Most early retirees in the U.S. cover the years before Medicare at 65 with an Affordable Care Act (ACA) marketplace plan, sometimes bridged by a few months of COBRA or a spouse’s workplace plan. What makes the ACA affordable is the premium tax credit, which is based on your income, not your savings. For 2026 coverage, HealthCare.gov lists the credit for household incomes between 100% and 400% of the federal poverty level, so the size of your withdrawals now matters a great deal.
That 400% ceiling is the big change this year. Here’s how each option works in 2026, what it costs you in flexibility, and how to plan withdrawals around it. This is general education, not advice for your situation; a fee-only planner or tax professional can run your actual numbers.
What changed for early retirees in 2026? #
Two changes hit early retirees at once.
The subsidy cliff is back. From 2021 through 2025, temporary rules removed the 400% income cap, so anyone could get help if a benchmark plan cost more than 8.5% of income. Those rules have lapsed. HealthCare.gov now describes eligibility as income between 100% and 400% of the poverty level. For 2026 coverage, the poverty line for one person is $15,650, which puts the cliff at $62,600 for a single retiree. One dollar over and the credit can disappear entirely. Congress has debated bringing the enhanced credits back, so check HealthCare.gov during open enrollment before you plan around either version.
Overestimating your income isn’t free anymore, and neither is underestimating it. The 2025 tax law removed the caps on repaying excess advance credits for tax years after 2025, according to the IRS. If you estimate a $45,000 income, take the monthly credit, then realize a large capital gain in December, you repay the full excess when you file.
There’s one piece of good news in the same law. Starting January 1, 2026, marketplace bronze and catastrophic plans count as HSA-compatible, so an early retiree on a cheap bronze plan can keep contributing to a health savings account.
Option 1: ACA marketplace plans #
ACA plans can’t turn you down or charge more for pre-existing conditions. That guarantee is the main reason they’re the default for people who leave work before 65.
How the premium tax credit works #
The credit is tied to your modified adjusted gross income (MAGI) for the coverage year. You estimate it when you enroll, the credit is paid to your insurer monthly, and you reconcile the difference on Form 8962 at tax time. A $3 million portfolio doesn’t count against you. What counts is the taxable income you create by drawing on it.
The metal tiers #
| Tier | Premiums | Out-of-pocket costs | Who it suits |
|---|---|---|---|
| Bronze | Lowest | Highest deductibles | Healthy people who mainly want catastrophe protection; now HSA-compatible |
| Silver | Moderate | Moderate; can be sharply reduced by cost-sharing reductions | Incomes between 100% and 250% of the poverty level |
| Gold / Platinum | Highest | Lowest | People with ongoing prescriptions or planned procedures |
Cost-sharing reductions only apply to silver plans, and they’re only available at lower incomes. A retiree living on $28,000 of MAGI can often get a silver plan with a deductible a fraction of the standard one.
Watch the floor as well as the ceiling #
Income that’s too low is also a problem. In states that expanded Medicaid, adults with income up to 138% of the poverty line generally qualify for Medicaid instead of marketplace credits. In states that didn’t expand, income below 100% can leave you with no credit at all. Early retirees with large portfolios and very low taxable income sometimes land in Medicaid by accident. Plan a MAGI that sits deliberately above the floor for your state.
Option 2: COBRA as a short bridge #
COBRA lets you keep your employer’s plan, usually for up to 18 months, but you pay the full premium plus up to a 2% administrative fee. The employer contribution disappears, so the bill often doubles or triples.
COBRA still makes sense in a few cases:
- You’ve already met your deductible or out-of-pocket maximum for the year.
- You’re mid-treatment and don’t want to change doctors or networks.
- You retire late in the year and want to start a marketplace plan in January.
HSA money can pay COBRA premiums tax-free, which isn’t true of regular ACA premiums. That makes a well-funded HSA a natural way to pay for a COBRA bridge.
Option 3: A working spouse’s plan #
If your spouse keeps working, joining their employer plan is usually the simplest and cheapest route. It also takes your household off the ACA income tightrope. Compare the employer premium for spouse coverage against a marketplace quote, since some employers add a surcharge for spouses who could get coverage elsewhere.
Option 4: Part-time work with benefits (Barista FIRE) #
Some people leave a demanding career but keep a part-time job partly for the health plan. That’s the core idea of Barista FIRE. Several large retailers and coffee chains have historically offered medical coverage to part-time staff who work around 20 to 30 hours a week, but eligibility rules change, so confirm the current hours threshold and waiting period directly with the employer. Our list of low-stress jobs for Barista FIRE covers roles that tend to fit.
