Fear is prevalent.
ACA Premium Tax Credits are going away!!!
The 400 percent cliff will ruin your early retirement!!!
Neither of these is true. But the messages are out there.
Yes, the Premium Tax Credit for 2026 is very unsettled. Could it create problems for early retirees in 2026? Yes.
But now is the time to embrace solutions, to borrow a phrase from Jon Taffer.
Since 2026 ACA open enrollment begins in less than a week, below I assess the lay of the land for ACA medical insurance and Premium Tax Credits in 2026. I then move onto planning as early retirees consider their ACA medical insurance options for 2026 in late 2025.
Premium Tax Credit
From 2014 through 2020, the Premium Tax Credit reduces ACA medical insurance premiums based on this table. Of note is that this table fully eliminates Premium Tax Credits once one’s income is over 400 percent of the federal poverty level. I refer to the years 2014 through 2020 as the “First Era.”
From 2021 through 2025, the Premium Tax Credit reduces ACA medical insurance premiums based on this more generous table. Of note is that this table ratably reduces, but does not eliminate, Premium Tax Credits once one’s income is over 400 percent of the federal poverty level. I refer to the years 2021 through 2025 as the “Second Era.”
With no change to the laws, in 2026 we start what I refer to as the “Third Era.” The Premium Tax Credit will be determined based on the First Era table. The enhancements to ACA Premium Tax Credits will go away. ACA Premium Tax Credits themselves will not go away.
Fears Over Changes to the Premium Tax Credit
If we look at history, we know that the 400 percent of federal poverty level cliff will not ruin an early retirement.
Why?
We saw from 2014 through 2020 plenty of Americans were successfully early retired. Many of them got Premium Tax Credits.
Yes, the First Era featured the 400 percent of federal poverty level cliff. Yes, that was a financial planning issue for early retirees to deal with. No, it did not ruin their early retirement.
Further, medical insurance premiums are simply one of many financial planning issues early retirees deal with. It’s odd to claim that a change to one expense in 2026 will destroy a retirement plan.
The Government Shutdown
Currently, many federal government agencies are either closed or working with reduced operations. This is commonly referred to as the “Government Shutdown.”
The Government Shutdown provides a potential leverage point for politicians to extend a version of the enhanced Premium Tax Credits. Democrats generally want to make the Second Era Premium Tax Credit enhancements permanent. Interestingly enough, there are two Republican cohorts that also want to extend some version of enhanced Premium Tax Credits. One is a baker’s dozen of generally Blue State Republicans in the House and one are more populist Republicans led by Representative Marjorie Taylor Greene.
There are no guarantees. It is absolutely possible that some version of enhanced Premium Tax Credits will apply in 2026. However, from a planning perspective, early retirees should consider the very real possibility that we go back to the First Era Premium Tax Credit rules in 2026.
2026 Premium Tax Credit Solutions
One year’s medical insurance premiums are not likely to ruin anyone’s early retirement and finances.
That being said, early retirees should approach the situation by embracing solutions.
To my mind, for those looking to improve their tax and ACA medical insurance premium picture in 2026, as of late October 2025 there are two primary paths. The first path is “Bronze Plan and Lower Income” and the second path is “Catastrophic Plan and Lower Premiums.”
Bronze Plan and Lower Income
I have previously said that in the new planning environment, Bronze is Gold.
For many early retirees, Bronze ACA plans will be very desirable in 2026. Why? First, the premiums are lower than Platinum, Gold, and Silver plans, reducing pressure on the Premium Tax Credit issue.
Second, beginning in 2026 all Bronze plans will qualify as “high deductible health plans” allowing deductible HSA contributions. This allows early retired enrollees to deduct their HSA contributions, possibly increasing their Premium Tax Credit and possibly ducking under the 400 percent of federal poverty level cliff.
Third, this sets up a tax free pot of money from which to pay medical expenses in 2026. From a Premium Tax Credit perspective, it’s better to reach into a tax free pot than to fund medical expenses by selling a capital gain asset or taking a taxable distribution from a traditional IRA.
A component of Bronze is Gold planning is keeping taxable income low. One helpful tactic in this regard is to hold all taxable bonds in traditional retirement accounts. This keeps interest income off one’s tax return, reducing Premium Tax Credit damage that taxable bond interest can do.
