Latest / The Financial Freedom Podcast with Fexingo: Quitting Your Job, Living Off Investments, Independence / How to Cover Health Insurance Between Jobs and Retirement
Transcript
- Lucas: So you have your nest egg, you've run your withdrawal projections, you're ready to hand in your notice. But there's one question that stops more people than the math ever does — how do I cover health insurance between my last day of work and Medicare eligibility at sixty-five? Luna: It's the single biggest fear I hear from listeners. 'I can handle the budget, but what if I get sick?' Lucas: Right. And the fear makes sense because employer-sponsored insurance is one of the biggest non-salary benefits we have. The average annual premium for employer coverage is over eight thousand dollars for an individual and more than twenty-three thousand for a family. But only about twenty percent of that is paid by the employee — the employer covers the rest. Luna: So when you leave, you're suddenly on the hook for the full premium. That's the sticker shock. Lucas: Exactly. Today I want to walk through the actual options you have, with real numbers. Because the gap isn't as scary once you see how the pieces fit together. Let's start with the first option most people think of: COBRA. Luna: COBRA — the Consolidated Omnibus Budget Reconciliation Act. It lets you stay on your employer's plan for up to eighteen months after you leave. Lucas: But you pay the full premium plus a two percent administrative fee. So that eight-thousand-dollar individual plan your employer used to cover seventy-five percent of? You're now paying the full eight thousand, plus maybe some change. If you were paying two hundred dollars a month as an employee, your COBRA premium could be over seven hundred. Luna: That's a big jump. But the upside is you keep the exact same network, same deductible, same out-of-pocket maximum. Lucas: And no new pre-existing condition waiting periods, which matters if you're in the middle of treatment. But here's what people miss: COBRA is retroactive for up to sixty days. You can elect it after you leave, and if something happens in that window, you can be covered as if you never dropped off. Luna: So you could wait, see if you need it, and only pay if you actually use it? Lucas: Technically yes, but the premium is still due back to your separation date. So if you don't use it, you owe nothing. If you have a claim in month two, you owe two months of premiums. It's a hedge, not a free pass. But it gives you time to evaluate your other options. Luna: Which brings us to the ACA marketplace. That's where most early retirees end up. Lucas: The Affordable Care Act marketplace is probably the most powerful tool for early retirees, because of premium tax credits. These are subsidies that cap your insurance costs as a percentage of your income. In 2026, the cap is eight point five percent of your household income for the benchmark silver plan. If your income is low enough, your premium can be zero. Luna: But 'income' here is modified adjusted gross income, right? And you have control over that in early retirement. Lucas: That's the key insight. In early retirement, your income is largely what you make it — withdrawals from taxable accounts, Roth conversions, dividends, capital gains. So you can engineer your MAGI to maximize your subsidy. Let me give you a concrete example. Luna: Please. Lucas: Say you're a single person, forty-five years old, living on forty-five thousand dollars a year from a combination of taxable account withdrawals and some dividends. In most states, the benchmark silver plan for that age group costs about six hundred dollars a month, so seventy-two hundred a year. But your premium tax credit would cover the difference between that premium and eight point five percent of your income. Luna: Eight point five percent of forty-five thousand is about thirty-eight hundred. So the subsidy would be seventy-two hundred minus thirty-eight hundred, or thirty-four hundred a year. Lucas: Exactly. You'd pay about three hundred twenty dollars a month instead of six hundred. And if you choose a bronze plan, your premium might be lower, and you could even get a plan with a net-zero premium after the credit. The trick is that the subsidy is based on your estimated income for the year, and you reconcile at tax time. If you underestimate your income, you pay back some of the credit. If you overestimate, you get more. Luna: So you want to be conservative in your estimate — maybe aim for an income that's a bit lower than you expect — so you don't have a surprise at tax time. Lucas: Right. But also know that there's a cliff — or rather, there was a cliff that was removed through 2025, but as of June 2026, it's been extended through 2027. The cliff used to mean that if your income was above four hundred percent of the federal poverty level, you got zero subsidy. For a single person in 2026, that's about fifty-eight thousand. So if you're right at forty-five thousand, you're fine. But if you had a big capital gain year and hit sixty thousand, you'd lose the subsidy entirely. Luna: That's a huge jump in effective cost. So you really need to manage your realized income year to year. Lucas: And that's where