Four bridges cover the gap to Medicare: COBRA continuation for up to 18 months at full premium, an ACA marketplace plan with income-based subsidies, a spouse’s employer coverage, or retiree health benefits if your former employer offers them. Which accounts fund your income during those years changes your ACA subsidy eligibility.
What are your options between retirement and Medicare?
| Option | Typical duration | What drives the cost | Key risk |
|---|---|---|---|
| COBRA | Up to 18 months | Full premium, your old share plus the employer’s, plus up to a 2% fee | Temporary, and the clock starts at separation, not at your convenience |
| ACA marketplace | Until Medicare eligibility | Household MAGI relative to the federal poverty line | A large income year, such as a Roth conversion, can shrink or erase the subsidy |
| Spouse’s employer plan | Until that coverage ends | The spouse’s employer group rate | Depends on the working spouse staying at that employer |
| Former employer retiree plan | Varies by employer | Employer-set, sometimes subsidized | Rare today, and terms can change |
TVA and the federal government set eligibility rules of their own for retiree coverage: TVA’s retiree medical rules are on the Knoxville page, and the five-year rule for keeping FEHB is on the Tullahoma and Manchester page.
How does COBRA work?
COBRA lets you keep the exact plan and network you had at work, for up to 18 months after a qualifying event like leaving your job, at the full cost of that plan. Your employer no longer covers any of the premium, so a plan that felt affordable as a payroll deduction can look very different as a monthly bill you write yourself. COBRA works best as a short bridge or a fallback while an ACA application processes, less well as an 18-month plan by default.
How does the ACA marketplace work, and why does your withdrawal choice matter?
Marketplace premium tax credits are calculated from your household’s modified adjusted gross income relative to the federal poverty line. A lower MAGI in a given year means a larger credit, up to a point. A Roth conversion, a large capital gain, or a big traditional IRA withdrawal all raise MAGI the same way, which means the exact strategy that helps your 30-year tax picture, filling a bracket with conversions during a low-income window, can shrink or eliminate your health insurance subsidy in the years you rely on the marketplace. Model both goals in the same spreadsheet, year by year, and they work together. Model them on two different calendars and one undermines the other.
Say a couple needs $95,000 of the $110,000 they plan to live on this year from portfolio withdrawals, with a small pension covering the rest. Drawing that $95,000 from a taxable brokerage account keeps MAGI low enough to qualify for a meaningful ACA credit. Drawing the same $95,000 from a traditional IRA instead adds the full amount to MAGI, erasing the credit and adding a real cost to that year’s health insurance on top of the tax owed on the withdrawal itself. Same need, same dollar amount, a different bill depending on which account it came from. These figures are illustrative, not a projection for any household.
What if your spouse is still working?
A spouse still employed can be the simplest bridge of all. Adding a retiring spouse to an active employer plan costs less than COBRA or a marketplace policy in most cases, and it sidesteps the MAGI trade-off, since group plan eligibility does not depend on income. Confirm the specific employer allows a mid-year enrollment for a retiring spouse, since the timing rules differ by plan and by insurer.
What about an HSA during the bridge years?
If you were enrolled in a high-deductible health plan before you left work, the HSA balance you built stays usable for qualified medical expenses at any age, tax-free on the way out just as it was tax-free going in. It can pay a COBRA premium. It cannot pay an ACA marketplace premium in most cases, a distinction worth knowing before you count on it to cover both. Rule of 55 withdrawals from a 401(k) at the employer you just left are a separate, unrelated source some retirees use to fund the bridge years themselves, penalty-free before 59½.
What should you watch for at 65?
Medicare’s initial enrollment period runs for seven months around your 65th birthday, and missing it without qualifying coverage can mean a permanent premium penalty. COBRA and ACA coverage do not count as qualifying coverage for this purpose, only active employment does, yours or a spouse’s. HSA contributions have to stop the month Medicare coverage begins, which matters if you were still funding the account during the bridge years.
What should you do next?
Compare COBRA and an ACA marketplace quote side by side before you retire, using your actual projected income for that first year, not a guess. Decide which account funds the bridge years with an eye on the ACA subsidy, not only the tax bracket. Mark the seven-month window around your 65th birthday on the calendar now, since the penalty for missing it follows you for as long as you carry Medicare.
The health insurance bridge is one piece of a full Retirement Income Roadmap, not a decision that works in isolation from your withdrawal sequence. Schedule a consultation to plan the years before Medicare alongside the years after.
Common questions
- Can you use an HSA to pay COBRA or ACA premiums?
- An HSA can pay COBRA premiums tax-free. It cannot pay ACA marketplace premiums, with a narrow exception for someone collecting unemployment compensation, a distinction that catches people planning to lean on the account for both.
- Does retiring before 65 trigger a Medicare penalty by itself?
- No. Medicare eligibility starts at 65 regardless of when you retire. The penalty risk comes from not having qualifying coverage and missing your enrollment window once you do turn 65, not from retiring early.
- Does COBRA or ACA coverage count as qualifying coverage that lets you delay Medicare?
- No, and this trips up more retirees than any other rule here. Only coverage through active employment, yours or a working spouse’s, lets you delay Medicare enrollment without a penalty. COBRA and ACA marketplace plans do not qualify.
- Can you keep contributing to an HSA after 65?
- Not once you enroll in any part of Medicare. Contributions must stop the month Medicare coverage begins, though you can still spend down an existing HSA balance tax-free on qualified expenses at any age.
- Is COBRA always more expensive than an ACA marketplace plan?
- COBRA tends to cost more. It charges the full premium, your old share plus the employer’s, plus up to a 2% fee, while an ACA plan with a subsidy can cost less, though the network and plan design differ from what you had at work in many cases.
If the decisions on this page are ahead of you, the two of you can work through them with Robert Boeck before any of them becomes permanent.
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