Health Insurance Before Medicare: Bridging the Gap to 65

If you retire before 65, you need to bridge to Medicare, and in 2026 that bridge became more expensive for many households. The enhanced premium tax credits that applied from 2021 through 2025 expired on January 1, 2026, which restored the original ACA structure and with it the subsidy cliff: premium tax credits now cut off entirely above 400% of the federal poverty level, roughly $62,600 for a single person and $128,600 for a family of four in the 48 contiguous states and the District of Columbia, with higher figures in Alaska and Hawaii. One dollar of income above that line eliminates the subsidy completely. The practical options for an early retiree are the ACA marketplace, COBRA for up to 18 months at 102% of the full premium, a working spouse's plan, or retiree coverage if a former employer offers it. For anyone with flexibility over how they draw income, the return of the cliff makes managing modified adjusted gross income one of the highest-value planning levers available in the years before 65.

What changed in 2026, and why does it matter so much?

From 2021 through 2025, enhanced premium tax credits capped what households paid for a benchmark marketplace plan as a percentage of income and, critically, extended subsidies above 400% of the federal poverty level. Those enhancements expired at the end of 2025 and were not renewed, so 2026 operates under the original ACA rules. This remains an active area of legislative debate, and proposals to reinstate some form of enhanced credit have been introduced without being enacted as of this writing, so confirm the current rules before relying on them.

Two things changed at once. First, the percentage of income that households at any given level are expected to contribute rose. Households between 200% and 250% of poverty, who previously paid between 2% and 4% of income toward the benchmark plan, now pay between 6.60% and 8.44%, and at 300% of poverty the required contribution rose from 6% to 9.96% (IRS Rev. Proc. 2025-25). Second, and more dramatically, the hard cutoff at 400% of poverty returned. Above that line there is no subsidy at all.

The effect on behavior was immediate and measurable. Enrollees with incomes between 400% and 500% of poverty were about 3% of 2025 sign-ups but accounted for 27% of the decline in sign-ups from 2025 to 2026, with enrollment in that group falling 44%, more than 321,000 people. Analysis by the Bipartisan Policy Center estimated that roughly 725,000 individuals and families between 400% and 500% of poverty lost eligibility for the credit, and projected that households above 400% of poverty would face average premium increases exceeding $2,900 per year.

For an early retiree, this reframes the planning question. The difference between $62,000 and $63,000 of income for a single filer is no longer marginal; it can be the difference between a substantial subsidy and none.

What are the coverage options?

Four paths cover most situations, and many retirees use more than one in sequence.

The ACA marketplace.For most early retirees this is the primary route, and it is the dominant choice for ages 60 to 64. Plans are guaranteed issue with no medical underwriting and no pre-existing condition exclusions, and pricing is age-rated, so premiums are highest precisely in the years before Medicare. Premium tax credits are available below 400% of poverty and disappear above it.

COBRA.Continuation of your employer plan for up to 18 months, at 102% of the full premium, meaning both the employer and employee portions plus a 2% administrative fee. COBRA is often expensive because you now pay what your employer previously paid, but it keeps your existing plan, network, and deductible progress intact. It is most useful as a short bridge, particularly if you are within 18 months of 65, are mid-treatment, or want to keep a specific physician network.

A spouse's employer plan.If a spouse continues working, joining their plan is frequently the simplest and least expensive option. A spouse's retirement or your own job loss is a qualifying event allowing mid-year enrollment.

Retiree coverage from a former employer.Increasingly rare, but valuable where it exists. Terms vary widely, so confirm what it costs, whether it continues after 65 as a Medicare supplement, and whether the employer can change or terminate it.

A brief note on health care sharing ministries and short-term plans: they are marketed to this group, are not insurance in the regulated sense, and generally do not guarantee payment or cover pre-existing conditions. They deserve considerable caution.

Why does managing income matter more than it used to?

Because the subsidy now turns on and off at a hard threshold, and because most early retirees have unusual control over their taxable income.

The relevant measure is modified adjusted gross income for ACA purposes. A retiree living partly on cash savings and partly on portfolio withdrawals can often influence MAGI substantially through which accounts they draw from. Withdrawals from a taxable account generate income only to the extent of realized gains, not the full withdrawal. Roth withdrawals generate no MAGI at all. Traditional IRA and 401(k) withdrawals count fully. Capital gains, dividends, and interest count, as does tax-exempt municipal bond interest for this calculation.