Cody Garrett and I anticipated that keeping income low for Premium Tax Credit purposes would be a big issue in 2026 when we wrote Tax Planning To and Through Early Retirement. That’s why, on pages 176 and 177 of the paperback version, we include 8 tactics early retirees might be able to use to lower their income in 2026 and increase their Premium Tax Credit.
Catastrophic Plan and Lower Premiums
A little-noticed change in September 2025 can be very helpful to those thinking about enrolling in ACA medical insurance in November 2025 for 2026.
The government now allows those with incomes above 400 percent of the federal poverty level to enroll in an ACA Catastrophic medical insurance plan. Previously, catastrophic plans were mostly open only to those under age 30 or could otherwise demonstrate a hardship. Now the rules allow having income over 400 percent of federal poverty level to qualify as having a hardship, and thus enroll in Catastrophic coverage.
I believe that Catastrophic coverage is an option well worth considering for many early retirees. Catastrophic policies generally have no coinsurance to start, but they do have in-network annual out-of-pocket maximums. To my mind, that latter feature is, by far, the most important benefit of a medical insurance policy–avoidance of financial ruin in the event of significant medical expenses.
Further, Catastrophic plans generally have lower premiums than Bronze plans, perhaps significantly lower. Note this can vary significantly based on age and geography.
Those on a Catastrophic plan do not qualify for a Premium Tax Credit. That can be a feature rather than a bug if you’re likely to be near the 400 percent of federal poverty level cliff anyways. Being on a Catastrophic plan makes Roth conversions much more desirable. With no Premium Tax Credit to manage for, the early part of an early retirement becomes a much more desirable time to do Roth conversions.
In today’s planning environment, I’m generally conservative when it comes to Roth conversions when one is on an ACA medical insurance plan. Why do Roth conversions when you are subject to what are essentially two federal income taxes; the federal income tax itself and the possible reduction or elimination of the Premium Tax Credit?
Catastrophic plan enrollment can open the door to more potentially beneficial Roth conversions.
Note that starting in 2026 all Catastrophic plans will qualify as high deductible health plans, allowing deductible HSA contributions. These deductions can help with Roth conversion and other tax planning.
Conclusion
Think twice when you hear fearful messages about 2026 Premium Tax Credits. For early retirees, now is the time to plan and embrace solutions. It’s also time to keep one’s ear to the ground. It’s possible that eventually some version of the Second Era’s Premium Tax Credit enhancements will ultimately be enacted.
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This post is for entertainment and educational purposes only. It does not constitute accounting, financial, legal, investment, medical, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, legal, investment, medical, and tax matters. Please also refer to the Disclaimer & Warning section found here.
Great post, thanks Sean! I’ve been hoping for a professional/expert like you to discuss catastrophic coverage as an option for early retirees in years they have MAGI over 400% FPL. It’s great to learn catastrophic plans count as HDHPs for HSAs. Even before this change, I’ve read on Reddit that some FIRE people combine this with Direct Primary Care (DPC). Now OBBBA also changes DPC to be eligible with HSAs (according to a WSJ article).
So in years when I expect to have MAGI >400% FPL, I can get a catastrophic plan + DPC and pay from cash/brokerage, save the DPC receipts, maybe do a Roth conversion and/or capital gains harvesting. Then in any years when I can stay <400% FPL, I could get Bronze ACA coverage with PTCs and both contribute to and withdraw from my HSA (prior years' DCP and any other medical expenses) as needed to help reduce MAGI.
Great post but even with that, my premium tripled to more than 2 grand a month. I can’t afford it, my FIRE budget was never meant to tackle such unfathomable insurance. Actually, this is not insurance, it’s a joke. I’ll go without it as millions of americans will. There’s no way in hell this is the solution for anything.
