Health Insurance for Early Retirees (Before Medicare)
Retire before 65 and the first question is never money, it's medical: your employer's group plan disappears the day you leave, and Medicare doesn't start until 65. Whatever gap sits between your last paycheck and that birthday has to be covered another way. For most early retirees, that means the ACA marketplace, and the marketplace has a rule change in 2026 that makes the coverage-gap math meaningfully different than it was a year ago.
The subsidy cliff is back in 2026
From 2021 through 2025, temporary "enhanced" premium tax credits capped what anyone paid for a benchmark plan at 8.5% of income, with no income ceiling. Those enhancements expired on January 1, 2026, and the marketplace reverted to the original ACA formula: subsidies are only available up to 400% of the federal poverty level, which for 2026 is about $62,600 for a single person and $128,600 for a family of four in the continental U.S. Earn a dollar over that line and the subsidy doesn't taper, it disappears - the "subsidy cliff."
Below 400% FPL, the required contribution also rose. The 2026 schedule tops out at 9.96% of income for a benchmark silver plan once you're in the 300-400% FPL band, up from the 8.5% cap under the enhanced rules. Below 300% FPL the required share scales down from there, and under roughly 150% FPL it's close to free.
Why this makes your withdrawal choices a lever
ACA subsidies are based on MAGI - modified adjusted gross income - not on your net worth or your spending. This is the part early retirees can actually control: a retiree living on $70,000 a year might report almost no MAGI if that spending comes from a taxable brokerage's cost basis and Roth contributions, both of which don't count as income. The same retiree pulling the same $70,000 from a traditional 401(k) would report the full amount as ordinary income and could blow straight through the 400% FPL cliff.
This is exactly the same lever covered in withdrawal sequencing: pulling from taxable and Roth first keeps MAGI low, while traditional withdrawals or Roth conversions raise it. For someone near the subsidy cliff, one extra thousand dollars of MAGI can cost several thousand dollars of subsidy - an effective marginal rate far higher than the tax bracket alone suggests. Model the subsidy impact before you decide the size of a conversion, especially in the first few years after work income stops. A Roth conversion ladder still makes sense for building tax-free access to retirement funds, but the rungs may need to be smaller, or timed for years when you're comfortably under a subsidy threshold.
Sizing the actual gap
A 55-year-old retiree with $40,000 of MAGI and no dependents sits around 300% FPL, well inside subsidized territory; the same household reporting $75,000 of MAGI from traditional withdrawals is over the cliff and pays full price. Full-price benchmark silver premiums run roughly $700-$1,200 a month per person depending on age and region, before any subsidy - so the difference between managing MAGI well and not can easily be $5,000 to $15,000 a year for a couple. Run your own numbers on healthcare.gov's subsidy calculator or through a broker before you finalize a retirement-date budget; this is not a rounding error in a FIRE plan, it's frequently the second-largest line item after housing.
The other bridge options
- COBRA. Continues your exact former employer plan for up to 18 months, but you pay the full premium plus a 2% admin fee, with no subsidy. Useful as a short bridge or if you have an unusually good employer plan, expensive as a long-term solution.
- A spouse's employer plan. If one spouse keeps working, even part-time, riding their group plan is often the cheapest option available.
- Part-time work for benefits. Some employers, notably ones with a large part-time workforce, offer group health coverage at as little as 20-30 hours a week - the "Barista FIRE" approach to the health-insurance gap specifically.
- Short-term or health-sharing plans. Cheaper, but not ACA-compliant: medical underwriting, exclusions for pre-existing conditions, and coverage caps. Treat these as a last resort, not a plan.
Build it into your FIRE number, not around it
The financial order of operations treats basic health care as a Steady-stage essential for a reason - it doesn't stop being essential the day you stop working. Add a realistic, subsidy-aware premium estimate to your retirement budget rather than assuming a number from your working years' employer-subsidized plan; the two are rarely close.
Build your withdrawal plan around it in Tuesday →
Frequently asked questions
- How do early retirees get health insurance before Medicare?
- Most use ACA marketplace plans, often paired with careful withdrawal choices to keep reported income (MAGI) low enough to qualify for subsidies. Other options include COBRA for up to 18 months, a spouse's employer plan, or part-time work that includes benefits.
- What is the ACA subsidy cliff in 2026?
- Temporary enhanced subsidies expired January 1, 2026, so marketplace premium tax credits are again available only up to 400% of the federal poverty level - about $62,600 for a single person and $128,600 for a family of four. Income even slightly above that loses the entire subsidy, not just part of it.
- Does withdrawing from a Roth IRA affect ACA subsidies?
- No. Roth withdrawals and a taxable brokerage's cost-basis portion do not count toward MAGI, the number ACA subsidies are based on. Traditional 401(k)/IRA withdrawals and Roth conversions do count, so the order you draw from affects how large a subsidy you qualify for.