9 Ways to Cover the Health Insurance Gap in Early Retirement

One of the greatest challenges for people looking to retire early is health insurance coverage.

It’s the fly in the ointment when pursuing financial independence and retiring early (FIRE). Health insurance has become so expensive in the US that Americans worry they can’t afford it without employer help. So they keep working long after they’ve otherwise reached financial independence, or worse, don’t even bother trying to reach financial independence and retire early in the first place.

Because when you retire early, you’re on your own for health insurance coverage until Medicare kicks in at 65. And it’s no trivial expense: a study in 2018 discovered that the yearly cost of a family health insurance plan rose from $5,791 in 1999 to $18,142 in 2016! That is astronomical. And out of the comfortable reach of most middle-class Americans.

Yet millions of self-employed workers and early retirees manage to somehow arrange affordable health coverage every year. How do they do it?

Here are eight options for health insurance for early retirees, to keep you both healthy and sleeping soundly at night.

1. Your Spouse’s Health Insurance

If you and your spouse aren’t set on leaving your jobs at the same time, a great solution to the problem of health insurance for early retirees is coverage under your spouse’s employer-sponsored plan.

I am self-employed, but my husband has wonderful employer-sponsored health insurance that covers me. Which means I am “retired” from a normal 9-5 job and get to pursue my high-reward but slightly unpredictable career.

Of course, your spouse is going to want to retire too – especially if you’re retired early. So unless they absolutely love their job and plan to work it indefinitely, spousal health insurance for early retirement is only a stop-gap measure. It is a postponement of the inevitable: having to pay your own healthcare for early retirement.

Fortunately, there are other options that will allow you to retire early. Health insurance options that you can afford!

2. Public Health Insurance Marketplace

The public health insurance marketplace was established by the Affordable Care Act, AKA Obamacare. Each state runs their own, with different plans and options available.

Now, don’t let this spark a political discussion. We’re not interested in politics around here. We’re interested in finding the best possible health insurance plan for early retirement – which may or may not come from your state’s health insurance marketplace.

The health insurance marketplace is available to most US citizens, and insurance offered through it cannot deny anyone coverage. Not even for a preexisting condition. Which is quite important for a lot of us who need health care for early retirement, who aren’t in perfect health!

The public health insurance exchanges make a great starting place for traditional health coverage. And if you don’t find a plan you like, you can always continue your search elsewhere.

3. Private Health Insurance Exchanges

Every health insurance plan in the U.S. has to comply with the ACA requirements. Of course, that doesn’t mean that every plan is listed on the ACA health insurance exchanges. In order to be listed on the ACA health insurance exchanges, each policy must be certified as a “qualified health plan.”

That involves an extra set of strict requirements, which not all health plans in the U.S. meet. Even though these plans are still quite legal, they are not allowed to be sold on the state ACA exchanges.

This is where private health exchanges come in. Private health exchange marketplaces are just places where you can view and search the non-certified plans that are not listed on the ACA exchanges. You might find plans that you like better. Even less expensive health insurance for early retirees. Just remember that you have to read about each plan carefully: not every plan provides the coverage that you are looking for.

For example, some privately listed health insurance plans might not service people with a preexisting condition.

If you want to look into a couple private health insurance exchanges, then check out eHealth and GoHealth.

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4. Health Savings Account (HSA)

Health savings accounts are arguably the best tax-deferred account available to Americans.

They come with triple tax protection: you get to deduct the contributions in the year when you make them, they grow tax-free, and withdrawals are tax-free when used for medical expenses. In 2019, the contribution limit is $3,500 per year for individuals, and $7,000 per year for families, with a $1,000 additional catch-up contribution available for those 55 and older.

Those contribution limits only go up by $50 for individuals and $100 for families in 2020, for a max contribution of $3,550 or $7,100, respectively. The $1,000 catch-up contribution limit remains the same.

It works like this: you get a qualifying high-deductible health insurance plan, with an annual deductible at least $1,400 in 2020 for individuals, and $2,800 for families. The idea is that your insurance covers major healthcare expenses, and you cover the deductible with your HSA.

Health savings account contributions and withdrawals work similarly to an IRA for retirement. You contribute money toward the account each year, where you can invest it in equities to grow tax-free. You then withdraw funds from the HSA when you incur medical expenses.

Many people pursuing FIRE use their HSA as a combination of health emergency fund and retirement account. You have until the end of the year to make withdrawals, so you can always pay out of pocket for your deductible, leaving your HSA untouched to grow tax-free. As an emergency fallback option, you can later make withdrawals if other financial emergencies arise.