Are you guys really thinking this is a solution for anything? Paying 20k+ a year for pretty much no coverage other than catastrophic? You must be kidding me
Ours septupled (7x) from $300/month to $2100/month. We are selling a rental property in 2026 so the capital gains will put us over the 400% cliff. The US will never have an affordable, reasonable health plan like all other developed nations. I mean, come on – the insurance CEOs must have their millions! 🙄
“The government now allows those with incomes above 400 percent of the federal poverty level to enroll in an ACA Catastrophic medical insurance plan”
– Yeah, Good luck finding a catastrophic plan. Most states aren’t accepting this resolution yet, none of their systems are granting eligibility if >400% FPL automatically. Here in GA I’m trying for days to sign up for a catastrophic plan and no luck. I even called they they know nothing about this new “hardship” for those above the 400%FPV.
It’s a s* show out there. This open enrollment will be worst in history and that’s how they’re choking ACA without literally killing it.
As someone about to enter early retirement, I find myself exactly at this crossroads, deciding between keeping my MAGI low enough to qualify for ACA Premium Tax Credits or realizing more long-term capital gains at the 0% federal rate. It’s fascinating (and frustrating) that the two thresholds don’t align: the 400% FPL limit for ACA credits cuts off well before the top of the 0% LTCG bracket.
In practice, that means I can either sell more appreciated stock tax-free or qualify for reduced health-insurance premiums, but not both. It’s a reminder that financial independence isn’t just about accumulating assets, it’s also about learning how to “tune” income strategically year by year. I appreciate the balanced tone of this post. It’s refreshing to see planning framed as flexibility rather than fear.
I’ve decided to postpone early retirement because ACA is not a solution anymore, the opposite of what the post suggests.
When your monthly expenses are 2k and your “insurance” will cost 2k, you know something is not right.
I’ll keep working to keep employer insurance until the goverment resolves the healthcare crises and make it affordable and I bet most of to-be FIRE people will do that same unless you have oversaved.
how is your insurance over 2k when you only need 2k a month to live?
Reading through your piece on 2026 ACA Premium Tax Credits, I couldn’t help but think about the real-world numbers people are facing and that you probably haven’t even opened the website to check. For instance where I live:
Blue Protect Catastrophic PPO: $1,311.38/month with a 4-star rating.
Ambetter Expanded Bronze EPO: $1,593.12/month with only 2 stars.
These are supposed to be “lower-tier” plans, yet the premiums are sky-high. Calling Bronze “the new Gold” doesn’t land when a 2-star Bronze plan costs more than a grand a MONTH. And catastrophic coverage—meant to be the cheapest safety net—is still over $15,000 a year in premiums before you even touch deductibles.
I get your point that early retirees should “embrace solutions” like lowering taxable income or considering catastrophic coverage. But the reality is that these prices are absurdly out of reach for most FIRE households, even with careful tax planning. The idea that someone could pay $1,500/month for a Bronze plan and still need to strategize around the 400% FPL cliff shows how distorted the system has become.
Yes, planning matters. Yes, tax credits can soften the blow. But when the baseline premiums are this inflated, it feels less like a planning challenge and more like a structural failure. If Bronze is Gold, then catastrophic is platinum-priced irony.
Interesting comment. I’m fired and could handle this easily. I could set up one account solely for the max OOP for one year. If I had multiple years of illness, it’s unlikely i will be traveling or spending heavy on traveling/ dining and my other expenses would go down. Also in subsequent years I would reduce my income way down to get subsidies. Then each year account for the 1.5k premiums as part of my fire number. I ran all these numbers before so it wasn’t a surprise to me. Anyone who fired in recent years should have known the 400+ FPL subsidies were going away and should have accounted for that. Otherwise they are not ready to fire and need to go back to work.
Thanks for this. I was excited about all Bronze plans being HSA eligible. But when I go on Pennie (PA’s ACA Marketplace site), ONLY Bronze PPO plans say HSA eligible, not the Bronze HMO plans. So are they all eligible or not? Can i just contribute to my HSA next year if I have a Bronze HMO plan even if not labeled as for HSA?
Thanks!
Lisa, thanks for commenting. While I cannot advise you with respect to your particular situation, I can say OBBB changed the law. The relevant provision is Section 223(c)(2)(H) https://www.law.cornell.edu/uscode/text/26/223#c_2_H. Those with Bronze ACA plans as their only medical insurance in 2026 will be able to contribute to a health savings account for 2026. See also https://www.whitehouse.gov/research/2025/09/expansion-of-hsa-eligibility-under-obbb-act-to-improve-marketplace-coverage-affordability-and-access/