Health insurance before Medicare: options for early retirees

If you stop working before 65, you need health coverage to bridge the gap to Medicare. In Colorado the main choices are COBRA or state continuation from your old job, an ACA plan through Connect for Health Colorado (with tax credits if your income qualifies), an ACA plan bought directly from an insurer, a working spouse's plan, or Health First Colorado if your income is low. For most early retirees the deciding factor is income, not health: in 2026 and 2027 a household above 400% of the federal poverty level gets no federal tax credit, so which accounts you draw from can change your premium by thousands of dollars a year. You are not alone in this: people aged 55 to 64 were the largest age group choosing Connect for Health Colorado plans in 2026, 67,420 of them (CMS 2026 OEP State-Level Public Use File, cms.gov/files/zip/2026-oep-state-level-public-use-file.zip). Losing job coverage gives you a 60-day special enrollment window, so start this plan before your last day at work.

Your options side by side

COBRA applies to group health plans of employers with 20 or more employees, and the premium can be up to 102% of the cost to the plan (U.S. Department of Labor, dol.gov/general/topic/health-plans/cobra). After leaving a job or a cut in hours it generally lasts up to 18 months, with longer periods only in specific cases such as a disability extension or a second qualifying event (CMS COBRA job aid, cms.gov/marketplace/technical-assistance-resources/understanding-cobra-job-aid.pdf). Colorado also has its own continuation and conversion rules, created by the legislature to fill gaps COBRA leaves for small businesses (Connect for Health Colorado, connectforhealthco.com/faq/what-is-colorado-continuation-and-conversion/).

How long is your gap, really?

Count the months, because the answer changes which tools work. Someone who retires on their 62nd birthday has 36 months to cover before Medicare starts at 65. COBRA's usual 18 months covers half of that at most, so nearly every early retiree who leaves before 63 and a half needs a marketplace plan for at least part of the bridge, and often for all of it.

Couples rarely line up neatly. If one spouse is two years older, that spouse moves to Medicare first while the younger one stays on a marketplace plan. The marketplace still counts both spouses in the tax household for the poverty-level math, even the one who no longer needs marketplace coverage (HealthCare.gov, healthcare.gov/income-and-household-information/household-size/). The credit then applies only to the spouse still enrolled.

Step 1: the 60-day window when job coverage ends

Losing job-based coverage is a qualifying life event. You generally have 60 days after coverage ends to pick a Connect for Health Colorado plan, and you can often apply up to 60 days before the loss so there is no gap (HealthCare.gov, healthcare.gov/coverage-outside-open-enrollment/special-enrollment-period/). Electing COBRA does not take away that window. Dropping COBRA early by choice later in the year is not a qualifying event, so you would wait for open enrollment; when COBRA runs out on schedule, you get a new 60-day window (HealthCare.gov, healthcare.gov/unemployed/cobra-coverage/). Decide within the first 60 days which path you want.

Step 2: plan your income around the 400% line

Your premium tax credit is based on modified adjusted gross income, not your savings. Early retirees often have more control over that number than they did while working, because it depends on which accounts you draw from (HealthCare.gov, healthcare.gov/income-and-household-information/income/).

• Most withdrawals from a traditional IRA or 401(k), pensions and wages count toward income.
• All Social Security counts, both the taxable and the non-taxable part, so claiming early at 62 raises your marketplace income by the full benefit.
• Spending cash you already have in savings is not income; in a regular brokerage account, only the gains you realize count.
• Qualified distributions from a designated Roth account are not counted.
• A large Roth conversion or capital gain in the wrong year can push you over the line.

A worked bridge-years example

Hypothetical Colorado household, not a real client. A married couple in Adams County both retire at 62 at the start of 2027 and need about $80,000 to live on that year. They have a traditional IRA, some cash savings and no pension yet. For 2027 coverage, 100% of the poverty level for two is $21,640 (HHS ASPE, aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines), and the expected contribution comes from the 2027 IRS table (IRS Rev. Proc. 2026-26, irs.gov/pub/irs-drop/rp-26-26.pdf).

Their real benchmark premium depends on their ages and ZIP code, and insurers can charge older adults up to 3 times more than younger ones (HealthCare.gov, healthcare.gov/how-plans-set-your-premiums/). As a stand-in, the example uses two times Colorado's 2026 average full premium of $673 per enrollee (CMS), $1,346 a month or $16,152 a year. A pair of 62-year-olds will often see a higher benchmark than that, which makes the credit, and the cliff, larger.

Three ways to fund the same $80,000 of spending produce three very different premium bills. Taking it all from the IRA puts them at 370% of the poverty level. Taking $60,000 from the IRA and $20,000 from cash savings puts them at 277%, because spending saved cash is not income. Adding a $10,000 Roth conversion on top of the full IRA draw puts them at 416%, over the line.

The income you report at 63 sets your Medicare premium at 65

Bridge-year income planning does not stop at the 400% line. Medicare uses the modified adjusted gross income on your IRS tax return from 2 years ago to decide whether you pay an extra charge on Part B and Part D, called the Income-Related Monthly Adjustment Amount, or IRMAA. For 2026, that extra charge starts above $109,000 for individual filers and $218,000 for joint filers, based on 2024 income (Medicare and You 2027, medicare.gov/publications/10050-medicare-and-you.pdf). The standard Part B premium is $202.90 a month in 2026 (CMS, cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles).

