Surviving the ACA Subsidy Cliff, #267

The future of Affordable Care Act (Obamacare) subsidies is a pressing issue for retirees and anyone shopping for health insurance on the ACA marketplace. 

With the generous subsidies brought by the American Rescue Plan Act set to expire at the end of 2025, I break down exactly how these subsidies work, what changes are coming in 2026, and what that means for your wallet.

We’re talking eligibility thresholds, how income is calculated, why premiums might rise, and—most importantly—shares practical strategies for lowering your adjusted gross income to continue qualifying for subsidies as the rules tighten.

Whether you're planning to retire before age 65 or just want to make sure you're making the most of affordable health options, this episode is packed with actionable advice to help you navigate the shifting health insurance landscape.

Stay tuned to hear how you can prepare before the subsidy cliff arrives.

You will want to hear this episode if you are interested in...

• [00:00] ARPA health subsidy set to expire.
• [06:48] Special enrollment eligibility criteria.
• [09:49] Estimate income for subsidy applications.
• [12:50] Retirement subsidy eligibility insights.
• [16:38] Managing income for post-2025 health subsidies.
• [19:50] Retirement planning and tax strategies.

What Retirees Need to Know About Expiring Subsidies in 2026

For many Americans considering early retirement, one of the pressing concerns is the high cost of health insurance before Medicare eligibility kicks in at age 65.

The Affordable Care Act (ACA), often called Obamacare, has provided critical subsidies—tax credits that reduce monthly health insurance premiums for individuals and families who earn between 100% and 400% of the federal poverty level (FPL).

Thanks to these subsidies, many retirees have found coverage that’s far more affordable than what existed before the ACA. These subsidies aren’t static, however.

Their availability, amount, and eligibility thresholds have changed over time, notably with the enhancements set by the American Rescue Plan Act (ARPA) during the pandemic.

But much of that is set to change again at the end of 2025, and retirees need to understand what’s at stake and how they can prepare.

How ACA Subsidies Work Right Now

Currently, the vast majority of people purchasing health insurance through the ACA marketplace receive premium assistance. As of 2024, 91% of the 21 million marketplace participants benefit from some kind of subsidy, according to the Centers for Medicare and Medicaid.

These subsidies are calculated based on household income and size, and for now, thanks to ARPA, even those earning above the previous 400% FPL cutoff have been able to secure relief.

The system works on a sliding scale: the higher your income (relative to the FPL), the lower your subsidy—and vice versa.

For instance, a single retiree in most U.S. states falls under the subsidy limit if their Modified Adjusted Gross Income (MAGI) is less than $60,640 (400% of the 2024 federal poverty level). For a couple, that threshold is $84,600.

The subsidies fill the gap between what the government deems an affordable percentage of your income and the cost of a benchmark “silver” marketplace plan.

The Big Change: Subsidy Cliff Returning in 2026

A crucial point highlighted in episode 267 of Carolyn C-B’s podcast with Ryan Morrissey: the most generous version of these subsidies, courtesy of the ARPA, will sunset at the end of 2025.

We are about to return to a world where if your income exceeds 400% of the FPL by even just $1, you lose all subsidy assistance—an abrupt subsidy cliff. Previously, the ARPA smoothed this out, allowing gradual decreases rather than outright elimination at the cutoff.

That made planning far simpler for retirees managing taxable withdrawals from savings or retirement accounts. Starting in 2026, the sudden loss of these subsidies at the income cliff could mean the difference between a manageable $400 monthly premium and a staggering $2,700+ for a similar plan.

To add to the challenge, insurers anticipate higher premiums in 2026 as healthier enrollees fall off plans due to pricing and subsidy loss.

Planning Strategies for Retirees

With the looming subsidy cliff, retirees may need to rethink their approach to generating retirement income. Since eligibility is based on income, not assets, it’s possible to have significant savings but low reportable income, qualifying you for subsidies.

Key strategies include:

• Harvest Extra Income Before 2026: Consider accelerating IRA distributions, realizing capital gains, or selling assets in 2025 while subsidies remain generous.

• Build Up Liquid Assets: By moving assets into cash accounts before retirement, retirees can “live off” cash in years they need to keep income low, preserving subsidy eligibility.

• Utilize Roth and Home Equity Withdrawals: Roth IRA distributions (if held 5 years and owner is 59½ or older) don’t count toward MAGI; home equity lines or reverse mortgages can also provide non-taxable funds.

• Make Use of Pre-tax Contributions: While still working, increase contributions to 401(k)s, IRAs, and HSAs—these lower MAGI and can be a tool for subsidy planning.

Congress may choose to extend or reform these subsidies again, but as of now, retirees should assume the cliff is returning. If you plan to retire—and especially if you’ll rely on individual ACA coverage before age 65—be proactive.

Monitor federal updates, calculate your projected MAGI, and consult a knowledgeable financial advisor for personalized guidance. Open enrollment begins November 1st each year—make sure to check your state’s marketplace for updated premiums and subsidy parameters for 2026.

Planning now can safeguard your health and your finances through a rapidly changing insurance landscape.

Resources Mentioned

• Retirement Readiness Review
• Subscribe to the Retire with Ryan YouTube Channel
• Download my entire book for FREE 
• The Affordable Care Act (ACA)
• American Rescue Plan Act (ARPA)
• Centers for Medicare and Medicaid Services
• Access Health CT 
• Health Insurance Marketplace 

Connect With Morrissey Wealth Management 

www.MorrisseyWealthManagement.com/contact

 

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