Retiring Before 65: How Physicians Bridge Health Coverage Until Medicare

You've run the numbers, and they say you could stop working at 60. Maybe 58. Then a second thought shows up, usually late at night: "What do we do about health insurance until Medicare?" For a physician who has had employer coverage since the first day of residency, that question can feel bigger than the retirement math itself.

Medicare eligibility generally starts at 65. If you leave clinical work before then, you and your spouse will need a way to cover the years in between, and the options carry very different costs, rules, and time limits. Health coverage is one of the line items we look at closely when we help a household map out the five years before you stop working, because it touches cash flow, taxes, and the order in which you draw from your accounts.

This article walks through how each bridge option works: COBRA, the ACA marketplace and its premium tax credits, a spouse's employer plan, part-time or locums work that comes with benefits, retiree health coverage, and the narrow cases where HSA dollars can pay premiums. It also covers the piece that's easy to overlook: how the accounts you pull retirement income from can change what you pay for coverage. If you're earlier in the process, our overview of retirement planning for doctors sets out the bigger picture this decision sits inside.

Why the Gap Years Need Their Own Plan

Health coverage in early retirement isn't only a premium. It's a set of deadlines, enrollment windows, and income tests that interact with the rest of your plan. Miss a window and you may be waiting months for the next open enrollment period. Draw income the wrong way in a given year and a marketplace premium may cost noticeably more than you expected.

The gap can also be longer than it first looks. If you're 58 and your spouse is 54, the household may need bridge coverage for eleven years, since each spouse becomes eligible for Medicare on their own birthday, not yours. Your kids may still be on your plan, too. HealthCare.gov says young adults can generally stay on a parent's job-based plan until they turn 26, and that coverage has to come from somewhere once your employer plan ends.

The Medicare.gov guide to when coverage starts explains the initial enrollment period around your 65th birthday. Your target date for each spouse is the first day Medicare coverage can begin, and the plan for everything before that date is the bridge.

If you're thinking about stepping down gradually rather than all at once, some of the coverage questions may come up before you fully retire. Our look at cutting back to 0.8 FTE covers how benefits eligibility can shift when your hours do.

COBRA: Familiar Coverage, Limited Time

COBRA is the federal law that lets you keep your employer's group health plan after you leave, as long as the employer has 20 or more employees. You keep the same plan, which generally means the same network and the same doctors. For a family in the middle of treatment or with a specialist they don't want to lose, that continuity can matter a lot.

According to the U.S. Department of Labor's employee guide to COBRA, coverage after leaving a job generally lasts 18 months, and the plan can charge up to 102 percent of the full cost of coverage. That "full cost" part can come as a surprise. While you were employed, your hospital or group was likely paying a large share of the premium. Under COBRA, you pay the employer's share plus your own, plus a small administrative fee.

Details Worth Knowing About COBRA

• The plan must give you at least 60 days to elect COBRA and at least 45 days after you elect to make the first premium payment, according to the Department of Labor guide.
• Eighteen months is usually the limit after a job ends. If you retire at 62, COBRA alone won't reach 65.
• COBRA premiums aren't income-tested. Your retirement income doesn't change what you pay.
• If you drop COBRA voluntarily partway through a year, that generally doesn't open a special enrollment period for marketplace coverage. Switching is often easier at the marketplace's annual open enrollment or when COBRA runs out.

COBRA tends to come up in planning conversations as a short bridge: covering the months right after retirement, finishing a course of treatment, or holding coverage until the next marketplace open enrollment. Whether it's the right fit depends on the premium your former employer quotes, your health needs, and how long your gap is.

ACA Marketplace Plans and Premium Tax Credits

The ACA marketplace (healthcare.gov, or your state's own exchange) sells individual plans that must cover treatment for pre-existing conditions from the day coverage starts. HealthCare.gov's explanation of premium factors lists age, location, tobacco use, and the plan category you choose (bronze, silver, gold, or platinum). On age, the page says premiums can be up to three times higher for older people than for younger ones.

