Disclaimer: This article is for informational purposes only. We are not experts. We are providing our personal opinions, and they should not be taken as legal, financial, or tax advice.
Now that we are entering our fourth year of early retirement, I finally have a better handle on tackling healthcare in early retirement.
I know it’s the biggest concern for retirees of all kinds, but especially those retiring early.
We all fear the unknown, and fleeing the safety of employer healthcare plans can be daunting at first.
I know I’ve wracked my brain trying to figure out what to do!
Do you pay more for better insurance or take the gamble on a high deductible plan?
Well, we’ve done both! Here are the results:
Healthcare in Early Retirement
Healthcare in early retirement is surely the most scary part and unknown.
Thank goodness for Healthcare.gov and the healthcare marketplace!
If not for the Health Insurance Marketplace I’m not entirely sure my early retirement would ever have been possible!
Because my early retirement was entirely accidental, we spent much of 2020 and then 2021 utilizing COBRA.
We could have switched over to the Healthcare Marketplace in 2021, but decided that we’d rather stay with the devil we knew.
But then by 2022 our COBRA coverage was running dry and it was time to dive into the marketplace.
And guess what? It wasn’t so bad!
How Much Does Early Retirement Healthcare Cost a Family of 4?
Here is a quick breakdown of our early retirement healthcare costs for the past 3 years with an estimate for 2024:
| Year | Type | Premium Tax Credits | Premiums (Yearly) | Additional Medical Costs (Yearly) | Total Yearly Cost (with Credits) |
| 2024 | HMO | $8,472 | $9,184 | $2,597 | $11,781 |
| 2023 | HSA/HDHP | $7,800 | $6,847 | $5,686 | $12,533 |
| 2022 | HSA/HDHP | $3,579 | $12,006 | $2,708 | $14,714 |
| 2021 | PPO/COBRA | $0 | $22,837 | $2,486 | $25,323 |
As you can see, we’ve been able to steadily lower our healthcare costs every year.
And even without the Premium Tax Credits, we still have been able to lower our healthcare costs by about $5-7K since switching over the the marketplace.
Also note that I greatly overestimated our income for 2022, which is why our Premium Tax Credits were much less than in 2023 and 2024 (though don’t worry that gets adjusted when filing your taxes).
Now that I can more stably predict our income, it is much easier to maximize the credits and improve our cash flow!
Healthcare Premium Tax Credits
The key factor in helping to make healthcare affordable to early retirees and any American without coverage is the Premium Tax Credit.
This is done based off of a calculation of your Adjusted Gross Income, and in early retirement, you can typically keep that pretty low.
For us, even though we do run a website affiliate business, the income for that website isn’t enough to push us up over the Premium Tax Credit limit (which is measured compared to the percentage above the over the poverty line).
It’s all utterly confusing, but ultimately the less income you have, the higher your Premium Tax Credit – thus lowering your monthly payments.
The Premium Tax Credit is adjusted when you file your taxes, so any over/under payments are adjusted on your tax return.
However, you can also make adjustments mid-year if you know your income is increasing or decreasing.
Overall, the Premium Tax Credit is a real boon for us – certainly a nice perk of a lower income in early retirement!
High-Deductible HSA Plans In Action
We switched over to a high deductible plan with individual deductibles of $6,900 and a total family out-of-pocket max of $13,800!
However, with the high deductibles, came some amazing benefits:
- Lower Healthcare Premiums
- Ability to contribute to our HSA
- Lower Overall Total Yearly Cost
All-in-all, we saved $10,609 by switching to a high-deductible HSA plan.
Then I was able to take part of that $10K and pump the maximum $7,300 into our HSA.
Now certainly any catastrophic health event could have cost us a ton of money and ended up maxing out our family out of pocket max, but that didn’t happen – at least not for 2022.
Then again for 2023, we renewed the same plan and were able to contribute another $7,750 to our HSA.
HSAs have triple tax benefits, so being able to contribute the max to ours for two years was a huge win!
This will hopefully help us to set up a healthcare safety net down the line in 20-30 years.
Healthcare Expenses Gone Wild! (Or not)
In 2023, we were given a surprise!
Our youngest son had to have his tonsils and adenoids removed.
Since each individual’s deductible was $6,900 we figured that we would have to pay that no matter what.
Not the case!
The outpatient center and the doctor, both offered us 50% discounts if we paid within 10 days.
So instead of paying $6,500 for the surgery (the remaining deductible), we paid only $3,600.
To be honest, we were a bit shocked (in a good way). But it makes sense!
When you are dealing with many uninsured or underinsured families, as a hospital you are much better off getting something than nothing.
Also, not many families can even afford to pay the $3,600 bill, let alone a $6,500 bill.
We can, because we are huge proponents of holding a large emergency fund – but we all know that most Americans do not have that much sitting around for a rainy day.
So anyways, long story short, our fear of having to pay $6,900 all at once didn’t come to fruition.
Going Forward
You’ll notice that for 2024 we are switching away from the HDHP and HSA and back to an HMO.
This is not HSA-related, but entirely due to making sure that all of our medical providers are in-network.
Typically this hasn’t been a problem, but my wife picked up a new doctor who she likes who is not in-network.
After crunching the numbers, it made sense to switch to the HMO and forgo the HSA for this year.
Our total costs will remain lower than in 2022 and 2023, so while we cannot take advantage of the HSA and the triple tax benefit, since our health is top priority we decided to move away at least for 2024.
Any questions? Did I miss anything? Let me know in the comments below.
Thank you for this post. I’m on COBRA until Sept (HD HSA) and then will look at the marketplace. We are torn between doing Roth conversions since our income is low (thus lower tax rate) versus utilizing the premium tax credits. Thoughts?
I would just run the numbers. You can probably do both with partial conversions, but I would run it by an accountant. Attempting to do some of that as well as part of my year and tax planning.