planning comes in. If you have a year where you need to sell a lot of appreciated assets, maybe you do it in a year when you also have a lot of medical expenses, or you spread it out. But let's talk about another lever: the high-deductible health plan paired with an HSA. Luna: The HSA is the only triple tax advantaged account. Contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. Lucas: And you can use it as a retirement account in its own right. If you're on a marketplace HDHP, you can contribute up to forty-three hundred dollars as an individual in 2026, or eighty-five hundred for a family, plus an extra thousand if you're fifty-five or older. That contribution reduces your MAGI, which can increase your premium tax credit. Luna: So it's a double benefit: lower taxable income now, and tax-free money later for healthcare. Lucas: Exactly. And here's a pro move: you can pay your current medical expenses out of pocket and invest the HSA funds for growth. Then in later years, reimburse yourself tax-free from the HSA. There's no time limit on when you take the reimbursement, as long as you keep the receipts. So you can let that money compound for decades. Luna: That's one of those strategies that sounds almost too good to be true, but it's completely legal. Lucas: It is. And if you're listening and thinking, 'I haven't maxed out my HSA yet,' that's a lever you can pull even in the year you retire. But let me mention two other options that are more controversial: short-term health plans and health care sharing ministries. Luna: Short-term plans are cheaper — sometimes a hundred to two hundred dollars a month — but they don't cover pre-existing conditions, they have benefit caps, and they're not ACA compliant. They're really just catastrophic coverage. Lucas: And they can deny you based on medical history. So they're a gamble. If you're young and healthy and have enough savings to self-insure against a big claim, they might work as a bridge. But I wouldn't recommend them for most people. Sharing ministries are even trickier — they're not insurance, they have no legal obligation to pay claims, and they often have religious or lifestyle requirements. Luna: We've had listeners ask about them. The appeal is the low monthly cost, but the risk is that when you actually need coverage, they might not come through. Lucas: Exactly. If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. It's a simple way to keep the conversations going without ads or sponsors. Luna: Yeah, and it really does help us keep making episodes like this one. So if you got value, we appreciate it. Lucas: Alright, back to the numbers. Let's look at a couple scenario. Say you're married, both forty-five, with a combined MAGI of sixty thousand dollars. The federal poverty level for a two-person household in 2026 is about twenty thousand, so you're at three hundred percent of poverty. The premium for a benchmark silver plan for two forty-five-year-olds could be twelve hundred a month, or fourteen thousand four hundred a year. Luna: And the subsidy caps your premium at a percentage of income. At three hundred percent of poverty, the cap is around nine point five percent, I think. Lucas: Close — for 2026, the sliding scale goes from two percent at low income up to eight point five percent. Actually, the cap is eight point five percent for all income levels up to four hundred percent of poverty, thanks to the Inflation Reduction Act extension. So for sixty thousand, that's fifty-one hundred a year. The subsidy would be fourteen four minus fifty-one hundred, or ninety-three hundred a year. You pay four hundred twenty-five a month. Luna: That's still a big monthly expense, but manageable if you've budgeted for it. And if you can get your MAGI down to fifty thousand by using an HSA or by taking more from a Roth IRA, your premium drops further. Lucas: Exactly. And if you have children, the subsidy structure is even more generous because the cap is based on family size. So the key takeaway is that for most early retirees, the ACA marketplace with premium tax credits is the best option, especially when combined with an HSA. COBRA is a good short-term bridge, but it's usually more expensive than a subsidized marketplace plan. Luna: And you have to actively manage your income each year to keep the subsidies. That means planning your withdrawals, your Roth conversions, and your capital gains. Lucas: Which is work, but it's the kind of work that saves you thousands of dollars a year. And it gets easier after the first year when you see how it all fits together. One last thing: don't forget that once you turn sixty-five, you're eligible for Medicare, and your ACA subsidies end. So you need to plan for that transition too — Medicare Part B premiums are income-based, so your strategy of keeping MAGI low still applies. Luna: That's a whole other episode, but good to flag. So the takeaway is: don't let healthcare fear keep you from pulling the trigger on early retirement. The math works if you know the rules. Lucas: It does. And if you're close to making the leap, spend an afternoon on healthcare.gov or your state exchange. Put in your estimated income and see what plans cost. You might be surprised how affordable it can be.