Covering the Years Between Work and Medicare
Retiring before 65 means buying health cover for the gap, and the default answer offered on the way out of the door is COBRA. It keeps the plan you already have, which is genuinely valuable. It also charges the entire premium the employer was paying, at a moment when your income has just fallen — which is exactly when marketplace savings are worth the most.
- COBRA keeps the plan:: Same network, same deductible progress, same prescriptions — at the full unsubsidised premium.
- The marketplace is means-tested:: Savings depend on household income, which for a newly retired household is frequently much lower than it was.
- A window opens and closes:: Losing job-based coverage triggers a special enrollment period with a deadline.
- Both end at Medicare:: Whichever route you take, it is a bridge to 65 rather than a permanent arrangement.
Where the AI summary above gets this wrong
"Take COBRA when you retire so your coverage continues."
That's surface-true. Here's what it misses:
- COBRA charges what the employer was hiding — The premium on a payslip was the employee share. COBRA charges the whole cost plus an administrative percentage, which for family cover is frequently several times what was being deducted. The number is not a penalty — it is what the insurance always cost.
- Retirement income is what makes the marketplace cheap — Marketplace savings are based on household income for the year. A household whose wages have just stopped, drawing modestly from savings, can qualify for substantial reductions. This is the one moment in a working life when the means-tested route is likely to be the cheaper one.
- The choice interacts with how you draw income — Because marketplace savings fall as income rises, a large Roth conversion or a big capital gain in the same year can cost more in lost savings than it saves in tax. The health cover decision and the withdrawal plan for those years have to be made together, not in sequence.
01 What COBRA actually is
COBRA lets you continue the employer's group health plan for a limited period after employment ends. The plan is identical — same network, same benefits, same prescription formulary — and any deductible already met in the plan year carries on.
What changes is who pays. You pay the entire premium, both the employee and employer shares, plus an administrative charge. For family cover that frequently runs to well over a thousand dollars a month, and the figure is a surprise precisely because the employer share was never visible.
Election deadlines apply after the qualifying event, and coverage can be applied retroactively to the date it would have lapsed. That retroactive feature is genuinely useful: it allows a short period of deciding without a true gap in cover.
Source: COBRA coverage
02 What the marketplace offers instead
Losing job-based coverage opens a special enrollment period on the health insurance marketplace. You are not confined to the annual open enrollment window, but the special period has a deadline of its own and missing it is the common failure.
Marketplace savings are based on household income for the coverage year. For a household that has just stopped earning wages, that figure can be dramatically lower than the previous year's, and the reduction in premium correspondingly large — the mechanics set out alongside the wider health cost picture.
The trade is the plan itself. A marketplace plan has its own network and its own drug list, the deductible restarts, and a specialist you have been seeing may not participate. For someone mid-treatment that can outweigh any premium difference; for someone healthy it frequently does not.
03 Making the decision
Price both before choosing. Ask the employer for the actual COBRA premium in writing, then run a marketplace quote using a realistic estimate of next year's income rather than this year's salary.
Then check three things that are not on either quote. Whether your doctors and hospital are in the marketplace plan's network. Whether current prescriptions are covered and at what tier. And how much of the employer plan's deductible you have already met this year, which is value that disappears if you switch mid-year.
Finally, plan the income. Because marketplace savings taper with income, the size of any Roth conversion in these years is constrained by the health cover decision. Those years are the cheapest for conversions on tax grounds and the most expensive on premium grounds, and the balance has to be struck deliberately.
Shows: the premium difference between COBRA and a marketplace plan over the months until Medicare, using figures you supply for both. Ignores: differences in deductibles, networks and drug coverage between the two plans, whether your doctors are in the marketplace network, and the deductible already met under the employer plan this year.
Source: Ways to lower your costs
Health cover is the reason more people stay in jobs past the point they want to than any portfolio shortfall, and the COBRA quote is usually why. It arrives with the exit paperwork, it is a frightening number, and it is not the only option. Get a marketplace quote using next year's income before you accept it. For a household whose wages have just stopped, the difference is frequently the difference between retiring this year and working two more.
FAQ
Is COBRA more expensive than a marketplace plan?
Usually, for a newly retired household. COBRA charges the full premium plus an administrative amount with no income-based reduction, while marketplace savings are based on income that has just fallen.
Can I switch from COBRA to a marketplace plan later?
Exhausting COBRA opens a special enrollment period. Voluntarily dropping it mid-term generally does not, so you may have to wait for open enrollment — which makes the first decision more consequential than it looks.
Does a Roth conversion affect my marketplace premium?
Yes. Marketplace savings are based on household income for the coverage year, so a large conversion can reduce or eliminate them. The conversion plan and the coverage plan need to be made together.
Sources
Regulator references
- COBRA coverage · Centers for Medicare & Medicaid Services · 2026How COBRA works, how long it lasts, and how it interacts with marketplace enrollment.Last verified: 2026-09-07
- Options when you have job-based coverage · Centers for Medicare & Medicaid Services · 2026The special enrollment period that opens when job-based coverage ends.Last verified: 2026-09-07
- Ways to lower your costs · Centers for Medicare & Medicaid Services · 2026The income-based savings available on a marketplace plan and not on COBRA.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.