65, that month, and the three months after. Signing up in the first three months is what gets coverage started without a gap.
Miss your window without creditable coverage and Part B costs an extra 10% for every full 12 month period you could have enrolled and did not. That surcharge is permanent, not a one time fee. On the 2026 standard premium of $202.90, a two year delay adds about $40 a month for the rest of your life.
Two practical notes. A marketplace plan is not creditable coverage, so being on Covered California does not protect you from the penalty. And the subsidy question disappears the month you both reach 65, which is why so much of the planning on this page is really about bridging a fixed number of years rather than a permanent condition.
If one spouse reaches 65 before the other, the household splits: one moves to Medicare, the other stays on a marketplace plan, and the income line is recalculated for the smaller household. That recalculation is frequently missed and it usually works in your favor.
The line only matters against your own figures. Our planning tool projects your income year by year, so you can see which years sit under it, which do not, and what it costs either way.
It takes about five minutes, it’s free, and nothing is sold to you at the end of it.
Run my numbersThe Retirement Readiness Check is an interactive planning tool provided by MoneyGuide. Results are illustrative estimates based on the information you enter and on assumptions used by the software provider. They will vary with those assumptions, do not constitute a complete financial plan, and are not a prediction or guarantee of any outcome. An adviser must review your complete circumstances before providing any recommendation.
Worth connecting to what you just read: the year you claim Social Security changes where your conversion ceilings sit. A larger benefit is more income. Half of it counts toward the threshold that determines how much of your Social Security is taxable. Starting earlier means a smaller benefit but more years of it, and usually more pressure on your IRA in the meantime. We cover that in detail on do I pay taxes on Social Security?
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You have four options: COBRA from your former employer for up to 18 months, a marketplace plan through Covered California, coverage as a dependent on a working spouse's plan, or paying full price. A marketplace plan with a premium tax credit is usually cheapest, but only if your household income stays below 400% of the federal poverty level, which for 2027 coverage is $63,840 for one person and $86,560 for two.
$63,840 for a household of one and $86,560 for a household of two, which is 400% of the 2026 federal poverty guidelines. It is a cliff rather than a phase out: one dollar of income above the limit removes the entire premium tax credit. The temporary rule that removed this limit applied only from 2021 through 2025 and has expired.
Yes. Conversion income is ordinary taxable income and counts in full toward the modified adjusted gross income the marketplace uses. A conversion that pushes a household over 400% of the federal poverty level eliminates the premium tax credit for that year, and because the credit is paid in advance the amount already received must be repaid without a cap. For many early retirees the lost subsidy exceeds the tax saved by converting.
No. Qualified withdrawals from a Roth IRA are not taxable income, so they are not in adjusted gross income and are not among the three items added back. Distributions from a health savings account used for qualified medical expenses are also excluded. Withdrawals from a traditional IRA or 401(k), capital gains and tax exempt municipal interest all do count.
Usually not, because COBRA carries no subsidy and you pay the full premium plus up to a two percent administrative fee. COBRA can still be the better choice if you are in the middle of treatment, if you have already met a large deductible for the year, or if you need only a short bridge before January. You have 60 days to elect COBRA and 45 more to pay, and coverage is retroactive to the day your old plan ended.
Up to 18 months when the qualifying event is leaving your job, whether you left voluntarily or not, provided it was not for gross misconduct. Certain other events, including divorce or the death of the covered employee, can extend continuation coverage to 36 months for a spouse or dependent.
November 1 through January 31 for the 2027 coverage year, which is longer than the federal marketplace deadline of January 15. Enroll by December 31 for coverage that begins January 1. Retiring or otherwise losing employer coverage is a qualifying life event, so you can enroll outside open enrollment within 60 days of losing your plan.
Yes, funded at $300 million for 2027, but it reaches only households between 100% and 200% of the federal poverty level, which tops out at $31,920 for an individual. Most retired households have incomes well above that, so the state program does not offset the expiration of the enhanced federal credits. California also maintains an individual mandate penalty for going without coverage.