Retiree health insurance is coverage provided by a former employer or union that continues after you stop working. It fills gaps in your healthcare costs during retirement, either as your primary coverage if you retire before 65 or as a supplement to Medicare after 65. These plans are increasingly rare in the private sector: only about 3 percent of private employers offered health benefits to Medicare-eligible retirees in 2023, down from 10 percent in 1997. If you don’t have access to employer-sponsored retiree coverage, several other options exist depending on your age and situation.
How Retiree Coverage Works With Medicare
Once you turn 65 and enroll in Medicare, your retiree health plan typically shifts to a secondary role. Medicare pays first for your healthcare bills, and your retiree plan picks up some or all of the remaining costs, such as copays, deductibles, and services Medicare doesn’t fully cover. In practice, this makes your retiree plan function similarly to a Medigap (Medicare Supplement) policy.
This arrangement is called coordination of benefits. Medicare’s systems check whether another insurer should pay first. For retirees no longer actively employed, Medicare is almost always the primary payer. Your retiree plan then covers its share of whatever is left. If you have drug coverage through your retiree plan, that may also coordinate with Medicare Part D, and many retiree plans offer prescription benefits that are considered “creditable,” meaning they’re at least as good as Part D coverage.
Coverage Before Age 65
If you retire before 65, the gap between leaving your job and qualifying for Medicare is one of the most expensive stretches to insure. Some employers offer bridge coverage during this period, but this benefit has become scarce. Only about 4 percent of private-sector employers offered health benefits to early retirees in 2023, down from 11 percent in 1997.
Without employer coverage, you have two main paths. First, COBRA allows you to temporarily continue your former employer’s group health plan for 18 to 36 months, depending on the qualifying event. You pay the full premium yourself, plus a small administrative fee, which often makes COBRA significantly more expensive than what you paid as an employee. Second, losing your job-based health plan qualifies you for a Special Enrollment Period on the Health Insurance Marketplace, letting you buy an individual plan outside the normal open enrollment window. Marketplace plans may come with premium tax credits based on your income, which can substantially lower your monthly costs.
One important detail: if you’re enrolled in retiree coverage from a former employer, you cannot receive premium tax credits for a Marketplace plan. You can still buy a Marketplace plan, but you’d pay full price. If your COBRA coverage runs out, that also triggers a Special Enrollment Period for the Marketplace. However, you can’t voluntarily drop COBRA mid-year and use that as a reason to enroll in a Marketplace plan outside open enrollment.
Employer Eligibility Requirements
Employers that do offer retiree health benefits typically require a combination of age and years of service before you qualify. The specifics vary widely. As one example, Indiana state employees must be between 55 and 65 with at least 15 years of creditable public employment, 10 of which must be completed immediately before retirement. Many employers use similar formulas, sometimes called a “Rule of 75” or “Rule of 80,” where your age plus years of service must hit a target number. You generally have a limited window to elect coverage after retiring, often 60 to 90 days.
Federal Employee Retiree Coverage
Federal workers have one of the most robust retiree health programs available. The Federal Employees Health Benefits (FEHB) Program covers over 9 million people, including current employees, retirees, and their family members. To carry FEHB into retirement, you typically need to have been enrolled in the program for five continuous years immediately before retiring. The government continues to pay a share of the premium, just as it did during your working years.
Federal retirees can also enroll in the Federal Employees Dental and Vision Insurance Program (FEDVIP), which offers group-rate dental and vision plans on an enrollee-pay-all basis, meaning no employer subsidy but still competitive group pricing with no pre-existing condition limitations. A separate Federal Long Term Care Insurance Program is available as well. One notable limitation: retirees are not eligible for flexible spending accounts.
Health Reimbursement Arrangements
Some employers have shifted away from providing a group health plan to retirees and instead offer a Health Reimbursement Arrangement, or HRA. With a retiree HRA, your former employer deposits a set amount of money into an account each year, and you use those funds to pay for individual health insurance premiums or out-of-pocket medical expenses. The money is tax-free to you.
Since 2019, federal rules have allowed employers to fund individual coverage HRAs that integrate with individual health insurance or Medicare. This means an employer can give you a fixed dollar amount to buy your own plan on the open market or to help cover Medicare-related costs. Whether this counts as “affordable” coverage (which affects your eligibility for Marketplace tax credits) depends on the cost of the lowest-price silver plan available in your area relative to what the HRA provides.
What Retiree Coverage Typically Costs
Costs vary enormously depending on whether your former employer subsidizes the premium and what type of plan you choose. For retirees paying the full cost themselves, premiums can be substantial. Data from Wisconsin’s state employee program illustrates the range: Medicare-eligible retirees choosing a Medicare Advantage plan through UnitedHealthcare pay around $329 to $361 per month for individual coverage, while those selecting other plan types pay $570 to $730 per month. Plans covering both a Medicare-eligible retiree and a non-Medicare spouse can run $1,200 to $2,000 per month.
Private-sector retiree plans often require the retiree to pay a larger share of the premium than they did while working, and many employers have capped their contributions or shifted entirely to HRA-style arrangements. If your employer subsidizes a meaningful portion, retiree coverage is almost always a better deal than buying comparable coverage on your own. It’s worth comparing the total cost of your retiree plan against a Marketplace plan (if you’re under 65) or a Medigap policy plus Part D plan (if you’re on Medicare) to see which combination gives you the best value for your situation.