Early Retirees: Consumer-driven options the plans of choice for young retirees

Guariglia says that some of the options for young retirees include pushing retirement to 63-and-a-half years and relying on COBRA for 18 months until the retiree is eligible for Medicare at 65, or an employer might offer limited coverage and underwriting.

"This may make some retirees think twice about leaving their jobs early," she says.

COBRA is generally more expensive than other health insurance because employees bear the full premium cost plus an administrative fee. On the positive side, COBRA is a group plan so pre-existing medical conditions are not an issue. As employers continue to cut back on health insurance for retirees (and might even stop offering it to new employees), early retirees are stuck in an expensive conundrum.

The Employee Benefit Research Institute's survey indicates that only about one-third of all workers expect to have access to employer-paid health insurance. The survey also shows that 43% of workers say they are not confident they can cover medical expenses in later life, up from 32% last year.

An annual study by Fidelity Investments estimates that a 65-year-old couple retiring in 2008 will need about $225,000 to cover medical expenses in retirement. That number represents a 4.7% increase over the 2007 estimate of $215,000 and an increase of 41% over 2002. The estimate is based on retirees not receiving employer-based coverage and includes expenses associated with Medicare Part B and D premiums, Medicare cost-sharing provisions and prescription out-of-pocket costs.

It doesn't help that only 36% of baby boomers know that Medicare coverage starts at age 65, according to a survey by the National Association of Insurance Commissioners (NAIC). Many believe they become eligible for Social Security benefits at age 62.