Bridging early retirement to Medicare

Steve Merrell |

Q: My company recently announced another round of layoffs and I expect to be let go. I am 62 and I am a little old to be starting over, so I have decided it is time to retire. This is earlier than I thought it would be, but I feel ready to slow down a little. My main concern is how to pay for healthcare. What do you know about COBRA?

A: Given the massive layoffs associated with the coronavirus pandemic, a lot of people have been pushed into early retirement. This is a big step with a lot of factors to carefully consider, including how to pay for health insurance until you qualify for Medicare at age 65.

You have three options for bridging your health insurance between early retirement and Medicare. First, if you leave a company with at least 20 employees, you can continue your health benefits through something called COBRA. Second, you can purchase a privately-issued individual insurance policy from an insurance company. Finally, you can purchase an individual policy on a public exchange. Each option has benefits and costs.

COBRA gives workers who lose their employer-provided health insurance the right to maintain their health coverage for up to 18 months. However, there are two circumstances that can extend your COBRA coverage.

You can extend coverage for an additional 11 months (for a total of 29 months) if one of your qualified beneficiaries (i.e., you, your spouse, or a dependent child) is disabled. This extension is granted to every covered member of the family. To qualify, the disabled person must be certified by the Social Security Administration as disabled before the 60th day of COBRA coverage.

COBRA benefits can also be extended if a retiring worker became eligible for Medicare within 18 months of retiring. In that case, a younger spouse or a dependent child would be able to extend COBRA for up to 36 months after the date the employee became eligible for Medicare.

COBRA can be a huge benefit to those who suddenly find themselves without work. Continuing coverage is easy. It is guaranteed issue, requires no underwriting and can be terminated at any time. You don’t have to worry about pre-existing conditions and you already know what the benefits are since they are same benefits you enjoyed while employed.

COBRA may be easy, but it is also very expensive. COBRA requires only that your employer allow you to continue your health care coverage. It does not require the employer to pay for it. Most departing employees are shocked when they learn how much health insurance actually costs. Since the average employer covers more than 80 percent of the cost of an individual’s policy and more than 70 percent of a family policy, COBRA will likely cost 4 to 5 times what you were paying while still employed. In addition, most employers charge an additional 2 percent administration fee. If you qualify for an 11-month disability extension, the administration fee can be as high as 50%. In other words, COBRA coverage could cost you as much as 150% of the actual premium, or 7 ½ times what you paid while employed.

In terms of cost, non-COBRA options are much more attractive. In particular, I favor the policies available through the public exchanges. These policies are generally pretty good and they cannot deny you coverage for pre-existing conditions. Even more beneficial may be the premium assistance tax credits available if you qualify as “low-income.” Please note that these policies are only available during the official enrollment period or within 60 days of leaving your job or another qualifying life event, such as getting married, having a baby, or moving to a new area. Open enrollment for 2021 starts November 1. You can get more information on the California exchange by visiting

Here’s a strategy that might help you save a few bucks. After you leave your job you have 60 days to decide about COBRA. If you choose COBRA, the coverage is retroactive. If you need medical attention during those 60 days, you can opt in to COBRA and pay your retroactive premium. If you don’t, you simply sign up for a policy on a public exchange before the 60-day enrollment period ends. The net effect is that you maintain protection but you may not have to pay for coverage during those 60 days.



Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to