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If you retire before age 65 — the point at which you become eligible to receive Medicare — you may face limited health insurance options. If your employer doesn’t extend health benefits to its retirees, you’ll have to find an alternative source of health insurance. And you may find you can’t afford an individual health insurance policy because the premiums are based on your age and health status.

Before you decide to retire early, you should examine your three main health insurance choices:

  • Continue employer-sponsored health insurance.
  • Purchase an individual health insurance policy.
  • Elect coverage under COBRA.

You can continue employer-sponsored group health insurance in two ways. If your employer offers health insurance for early retirees, you may decide to enroll. But make sure you know exactly what services are covered and for how long. Or you may decide to join your spouse’s employer-sponsored health plan. It may be more cost-effective and offer better coverage.

Be aware, however, that you’ll lose your health insurance if the employer sponsoring the plan goes out of business. (See Your rights when your health plan changes.)

If you don’t have access to a group health plan, you can purchase individual health insurance. But be prepared for sticker shock. The premiums for individual policies are based on your age and your medical history. Insurers may consider you a bad risk and refuse to cover you or only agree if you sign a waiver that excludes coverage for any pre-existing health conditions. (Read Health insurance basics and Tips for buying individual coverage.)

Another option as an early retiree is to purchase coverage under COBRA, the Consolidated Omnibus Budget Reconciliation Act. Under COBRA, if you work in a company with 20 or more employees and have group health insurance through that employer, you’re eligible to continue your health benefits for 18 months after retirement. It won’t be cheap, but it may be less expensive than buying individual health insurance. (See Know your COBRA rights.)

To learn more about your choices, read Health insurance options for early retirees.