The trade-off is that employer coverage ends when the job does. Keep an ACA plan in your back pocket, because losing job-based coverage triggers a special enrollment period.
Option 5: HSAs, direct primary care and health sharing #
Health savings accounts. An HSA built during your working years becomes a tax-free pool for deductibles, copays, prescriptions and dental work in early retirement. It can pay COBRA premiums and premiums while you’re collecting unemployment, but not ordinary marketplace premiums. With bronze plans now HSA-compatible, you may be able to keep contributing after you leave work. The HSA guide covers the rules.
Direct primary care (DPC). You pay a doctor’s practice a flat monthly fee for routine visits. It isn’t insurance, so pair it with a bronze or catastrophic plan for hospital bills. From 2026, the tax law also lets people with DPC arrangements contribute to an HSA and pay DPC fees from it, within the IRS limits.
Health sharing ministries. These are cost-sharing groups, not insurance. They aren’t bound by ACA rules, can exclude pre-existing conditions and can decline to share a bill. Treat them as a gamble, not a plan.
How to plan your withdrawals around ACA subsidies #
Different money creates different MAGI. The table below is the core of ACA planning:
| Source of spending money | What counts toward ACA MAGI |
|---|---|
| Traditional IRA or 401(k) withdrawal | 100% of the withdrawal |
| Roth conversion | 100% of the amount converted |
| Roth IRA contributions withdrawn | $0 |
| Taxable brokerage sale | Only the gain, not your cost basis |
| Cash savings | Only the interest earned |
| Tax-exempt municipal bond interest | Counts (ACA MAGI adds it back) |
| Social Security | The full benefit, including the untaxed part |
An example: you need $60,000 to live on and want MAGI near $35,000.
- Take $30,000 from a traditional IRA ($30,000 of MAGI).
- Sell $20,000 of index funds with $5,000 of gain ($5,000 of MAGI).
- Take the last $10,000 from cash or Roth contributions ($0).
You spend $60,000 while reporting $35,000. This works best when you’ve built all three buckets before you retire. It also collides with Roth conversion ladders, since every converted dollar counts as income. If you plan to convert, read how the Roth conversion ladder works and size conversions with the cliff in mind.
If you’re leaving a job at 55 or later, penalty-free 401(k) access under the Rule of 55 gives you another source of income you can control.
Put the premium into your FIRE number #
Healthcare is the budget line early retirees underestimate most. ACA premiums can rise with age: insurers can charge a 64-year-old up to three times what they charge a 21-year-old. Budget for a full-price premium in some years, not just the subsidized one.
Retire Goals won’t model ACA subsidies or your tax brackets, but it helps with the part that comes first. Its FIRE Number calculator divides your annual spending (with premiums and out-of-pocket costs included) by your withdrawal rate. The Will My Money Last calculator then shows how many years a portfolio covers that spending as it rises with inflation each year. Run it once with subsidized premiums and once at full price, and you’ll see how much the cliff is worth to your plan.
Frequently asked questions #
What is the cheapest health insurance for early retirees? #
Usually a subsidized ACA plan. With MAGI somewhere between the Medicaid floor and 250% of the poverty level, a silver plan with cost-sharing reductions can have a low premium and a much smaller deductible. Above that, a subsidized bronze plan paired with an HSA is often the lowest total cost for healthy people.
Did the ACA subsidy cliff come back in 2026? #
Yes, for now. The enhanced credits that removed the 400% income cap ran through 2025, and HealthCare.gov lists eligibility for 2026 coverage as 100% to 400% of the federal poverty level. Congress could change that, so check the current rules each open enrollment.
Can I use my HSA to pay health insurance premiums? #
Only in specific cases: COBRA premiums, premiums while you receive unemployment benefits, qualified long-term care insurance, and Medicare premiums after 65 (but not Medigap). Regular ACA marketplace premiums don’t qualify.
What happens if my income ends up higher than I estimated? #
You repay the excess advance credit when you file. Starting with 2026 tax years, the old repayment caps are gone, so a surprise gain late in the year can mean a large bill. Update your income estimate on HealthCare.gov as soon as you know it changed.
Can I get Medicare before 65 if I retire early? #
Not by retiring. Medicare at 65 is the rule, with exceptions for people on Social Security disability for 24 months and for certain conditions such as end-stage renal disease. Everyone else needs coverage until then.