Bridge Insurance for Early Retirees: Comparing Marketplace, COBRA, and Short-Term Options

Stuck between your employer plan and Medicare? How to choose the right bridge insurance in 2026

Hook: If you’re retiring early or reducing hours before Medicare eligibility, rising 2026 ACA premiums can turn a once-simple coverage decision into a financial headache. Do you keep COBRA, switch to the marketplace, or buy a short-term plan — and what will it actually cost you each month? This guide compares the options with clear pros and cons, realistic cost examples, and a step-by-step decision flow so you can close the coverage gap without breaking your retirement budget.

Why this matters now (2026 context)

Federal subsidy changes and market adjustments led to notable premium increases across many Affordable Care Act (ACA) marketplace plans going into 2026. Employers also continued shifting plan designs and cost-sharing structures, and some states relaxed rules for limited-duration policies — all creating a more complex shopping environment for early retirees.

That combination has put thousands of people in a familiar but painful position: they’re between employer coverage and Medicare (age 65+) and need a temporary plan — a “bridge” — that protects health and finances. The right choice depends on how long you need coverage, your health needs (especially prescription drugs), and whether you qualify for premium subsidies.

Bridge insurance options at a glance

Here are the main choices for people who retire early or lose employer coverage before Medicare:

• COBRA continuation coverage — Keep your exact employer plan (usually up to 18 months; up to 36 in some cases). You pay up to 102% of the full premium.
• Marketplace (ACA) plans — Bronze/Silver/Gold plans that may qualify for premium tax credits depending on income and household size.
• Short-term / limited-duration plans — Lower-cost, temporary coverage that often excludes pre-existing conditions and many essential benefits.
• Other bridges — spouse’s employer plan, retiree benefits from your employer, Medicaid (if eligible), or networked alternatives like short-term plus wraparound riders (where available).

Important rules to know

• COBRA cost: You generally pay the full employer premium plus a 2% administrative fee (commonly quoted as 102%). That often makes COBRA expensive, but it keeps the exact same coverage and avoids medical underwriting.
• Medicare timing: You’re eligible for Medicare at age 65. If you stop employer coverage before 65, plan for a bridge until Medicare starts. If you have employer-based group coverage when you turn 65, you may delay Part B without penalty — otherwise, special enrollment periods and penalties apply.
• Marketplace / SEP: Losing employer coverage (including ending COBRA) normally qualifies you for a Special Enrollment Period (SEP) to enroll in the Marketplace — typically a limited 60-day window. Open enrollment timing also matters.
• Short-term plans: These are not required to follow ACA benefit rules. They may exclude pre-existing conditions, have annual or lifetime caps, and can deny coverage for services associated with chronic conditions.

Real cost examples (2026 realistic scenarios)

We’ll model three sample households to show how costs can diverge. These are hypothetical — use them as templates to run your own numbers.

Scenario A — Healthy 62-year-old single, mid-income

• Employer plan full premium (single): $900/month. Employee portion before retirement: $150/month.
• COBRA: ~102% of $900 = $918/month.
• Marketplace: With 2026 premium volatility, this person’s silver plan could cost anywhere from $250–$700/month after modest subsidies depending on state and income. Some who previously paid $200 in 2025 saw 2026 increases into the $400–$800 range.
• Short-term plan: $150–$400/month but likely excludes pre-existing conditions and limits benefits.

Scenario B — 63-year-old with chronic prescriptions

• Monthly specialty drug tab without insurance: $760 (example similar to a 2026 case reported in media).
• COBRA: Keeps drug coverage and network; likely the best medical protection but costs may be $1,000+/month.
• Marketplace: Could be cheaper in premium but higher out-of-pocket or narrower formulary; if your drugs are on the plan’s formulary and you qualify for subsidies, this may be cost-effective.
• Short-term: Risky. Most short-term plans won’t cover expensive chronic medications or will exclude pre-existing conditions.

Scenario C — Couple, one age 61, one age 64, high income

• Premium subsidies may be limited if household income exceeds subsidy thresholds, so Marketplace plans could be expensive.
• COBRA for both could run $1,800–$2,400/month depending on employer plan costs.
• Short-term plans may offer an inexpensive stopgap for the healthier spouse but create risk for the spouse with conditions.

Pros and cons: COBRA vs. Marketplace vs. Short-term

COBRA

• Pros: Identical coverage, no medical underwriting, preserves provider relationships, preserves drug coverage and deductibles.
  • Good choice if you have expensive ongoing care and can afford the premium.
• Cons: Typically the most expensive option since you pay the employer share; limited duration (commonly 18 months); can drain retirement savings if used long-term.

Marketplace (ACA)

• Pros: Potentially lower premiums with subsidies, guaranteed issue (no underwriting), comprehensive benefits including essential health benefits and prescription coverage, consumer protections like out-of-pocket maximums.
• Cons: 2026 premium increases mean subsidies may not fully offset higher rates for many buyers; networks and formularies vary; cost-sharing can be high depending on plan metal level.

Short-term plans

• Pros: Low premiums, quick approval, flexible durations in some states.
• Cons: Limited or no coverage for pre-existing conditions, not ACA-compliant, can deny claims, no guaranteed renewability, limited prescription coverage.

Decision flow: Which bridge is right for you? (Step-by-step)

Use this practical flow to make a defensible choice. Treat the result as a working plan — then run the actual quotes and check formularies.