Losing employer coverage when you retire is a qualifying life event. The HealthCare.gov special enrollment page explains that you may qualify if you lost coverage in the past 60 days or expect to lose it in the next 60 days.

How the Premium Tax Credit Works

The premium tax credit lowers your monthly marketplace premium based on your household income relative to the federal poverty level (FPL). The IRS overview of premium tax credit basics describes advance credit payments and says that anyone who receives them, or plans to claim the credit, is required to file a return with Form 8962. The IRS questions and answers on the premium tax credit add that for tax years after 2025 there is no repayment cap: if your allowable credit is less than your advance payments, the full difference is subtracted from your refund or added to your balance due.

Here's the part that changed recently. The IRS says that for tax years 2021 through 2025, Congress temporarily eliminated the requirement that household income be no more than 400 percent of the federal poverty line. For tax years after 2025, household income generally must be at least 100 percent and no more than 400 percent of the federal poverty line for your family size. For a two-person household in the 48 contiguous states, the 2025 HHS poverty guideline is $21,150, and 400 percent of that is $84,600. HealthCare.gov explains how the federal poverty level is used for Marketplace savings.

That cutoff works like a cliff, not a slope. One dollar over the line can mean losing the entire credit. That's why the way you create retirement income matters so much here.

How Your Withdrawal Choices Affect MAGI and Premiums

The income figure the marketplace uses is modified adjusted gross income, or MAGI. HealthCare.gov's explanation of what's included as income says it starts with your adjusted gross income from your tax return, then adds back non-taxable Social Security benefits, tax-exempt interest, and untaxed foreign income. In other words, municipal bond interest that's tax-free on your federal return still counts here.

The key point is that MAGI isn't the same as what you spend. A household can spend $150,000 in a year and report a much lower MAGI, depending on where that money comes from. Each type of account shows up differently.

The table below shows how common retirement income sources generally count toward MAGI for marketplace purposes.

This is where the bridge-coverage decision connects to the rest of your plan. A household that retires with a mix of taxable brokerage money, cash, Roth dollars, and pre-tax accounts has more ways to shape its MAGI in a given year than a household with nearly everything in a 401(k). If most of your savings sit in pre-tax accounts, every dollar you spend tends to show up as income, which can make the 400 percent line hard to stay under.

The Roth Conversion Trade-Off

The years between retirement and 65 are often discussed as a window for Roth conversions, because your income may be lower. Our article on Roth conversions and the 2026 tax picture walks through that idea. But IRS Publication 590-B treats converted pre-tax amounts as taxable income in the year of conversion, so a conversion adds to MAGI. If you're relying on a premium tax credit, a large conversion could reduce or eliminate it for that year. In those years, the two goals can pull against each other.

Weighing that trade-off usually means putting real numbers side by side: the tax cost of the conversion, the premium credit you might give up, and the expected tax treatment of those dollars later. Some households decide the conversion is worth more than the credit. Others keep conversions small during marketplace years and do more after Medicare starts. There's no single answer, and it can change from year to year.

A Spouse's Employer Plan

If your spouse is still working and has access to an employer plan, joining it is often the simplest bridge. Losing your own employer coverage may allow you to be added to your spouse's plan mid-year under a special enrollment right. The Department of Labor's COBRA guide says special enrollment generally has to be requested within 30 days of losing other coverage.

The trade-offs here are mostly about timing and cost. Your coverage now depends on your spouse's job, so if they plan to stop working around the same time you do, this bridge may be short. If your spouse is also a physician, it can help to compare both plans' family premiums and networks before either of you retires, since the decision about who leaves first can affect which plan the family ends up on.

Comparing the Three Most Common Bridges

Here's how COBRA, a marketplace plan, and a spouse's plan generally compare on the details that come up most in planning conversations.

Part-Time or Locums Work That Carries Benefits

Early retirement doesn't have to be a full stop. You might step back to a part-time role, a teaching position, or locums work, and keep some clinical income in the process. Whether that work solves the coverage question depends on the details of the arrangement.

