Health Care and Early Retirement, What Are the Options?
One of the most important and often overlooked parts of early retirement planning is health care. Medicare does not begin until age 65, regardless of when you stop working. Anyone who retires early must plan how to cover medical insurance costs for the years in between. In California, early retirees have several options, including ACA marketplace plans, COBRA, and Medi‑Cal for those who qualify.
With proper planning, it is possible to maintain continuous coverage and manage costs effectively before Medicare begins.
Why Health Care Planning Matters in Early Retirement
Leaving the workforce usually means losing employer-sponsored health insurance. For someone retiring at 55 or 60, that can mean several years of purchasing coverage independently. Health care costs increase with age, and even a short gap in coverage can lead to large out-of-pocket expenses.
Early retirees must plan for monthly premiums, deductibles, prescription drugs, and unexpected medical needs, often on a reduced or fixed income.
Health Insurance Options Before Medicare
Covered California (ACA Marketplace Plans)
Many early retirees purchase individual insurance through Covered California, the state’s Affordable Care Act marketplace. Losing job-based coverage due to retirement qualifies as a “special enrollment event,” allowing enrollment outside the normal open enrollment period.
Depending on income, ACA plans may come with premium tax credits and cost-sharing reductions that significantly lower monthly premiums and medical costs. Subsidies are based on Modified Adjusted Gross Income (MAGI), which includes taxable withdrawals, pensions, and certain investment income. Managing income carefully can make ACA coverage much more affordable.
California also has an individual mandate that generally requires residents to maintain qualifying health coverage or potentially pay a state tax penalty. For the 2025 tax year filed in 2026, the penalty for going without coverage for the full year is generally at least $950 per uninsured adult and $450 per dependent child under 18, or 2.5% of household income above the filing threshold, whichever is greater. Some people may qualify for exemptions, such as a short coverage gap or affordability hardship, so reviewing eligibility rules each year is important.
COBRA or Cal‑COBRA
COBRA allows retirees to temporarily keep their employer’s health plan, usually for up to 18 months. While this option offers continuity of care, it is often expensive because the retiree pays the full premium plus administrative fees. COBRA can be useful as a short-term bridge but is rarely a long-term solution.
Using Medi‑Cal Before Medicare
For early retirees with limited or intentionally managed income, Medi‑Cal can provide comprehensive coverage at little or no cost.
Who Qualifies for Medi‑Cal?
In California, adults ages 19–64 may qualify for Medi‑Cal if household income is at or below 138% of the Federal Poverty Level. For a single adult, this is roughly in the low‑$20,000 range per year.
Unlike Medicare or long‑term care Medicaid programs:
Medi‑Cal for adults under 65 is based only on income
There is no asset test for most applicants
Savings, home equity, and retirement accounts generally do not disqualify you
This makes Medi‑Cal especially appealing to early retirees who live off savings, Roth IRA withdrawals, or other low‑tax income sources.
How Early Retirees Qualify
Many early retirees qualify by keeping taxable income low. Common strategies include:
Delaying Social Security benefits
Using Roth IRA withdrawals, which usually do not count toward MAGI
Limiting taxable retirement account withdrawals
Medi‑Cal enrollment is available year‑round and applications can be submitted through BenefitsCal.com, Covered California, or county social services offices.
Transitioning From Medi‑Cal to Medicare
When you turn 65, Medi‑Cal coverage under the adult expansion category ends and Medicare becomes available. The Medicare Initial Enrollment Period begins three months before your 65th birthday and lasts seven months.
Some retirees with limited income may qualify for:
Medi‑Cal as secondary coverage
Medicare Savings Programs that help pay Medicare premiums and cost sharing
Planning ahead helps ensure a seamless transition with no coverage gaps or penalties.
Final Thoughts
Health care is one of the biggest financial risks in early retirement, but California offers strong options for managing it. ACA marketplace plans and Medi‑Cal make it possible to retire before 65 without sacrificing coverage. For those who manage income carefully, Medi‑Cal can provide low‑cost, high‑quality health care for years before Medicare begins.
Because eligibility rules and income limits can change, early retirees should review their coverage annually and consider professional tax or benefits of guidance when planning the transition to Medicare.
This commentary reflects the personal opinions, viewpoints and analyses of the Lightcap Financial Group, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Lightcap Financial Group, LLC or performance returns of any Lightcap Financial Group, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Lightcap Financial Group, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.