That creates a real planning opportunity: a household with substantial assets can, in some cases, keep MAGI below the subsidy threshold by spending from cash and Roth accounts while deferring taxable withdrawals. Whether that is worth doing is a genuine trade-off, not an automatic yes.

The tension is with Roth conversions. The years between retirement and required minimum distributions are usually the best window for converting to a Roth at low rates, as discussed in Roth conversions for high earners. But conversion income raises MAGI and can eliminate ACA subsidies. So a household must weigh the value of a subsidy in a given year against the long-term value of converting at a low rate. There is no universal answer: it depends on the size of the subsidy, the conversion opportunity, and the years remaining before 65. What is clear is that the two decisions should be modeled together rather than separately, alongside the withdrawal ordering discussed in tax-smart withdrawal sequencing.

Do the wealthy simply pay full freight?

Often, yes, and that is a reasonable answer. A household with substantial income or one that intends to do large Roth conversions may find the subsidy unreachable or not worth the distortion, in which case the plan is simply to budget for unsubsidized premiums.

That budget should be realistic. Unsubsidized marketplace premiums for a couple in their early 60s can run well into five figures annually before deductibles and out-of-pocket costs, and premiums rise with age. Anyone planning to retire early should build several years of full-cost health coverage into the retirement projection rather than treating it as a minor line item, a point that belongs in the analysis described in how much do you need to retire.

One useful companion tool: if you are covered by a qualifying high-deductible plan before Medicare, you can continue contributing to a health savings account, and those funds can later pay Medicare premiums tax-free. Note that HSA contributions must stop once you enroll in Medicare, and Part A enrollment can be retroactive, as covered in the HSA triple tax advantage and Medicare for high-income retirees.

A worked example: the cliff in practice

The following is a hypothetical illustration using 2026 thresholds. A single 61-year-old retires with $2,500,000 in assets, split between a taxable brokerage account, a traditional IRA, and a Roth. She needs roughly $90,000 a year to live.

If she funds her spending primarily from the traditional IRA, her MAGI could approach $90,000, well above the roughly $62,600 cliff for a single filer, so she receives no premium tax credit and pays the full unsubsidized premium.

If instead she draws from her taxable account, where only realized gains count toward MAGI, supplements with Roth withdrawals that generate no MAGI, and keeps realized income below the threshold, she may qualify for a substantial credit while spending the same $90,000. The subsidy could be worth many thousands of dollars annually across the four years to 65.

The trade-off is that those four years were also her best window for low-bracket Roth conversions, and staying under the threshold means forgoing them. Whether the subsidy or the conversion is worth more depends on the amounts involved and on her expected bracket after 73, which is exactly the calculation to run rather than assume. The example is hypothetical and thresholds change annually.

Frequently asked questions

What is the ACA subsidy cliff in 2026?Premium tax credits end entirely above 400% of the federal poverty level, roughly $62,600 for a single person and $128,600 for a family of four in the continental United States. The enhanced credits that softened this from 2021 through 2025 expired January 1, 2026.

How much does COBRA cost?Up to 102% of the full plan premium, meaning both the employer and employee shares plus a 2% administrative fee, for up to 18 months. It is often expensive but preserves your existing plan, network, and deductible progress.

Can I control my income to qualify for ACA subsidies?Often yes. Spending from cash and Roth accounts generates little or no modified adjusted gross income, while traditional IRA withdrawals count fully. Many early retirees have meaningful control over MAGI, which is what makes the planning valuable.

Should I do Roth conversions or keep income low for subsidies?It depends on the size of each benefit. The pre-Medicare years are usually the best conversion window, but conversion income can eliminate subsidies. Model both together across the full period to 65 rather than deciding year by year in isolation.

Are short-term or health sharing plans a good substitute?They deserve caution. They are generally not regulated insurance, may not cover pre-existing conditions, and do not guarantee payment of claims. For someone retiring early with real assets to protect, comprehensive coverage is usually the sounder choice.

Can I still contribute to an HSA before Medicare?Yes, if you are covered by a qualifying high-deductible health plan and not enrolled in Medicare. HSA funds can later pay Medicare premiums tax-free, but contributions must stop at Medicare enrollment, which can be retroactive up to six months.