If you retire before 65, you face a healthcare-coverage gap that can run $15K to $40K per year per couple. The three main paths, COBRA, ACA marketplace, or HSA-funded high-deductible plans, produce wildly different costs depending on your income strategy. Now more than ever: the enhanced ACA subsidies expired Dec 31, 2025, and the 400% FPL "subsidy cliff" is back in force for 2026.
The biggest move most early retirees miss: ACA marketplace subsidies are tied directly to your Modified Adjusted Gross Income (MAGI). And starting in 2026, the math is sharper: the IRA-enhanced subsidies expired Dec 31, 2025, and the 400% FPL "subsidy cliff" is back. Cross 400% FPL by a dollar and you lose the entire premium tax credit, often a $10K to $25K hit. That makes MAGI management the single highest-value lever in the pre-65 plan.
Which dollars you pull matters: Roth withdrawals don't count toward MAGI. Traditional IRA / 401(k) withdrawals do. Long-term capital gains do, at preferential rates. Tax-loss harvesting can offset. Strategic Roth conversions before ACA-bridge years (or holding them off until Medicare) is real money.
The healthcare bridge is the most expensive overlooked line item in early retirement. With the cliff back, it's also the most controllable, if you plan the income strategy around it.
The other lever: HSAs. If you're still working and eligible, max-fund an HSA every year. The triple tax advantage (deductible going in, no tax on growth, no tax on qualified withdrawals) makes it the most efficient retirement-medical savings vehicle that exists. After age 65 the funds can be withdrawn for any purpose, taxed as ordinary income.
Employer health coverage is often the invisible wall holding someone in a job. Drawing the map shows whether that wall is real or painted.
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The page puts the gap at $15K to $40K per year per couple, depending on the path and your income. This calculator compares COBRA, an ACA marketplace plan with subsidy, and a high-deductible plan using 2026 rules and national average premiums. State variation is significant, and premium inflation is not modeled, so multi-year totals run low.
For 2026, households above 400% of the federal poverty level get no premium tax credit and pay the full unsubsidized premium. The enhanced subsidies expired Dec 31, 2025, so the cliff is back. Crossing it by one dollar can cost the whole credit, often a $10K to $25K hit, which makes managing MAGI the key pre-65 lever.
No. Roth withdrawals do not count toward MAGI. Traditional IRA and 401(k) withdrawals do, and so do long-term capital gains. That is why the choice of which dollars to pull, and whether to do Roth conversions before the bridge years or wait until Medicare, can change what coverage costs.
COBRA keeps your same employer plan for up to 18 months, but you pay the full premium plus a 2% admin fee, so it often costs more than a subsidized marketplace plan. Cost is not the whole decision, though: network restrictions, keeping your doctors and deductible risk often matter more than the lowest number.
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