A part-time employed role may offer group health insurance depending on the employer's eligibility rules. If you're self-employed, the IRS says the self-employed health insurance deduction is an adjustment to income for premiums paid on a policy covering medical care. How that deduction interacts with the premium tax credit gets technical, and it's worth reviewing with a tax professional.

Also keep in mind that part-time income counts toward MAGI. A few shifts a month may cover your living expenses nicely and still push a marketplace household above the 400 percent line. On the other hand, earned income can reduce how much a household has to withdraw from savings during the gap years.

Retiree Health Coverage From an Employer

Some employers offer retiree health benefits to employees who meet age and service requirements, and the details vary by plan.

If your employer offers retiree coverage, the questions that usually matter are: What are the age and years-of-service requirements? Does it cover a spouse and dependents? What share of the premium will you pay, and can the employer change or end the benefit later? Does it stop at 65 or coordinate with Medicare afterward? Your plan documents and HR benefits office are the place to confirm these details, and the answers can change the math on when you stop working.

Using HSA Dollars for Premiums: The Limited Cases

If you've been building an HSA alongside a high-deductible plan, you may be planning to use it in retirement. Our article on using an HSA as a retirement account covers the longer-term strategy. For the gap years specifically, the rules on premiums are narrower than you might assume.

IRS Publication 969 states that you generally can't use HSA funds tax-free to pay health insurance premiums, with a few exceptions. The ones relevant before 65 are:

• Health care continuation coverage, such as COBRA
• Health coverage while you're receiving unemployment compensation under federal or state law
• Qualified long-term care insurance, subject to annual limits

In practice, that means HSA dollars can pay COBRA premiums tax-free, which can make COBRA more workable for the first 18 months. Marketplace premiums generally aren't on the list for someone who's retired and not collecting unemployment. Publication 969 says distributions from an HSA for qualified medical expenses are tax-free, so using the HSA for those costs, rather than for premiums, doesn't add taxable income.

What a Bridge Plan Often Looks Like in Practice

Here's a hypothetical example to show how the pieces can fit together. These figures are illustrative only and not a forecast for any household.

Imagine a physician who retires at 61, with a spouse who's 59 and no longer working. Their savings include a large pre-tax 401(k), a taxable brokerage account built up over the past decade, some cash, and a modest HSA. One way their planning conversation could unfold:

• They elect COBRA for the remainder of the calendar year, since one spouse is in the middle of treatment, and use HSA funds to pay those premiums.
• They enroll in a marketplace plan starting January 1, during open enrollment, so the move happens at the start of a fresh deductible year.
• For the marketplace years, they fund most of their spending from the taxable account and cash, keeping realized gains and other income in a range they've modeled against the premium tax credit cutoff.
• They revisit Roth conversions each fall, comparing the tax cost and the premium impact before deciding how much to convert, if anything.
• At 65, the older spouse moves to Medicare, and the younger spouse stays on a marketplace plan for two more years.

Every part of that sequence depends on the household's actual balances, health, state, and the subsidy rules in effect for each year.

Questions Worth Answering Before Your Last Day

Before your employer coverage ends, it helps to have clear answers to a handful of questions:

• How many years of bridge coverage does each person in your household need, including kids under 26?
• What will COBRA cost per month? (Ask HR for the actual figure; COBRA can include the employer's share of the cost, so it can be higher than your paycheck deduction.)
• Do you or your spouse qualify for retiree health coverage, and are you close to an eligibility date?
• How much of your savings is in pre-tax, Roth, taxable, and cash accounts, and what would your MAGI look like in each gap year?
• Are Roth conversions part of your plan, and how would they interact with a premium tax credit?
• Which doctors and hospitals does your family want to keep, and which plans include them?

Talking It Through

Retiring before 65 is a real possibility for a physician household that has saved well, and the coverage gap is one of the details that turns a target date into a workable plan. If you'd like to talk through how health coverage, withdrawals, and taxes fit together for your family, our CFP® professionals would be glad to start with a conversation about where you are and what you want the next chapter to look like. You can schedule an introductory call here whenever the timing feels right.

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