And as for using it as a source of retirement funds, it makes a great way to invest tax-free in stocks for retirement in addition to real estate (more on real estate vs. stocks for retirement here). Because here’s a spoiler: you’re going to have medical expenses in retirement, and a lot of them. One report by Fidelity found that the average US couple spends over $285,000 on medical expenses in retirement!

5. Association Health Plans

Association health insurance plans can make a great option for health care for early retirement.

These health plans are a relative newcomer on the US health insurance landscape. While they’ve been around for decades, they have expanded rapidly over the last few years starting in 2017 with an executive order signed by President Trump.

The idea is simple: groups of people who share either a trade or geographic area can band together to collectively bargain for better insurance rates for its members. For example, a union of self-employed contractors could come together and create an association health plan.

If you plan to continue working in some capacity after reaching financial independence and retiring early, but won’t receive employer-sponsored health coverage, look into association health plans as an option.

6. Health Care Sharing Ministries

One option that’s grown in popularity among religious communities is health care sharing ministries (HCSMs). They’re not insurance in the traditional sense, but they work similarly to insurance, and theoretically remove corporate profits from the equation.

Basically, a health sharing plan is when a group of individuals come together and agree to help each other pay for medical expenses. They do this by paying a certain monthly amount into the “plan,” just like you would with a more traditional insurance plan.

When you go to visit a doctor or a dentist, you are responsible for paying a certain amount out of pocket, similar to a deductible. Once you have met that amount, the rest of your medical expenses for the year are paid out of the group fund.

These could be operated through your local church, synagogue, mosque, or other religious congregation. Or they could be large nationwide organizations such as Samaritan Ministries, Christian Healthcare Ministries, and Liberty Healthshare.

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7. COBRA Coverage

The Consolidated Omnibus Budget Reconciliation Act or COBRA requires insurers to allow their employees to remain on their current healthcare plan for up to 18 months after leaving their job. Of course, your employer will no longer be subsidizing your plan, which means you pay for it entirely out of pocket. Expect the cost of COBRA health coverage to be astronomically expensive.

The COBRA option works as a stop-gap measure at best, in case you need time to find a new healthcare plan after you have already taken early retirement. The best option? Decide on a health care plan before you retire early.

8. Consider a Part-Time Job or Laid-Back “Retirement” Job

No one says you have to stop working just because you reach financial independence and retire early from your high-octane job. If your main goal is to retire from your current job because it stresses you out, or you don’t like your field anymore, or you just want to be able to relax more, look into a laid-back retirement job.

For example, if you want to retire from the demands of the corporate world, but you don’t mind an interesting part-time position somewhere to occupy 15-30 hours of your week, you could leave the boardroom for the barbershop. Or pouring wines at a winery, or doing consulting work, or freelance work, or turning your hobby into a small, fun business.

Not all part-time jobs come with benefits, but some do. And a part-time job that comes with health care coverage will allow you to be at least partially retired and still afford health care. (And it gives you some extra disposable income to enjoy during your partial, early retirement.)

If this sounds intriguing, here is a list of 11 part-time jobs that offer heath care benefits.

9. Retire Abroad!

Love adventure and travel as much as Brian does?

Health coverage abroad is nearly always more affordable. And while many Americans get on a high horse about quality of care being lower overseas, that’s often not true at all. Many countries have medical care that equals or exceeds the quality of US healthcare – at a fraction of the price. Why do you think medical tourism exists in the first place?

Brian and his wife Katie live overseas and enjoy excellent, affordable health care with a $13.62 copay! For another example, check out this couple that retired abroad specifically because of the better, cheaper healthcare options they found in Europe. They retired on the income they earn from a single multifamily property, by the way.

If you would like to compare the cost of medical expenses in the U.S. to the medical expenses you would face in several other countries, check out this article here.

Final Word

Don’t let health care costs ruin your dream of early retirement!

You can still afford to retire early. You can give up the daily 9-5 grind, put on your sunglasses, and go live on that beautiful and serene beach of your dreams. The trick to health insurance for early retirees is coming at the problem from multiple angles until you find a strategy that works. Often, it’s not a traditional health insurance plan.

With just a little bit of planning, you can find health insurance options that will fit your exact needs and budget – even if that means moving overseas.

What’s your plan for health insurance when you retire early? What are your greatest concerns around it? Share your thoughts below!

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