In practice, the couple in the example who start Medicare in 2030 will have their first Medicare premiums set by their 2028 tax return, when they are 63. Most bridge-year incomes sit far below the IRMAA lines, but a large Roth conversion, home sale gain or business sale in those years can raise Part B costs for a year. The IRMAA thresholds are adjusted each year, and the 2027 figures are announced around November 2026.

Step 3: compare plans for the doctors you want to keep

Early retirees are often in the years when specialists and prescriptions matter most. Before you choose, list every doctor, hospital and drug, and check each one against the plan's network and drug list. Gold and Silver plans often make more sense than Bronze at this stage, even with a higher premium, but the math depends on your own use. If you are leaving a large employer plan with a broad national network, expect Colorado marketplace networks to be more local, and check any out-of-state specialist by name.

Step 4: decide whether an HSA fits

From 2026, Bronze and Catastrophic marketplace plans count as HSA compatible (IRS Notice 2026-5, irs.gov/pub/irs-drop/n-26-05.pdf). If you choose one, you may be able to contribute $4,400 self-only or $8,750 family for 2026 (IRS Rev. Proc. 2025-19, irs.gov/pub/irs-drop/rp-25-19.pdf) and $4,500 or $9,000 for 2027 (IRS Rev. Proc. 2026-24, irs.gov/pub/irs-drop/rp-26-24.pdf), plus $1,000 if you are 55 or older (IRS Publication 969, irs.gov/publications/p969). HSA contributions also lower modified adjusted gross income, which can help keep you under the 400% line. Contributions must stop once Medicare starts; Medicare's own guidance suggests making the last contribution the month before Part A coverage begins.

Step 5: hand off to Medicare without a gap or a bill

Your Initial Enrollment Period for Medicare is a 7-month window that starts 3 months before the month you turn 65. Medicare advises people with marketplace coverage to sign up when first eligible, to end the marketplace plan before Medicare starts, and warns that once you are eligible for premium-free Part A you no longer qualify for marketplace help; keeping the credit after that point usually means paying some or all of it back (Medicare and You 2027). Marketplace coverage does not end automatically when Medicare starts. On HealthCare.gov you can report a Medicare start date up to 3 months ahead so the plan ends the day before (HealthCare.gov, healthcare.gov/medicare/changing-from-marketplace-to-medicare/); in Colorado, report it to Connect for Health Colorado and confirm the end date in writing.

COBRA has its own trap. COBRA is not coverage based on current employment, so it does not give you a Special Enrollment Period to sign up for Part B later. Waiting can bring a Part B late enrollment penalty of 10% for each full 12-month period you could have had Part B, for as long as you have it (Medicare.gov, medicare.gov/basics/costs/medicare-costs/avoid-penalties). If you are on COBRA when you turn 65, sign up for Medicare on time. Our turning 65 checklist covers the steps.

Health First Colorado changes in 2027

A year with very low income, for example between a layoff and a pension start, can make an early retiree eligible for Health First Colorado. Adults without dependent children qualify at household income up to 133% of the poverty level (HCPF, hcpf.colorado.gov/programs-adults). Know the 2027 changes before you rely on it. Starting January 1, 2027, many adults 19 to 64 must show 80 hours a month of work, volunteering or school, or at least $580 a month in earnings, unless exempt, and some renewals move to every six months (Health First Colorado, healthfirstcolorado.gov/changes-are-coming-to-health-first-colorado-colorados-medicaid-program/work-requirements/). Exemptions include people with certain disabilities and serious health conditions. New adult applicants with income up to $20,815 a year for one person also get one month of retroactive coverage instead of three (Health First Colorado, healthfirstcolorado.gov/?p=31932).

What Lisa checks for you

Lisa works with early retirees in the years on both sides of 65, so she looks at the bridge and the Medicare handoff together rather than as two separate projects.

• The exact months to cover for each spouse, and which months COBRA or state continuation can and cannot reach.
• Your expected income for each bridge year against the 400% line, including Social Security timing, IRA draws and any planned Roth conversions.
• The year-by-year premium after tax credits and Colorado Premium Assistance for each funding plan you are considering, so you and your tax professional can compare them.
• Every doctor, hospital and prescription against each marketplace finalist's network and drug list.
• The Medicare start date for each spouse, the date to end marketplace coverage, and the Part B enrollment date if anyone is on COBRA.
• Your tax return two years before Medicare, so an IRMAA charge does not arrive as a surprise.

Questions to ask before your last day at work

• Is my employer subject to COBRA, or to Colorado state continuation, and what would each month cost me?
• How many months do I need to cover until each of us reaches 65?
• What will our modified adjusted gross income be each year, counting Social Security, IRA withdrawals and conversions?
• How far are we from 400% of the poverty level, and what is the dollar cost of crossing it?
• Will my doctors and my hospital be in network on the marketplace plans available in my county?
• Should I use an HSA-compatible Bronze plan, and when must my contributions stop?
• When exactly do I end marketplace coverage, and do I need to sign up for Part B on time because I am on COBRA?

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The bottom line

Retiring before 65 is mostly an income planning question with a health insurance answer. Build the plan in this order: count the months, use the 60-day window, set each year's income against the 400% line, check the doctors you want to keep, and then plan the Medicare handoff, remembering that income at 63 sets Part B at 65. Lisa takes a commonsense approach: she asks questions, listens to your answers, and only then recommends coverage that fits. Send Lisa a message or call (303) 887-8584, or preview plans in our Compare Plans tool.