8 early retirement health insurance options

Age 65 was deemed America's retirement age with the passing of the Social Security Act of 1935. Various programs offered through the Social Security Administration—like ongoing income and stable health insurance—aim to provide resources to older Americans no longer in the workforce. While the youngest you can be to start claiming monthly Social Security payments is age 62, most people don't qualify for Medicare health insurance until 65.

So, if you're thinking of retiring early, it's important to know potential pre-Medicare early retirement health insurance options. Here are eight to get you started.

Some employers voluntarily offer health insurance plans to departing retirees. These plans can be similar to the insurance you had when you were an active employee. To make health insurance affordable for their employees, most employers subsidize around 70% to 80% of their active employees' healthcare premiums (the monthly amount you pay to have insurance).

It is not guaranteed or required, however, that an employer will subsidize a retiree's plan—meaning you could be responsible for 100% of your premium. The average annual premium for an employer-sponsored plan before employer subsidies is $7,740 for single coverage and $22,220 for family coverage.

All employers, however, must offer departing employees the option to continue with their group health plan for up to 18 months in accordance with the Consolidated Omnibus Budget Reconciliation Act (or COBRA).There are, of course, exceptions, such as if you were terminated with cause.

While this means you can keep your employer's insurance, you likely will have to cover the full cost of the premium. Most employers do not—and do not have to—subsidize COBRA coverage, making this option rather costly.

If your spouse is still working, you may be able to join their employer-sponsored health insurance plan. Similar to retiree benefits, your spouse's coverage could be more affordable if the employer subsidizes the cost of the premium. However, your spouse's premium will increase when they add members to their plan. Be sure to explore any cost implications before jumping on your spouse's plan.

The Health Insurance Marketplace is a government-run program that allows individuals to purchase private insurance.

You can qualify for subsidies through tax credits and cost-sharing if you meet the income and household size requirements. These subsidies could give you significant savings on premiums and out-of-pocket costs—subsidies for qualifying single-person households can range from $12,880 to $51,520—but if you don't qualify for subsidies, the program can be pricey.

You can visit Healthcare.gov to apply and see if you qualify for subsidies. Or you can use a calculator for an estimate of what you qualify for.

Off-exchange insurance usually refers to plans bought directly from an insurance provider or broker instead of the government's Health Insurance Marketplace. Working directly with an insurance provider may provide more options than those listed on the Health Insurance Marketplace. But buying directly can be more costly without employer or government subsidies.

Short-term insurance offers limited coverage for up to a year with the option to renew twice (for total coverage of up to three years). The coverage with these plans can be skimpy. But this is why short-term insurance plans often cost less than major medical insurance plans, like those found through employers, the Health Insurance Marketplace or buying direct. The average annual premium for short-term health insurance was $1,284 for individual coverage.

If you're in need of more comprehensive coverage, these plans may not be a great fit. Many benefits—mental health treatment, prescription drugs and lab tests, among others—are not always covered. Plus, you can be denied coverage for preexisting conditions, leaving you to front the full cost.

Some organizations offer members lower insurance premiums by using their participant numbers to negotiate better prices, or by simply spreading the cost of care among their members. It is estimated that association-based health plan premiums are around $8,700 to $10,800 lower than premiums for private, full coverage plans.

Association health plans and health sharing plans are two common member-based health programs, and they have key differences.

• Association health plans. With these, members often have similar interests, life phases or professional experiences. Individuals pay a membership fee to access health benefits. With a larger pool of members, the organization can negotiate lower prices with health insurance companies.
• Health sharing plans. Members, who usually either share beliefs or are members of a faith-based organization, pay a monthly contribution. This money is held in an escrow-like account and used to cover eligible medical costs for its members on a case-by-case basis.

When you're a member of these plans, your monthly cost for insurance may be lower, but a lot of services may not be covered. Organizations can choose to deny coverage for certain kinds of care either to keep costs low or to maintain the standards of living outlined in community guidelines.

It's important to note that neither association health plans nor health sharing plans are actual health insurance plans—they are programs you can join to lower your health care costs. Also, health care providers are not required to accept the discount offered by the organization.

It may sound counterproductive to get a job in retirement. But a part-time job can be a great way to get the health coverage you need. You may also be able to take advantage of subsidies from an employer group health plan. Just keep in mind that employers are not required to provide health insurance for part-time employees. And in some cases, coverage for part-time employees can be dramatically reduced. Be sure to inquire about part-timers' benefits before becoming an employee anywhere.

Keep in mind: The more comprehensive an insurance plan is, the higher the premiums tend to be, so consider how much coverage you really need versus what you can afford. Are you generally healthy or do you have health conditions that require more complex care?

When it comes to sorting through all of the early retirement health insurance options, there is no perfect answer. Because there is no perfect plan, no one-size-fits-all answer. We are all individuals with a unique set of needs and circumstances, especially surrounding our health and finances. It's important to take stock of your health care needs and your budget as you research your options.

And you can always connect with a financial advisor on how early retirement, including pre-Medicare health care, will affect your overall financial plan.