Health Insurance Before Medicare: ACA vs COBRA vs Private Coverage Costs

Start with the cost comparison, using illustrative ranges for a 62-year-old couple in the Phoenix area. COBRA lets you keep your employer plan for generally 18 months, but you pay the full premium (the employer's share plus yours) plus up to a 2% administrative fee. For a couple that is often $1,800 to $2,500 a month. An unsubsidized benchmark silver plan on the ACA marketplace for the same couple runs roughly $1,800 to $2,400 a month, depending on insurer and network. With a premium tax credit, the picture changes: at a MAGI of $80,000, the couple's expected contribution toward the benchmark silver plan is roughly 10% of income, about $8,000 a year, and the credit covers the rest. That is the difference between spending around $25,000 and around $8,000 for comparable coverage.

The 400% of FPL cliff is what makes income control so valuable in 2026. With the enhanced subsidies expired, a two-person household above about $84,600 of MAGI receives no premium tax credit at all. MAGI for this purpose is adjusted gross income plus tax-exempt interest plus any untaxed Social Security. For a retired couple living on savings, that number is largely a choice. Spending from cash reserves does not create income. Selling taxable holdings only creates income equal to the gain, not the proceeds, so high-basis lots can fund a lot of spending with little MAGI. Roth IRA contributions can come out without income, and qualified HSA withdrawals are not income. IRA withdrawals, pension income, interest, dividends, and fund capital gain distributions all count.

This is where the bridge years collide with Roth conversion planning. The years between retirement and Medicare are often the best window for Roth conversions, since income is low and the 12% and 22% brackets are wide. But every dollar converted counts toward MAGI. A $60,000 conversion might cost around $8,000 of federal tax at 12%, and if it pushes the couple over $84,600, it also costs the entire subsidy, easily $15,000 or more. Common resolutions are converting only up to the cliff each year, alternating conversion years with subsidy years, or taking one or two larger conversion years on COBRA or unsubsidized coverage and staying under the cliff in the others. The right answer depends on the size of the pre-tax balance and the RMD and IRMAA picture later.

Timing and enrollment rules decide what is actually available. Losing employer coverage opens a 60-day special enrollment period on the marketplace, and you can apply up to 60 days before the loss. You also have 60 days to elect COBRA, and coverage is retroactive if you elect and pay, which lets you enroll in an ACA plan and keep COBRA available as a backstop if something happens in the gap. The trap is the reverse move: if you elect COBRA and later drop it or stop paying mid-year, that does not trigger a special enrollment period. You wait for open enrollment in November. Exhausting COBRA at 18 months does qualify. While you are enrolled in COBRA, you are not eligible for a premium tax credit.

Spouse age gaps create a hybrid year or two. If one spouse turns 65 and moves to Medicare while the other is 62 or 63, the younger spouse can keep ACA coverage, but household MAGI is still measured on the joint return, and the 400% threshold still uses a two-person household. At the same time, the older spouse's income from two years earlier sets Medicare IRMAA. A large conversion at 63 can raise IRMAA at 65 for one spouse and eliminate the ACA subsidy for the other in the same year. When an employee becomes entitled to Medicare, a covered spouse may qualify for up to 36 months of COBRA, which can bridge a younger spouse on its own.

Off-exchange and short-term plans fill narrower roles. An ACA-compliant plan bought directly from an insurer covers pre-existing conditions and essential health benefits like a marketplace plan, sometimes with a different network, but no premium tax credit applies. It is mainly useful if you are well above the cliff and the preferred network is only sold off-exchange. Short-term plans are not ACA-compliant: they can deny or exclude pre-existing conditions, cap benefits, and exclude categories like maternity or mental health, and federal rules on their allowed duration have changed several times. For a healthy 62-year-old with a known gap of a few weeks they can work. As a three-year bridge, they leave a household exposed to exactly the claims most likely at this age.

HSAs help in a specific way. HSA funds can pay COBRA premiums tax-free, and premiums for any health coverage while you are receiving unemployment compensation. They generally cannot pay ACA marketplace premiums otherwise. Because qualified HSA withdrawals do not count toward MAGI, using an HSA to pay COBRA premiums, deductibles, and other medical costs during the bridge years stretches the subsidy budget. Starting at 65, HSA funds can also pay Medicare Part B, Part D, and Medicare Advantage premiums, though not Medigap.

Build your bridge plan around your income plan, not the other way around. Before you retire, estimate your MAGI for each year until 65, identify which years you can hold under about $84,600 as a couple, and decide which years you would rather use for Roth conversions or capital gains. Then pick coverage year by year.

Consider COBRA for the first months if you retire mid-year after meeting your deductible or out-of-pocket maximum, are in the middle of treatment, or depend on a network the marketplace does not offer. Plan to move to the ACA at open enrollment, since switching then does not depend on a special enrollment period.

Hold enough cash and high-basis taxable assets to fund spending in subsidy years. A retiree with only pre-tax IRA money has no way to keep MAGI low while still paying the bills. This is one of the strongest reasons to build a taxable and Roth cushion in the last five years of work.

Estimate MAGI carefully when you apply, then track it through the year. The advance credit is reconciled on your tax return, and if your actual MAGI ends up over 400% of FPL, you repay the entire advance credit. Mutual fund capital gain distributions in December are the classic surprise. Review fund distribution estimates in October and make adjustments before year end.

If one spouse is on Medicare and the other is not, treat the household as one planning unit. Model IRMAA two years out alongside the ACA subsidy for the younger spouse before doing any conversion or large sale.

• Electing COBRA, dropping it mid-year to save money, and discovering that voluntary termination does not open a marketplace special enrollment period.
• Doing a Roth conversion or selling a large low-basis position in a subsidy year and losing the entire premium tax credit by crossing the 400% of FPL line.
• Assuming only taxable income matters, when ACA MAGI also includes tax-exempt interest and untaxed Social Security.
• Using a short-term plan as a multi-year bridge and leaving pre-existing conditions uncovered.
• Paying COBRA premiums from taxable savings while an HSA sits unused, when HSA funds can pay COBRA premiums tax-free.
• Underestimating MAGI on the marketplace application and owing back the entire advance credit at tax time.
• Ignoring the Medicare IRMAA lookback for an older spouse when planning income for the younger spouse's ACA subsidy.