1. Map your timeline: How many months until Medicare? If you’re within 6–12 months of 65, prioritize continuity of care to avoid interruptions in specialist treatment or drug access.
2. Get the real COBRA price: Ask HR for the full monthly premium for your coverage, pre-tax and after the 2% admin fee. Don’t guess — the employee portion you paid while employed is not the full cost.
3. Estimate marketplace net cost: Use Healthcare.gov or your state marketplace’s premium calculator for an accurate subsidy estimate. Run silver and bronze plans and compare formularies for your meds.
4. Check access and continuity: Will your current doctors and hospitals be in-network? Does the plan cover your prescriptions and prior authorizations?
5. Consider financial capacity: Can you afford COBRA long-term? Do you have HSA funds that could be used for premiums or copays? (HSA funds can be used to pay COBRA premiums.)
6. Weigh risk tolerance: Are you comfortable with the exclusions in short-term plans? If you have chronic conditions, short-term is usually not worth the risk.
7. Check special enrollment rules: If you take COBRA and later decide to switch, losing COBRA triggers a Marketplace SEP — make sure you know the SEP window.
8. Document and plan a fallback: Buy a plan, save a bridge emergency fund equal to 3–6 months of premiums or medical costs, and set a calendar reminder for renewal or SEP windows.

Advanced strategies and tips for 2026

• Use HSA balances strategically: If you contributed to an HSA before retirement, those funds can reimburse qualified medical expenses — including COBRA premiums. That can make COBRA feasible without large cash outflows.
• Negotiate with providers: If you plan to use a short-term plan or are switching plans for cost reasons, talk to your specialists and pharmacies in advance about payment plans or cash-price savings programs like GoodRx for expensive meds.
• Consider a hybrid approach: Some people keep COBRA for a short period (3–6 months) while they complete prior authorizations or stabilize care, then switch to a Marketplace plan when open enrollment or subsidy calculations improve.
• Check state rules and offerings: A few states have modified rules that make limited-duration plans less restrictive or have additional protections — know your state’s legislative environment for 2025–2026. See resources on state rules & offerings and tighter local guidance.
• Re-run quotes annually: Premiums and subsidies change. If you’re buying a bridge for multiple years, revisit options each fall and ahead of Medicare enrollment to avoid surprises.

Common pitfalls to avoid

• Assuming your old employee contribution is the COBRA cost. Ask for the full premium amount.
• Choosing a short-term plan to save a few hundred dollars without checking drug coverage and pre-existing condition rules.
• Missing the SEP triggered by losing coverage — you usually have a limited window to enroll in Marketplace plans after COBRA ends.
• Not accounting for out-of-pocket maximums, formularies, and provider networks — a cheap premium can cost much more in care.

Example decision scenarios — what we’d recommend

Case 1: You have expensive, ongoing care and are 2 years from Medicare

Recommendation: COBRA for continuity if you can afford it (or combine partial COBRA with HSA funds to reduce cash strain). The cost is higher, but avoiding a break in coverage and preserving your network and prior authorizations reduces catastrophic risk.

Case 2: You’re healthy, on a fixed low-to-moderate income, and need coverage for 18 months

Recommendation: Run Marketplace quotes first — you may get subsidies that make ACA plans cheaper than COBRA. Choose a plan that balances premium and drug and provider access.

Case 3: You need coverage for just a few months and can accept coverage limits

Recommendation: If you’re healthy with no ongoing prescriptions, a reputable short-term plan might be cost-effective. But read exclusions carefully and consider whether you can afford gaps if a health issue arises.

Tools and calculators to use right now

• Healthcare.gov plan estimator and your state’s Marketplace calculator for subsidy and premium estimates (re-run for 2026 pricing).
• Ask HR for the exact COBRA premium and plan documents (Summary Plan Description).
• Provider and pharmacy checkers: confirm whether your doctors and drugs are in-network and on formulary before enrolling.
• HSA balance and qualified expense estimator — use HSA portals or your tax advisor to map how much HSA money you can deploy safely.
• Price transparency and cash-price tools like GoodRx for prescription cost comparisons if you’re considering short-term coverage.

"My silver plan rose nearly 75% to $801 a month — that’s why I had to pick up a part-time job," said one marketplace enrollee early in 2026. Rising premiums have left many retirees rethinking coverage choices.

Looking ahead: what to expect for bridge insurance beyond 2026

Expect continued premium volatility tied to federal subsidy policy, insurer pricing adjustments, and state-level regulatory changes. For early retirees, this means bridge strategies should be flexible: plan to revisit choices yearly, and preserve liquidity (emergency funds and HSA balances) to handle sudden premium changes.

Actionable checklist — do this this week

1. Request the full COBRA premium and plan summary from HR.
2. Run Marketplace quotes (Healthcare.gov) and check subsidy results for your household in 2026 pricing.
3. Verify that your doctors and pharmacy accept the plans you’re considering.
4. Calculate total expected monthly cash outflow (premium + estimated copays + drug costs).
5. Decide a primary plan + a fallback (e.g., COBRA short-term with a plan to switch at SEP or next open enrollment).
6. Document enrollments and set calendar reminders for plan renewal, SEP windows, or Medicare enrollment at 65.

Final thoughts

There’s no single “best” bridge insurance for every early retiree — the right choice depends on timing, health needs, and finances. In 2026, with marketplace premiums less predictable than in recent years, the safest path for many is to get actual quotes (not guesses), protect continuity if you have significant healthcare needs, and use tools like HSA balances, SEP awareness, and price-checkers to reduce cost without taking unnecessary clinical risk.

Call to action: Don’t decide on instinct. Get your COBRA number from HR, run Marketplace quotes today, and use our calculator to compare monthly total cost (premium + predicted out-of-pocket + prescriptions). If you want help, schedule a free checklist review with a certified Marketplace navigator or a fiduciary advisor to run personalized scenarios — acting now can save you thousands in 2026.

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