What The Wealth Retirement Podcast

Bridging The Healthcare Gap: Planning For ACA Subsidy Expiration And Early Retirement Costs (114)

• Jonathan Bednar II, CFP • Episode 114

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On episode 114 we lay out how the potential expiration of enhanced ACA subsidies after 2025 could affect early retirees and what can be done ahead of time to prepare. 

Practical planning moves to manage MAGI, use HSAs, shore up cash flow, and keep retirement on track without panic.

• Expanded subsidies, what they did and why they matter 
• When the enhancements are set to expire and likely 2026 impact 
• How uncertainty creates budgeting stress for early retirees 

• Sticker shock for ages 58–64 off employer plans 
• MAGI management with CPAs and planners 
• HSA strategy to bridge pre‑Medicare years 

• Delaying large purchases to maintain flexibility?
• Should you consider part‑time work with benefits?

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Thanks for Listening!

Jonathan

SPEAKER_00:

If you're planning to retire before the age 65, you already know that healthcare is one of the biggest expenses that you face. In fact, not just for retirees, but for anyone not on an employer-sponsored plan. For the past few years, many retirees have benefited from the expanded subsidies on the Affordable Care Act marketplace. But because of the passing of the big beautiful bill that took place in July, those subsidies are set to expire soon. In this podcast today, we're going to talk about what that means for you and what you should do about it. I'm Jonathan Bedner, certified financial planner, owner of Paradigm Wealth Partners, and this is the What the Wealth Retirement Podcast. So let's talk about what the what's happening. The Affordable Care Act has some built-in subsidies, which are premium tax credits that help reduce reduce health insurance premiums. And during 2021 and 2022, there were a couple of bills passed, uh, specifically in 2021, the American Rescue Plan, and then in 2022, the Inflation Reduction Act. And both of these expanded these healthcare subsidies by removing the subsidy cliff that we saw at 400% of the federal poverty level, and then also increasing subsidies really across all income levels. And what that did was provided more coverage for more people at a lower cost. And so premiums didn't go up as much, or they actually reduced premiums because they were getting more tax credits on the other side because of this subsidy increase. It was a really big benefit to people that were having these large expenditures for health insurance. And so what's happened in the big beautiful bill that passed in July of 2025 is that these are set to expire at the end of 2025. And so these were not extended in that bill. And so those are going to expire at the end of 2025, these uh expanded subsidies. And so what that means is you may be feet facing higher health insurance cost going into 2026. And there's so there's a lot of concern out there on what is it going to look like with lower rates? What is, you know, is inflation going to rear its head? And you know, there's some ugliness in some of the job market data. And so we see a lot of data that's good, but we also see a lot of data that's bad. And then when you throw this on the mix, people don't know what their health insurance is going to cost going into 2026. And so I think it's causing, I don't want to say panic or hysteria, but just maybe some discomfort, some uneasiness about what to expect. We, I believe, are creatures that have it, and we like to know what things are going to cost us. We're able to budget, we're able to make ways for our cash flow to cover some of those expenses. And so when you're unsure of just what it's going to look like in 2026, uh, it can be a little scary. So, why does this matter for retirees? Uh, really anybody, but specifically uh retirees. This is a retirement podcast, so we're talking about retirees here. Typically, retirees often get hit the hardest by healthcare costs, and I don't necessarily totally agree with my blanket statement there, because if you are a small business owner with a family and you don't have a health insurance plan, of course, health insurance can be a very costly expense for you. I would argue there's some trade-offs there, like an uncapped lifetime amount, whereas prior to the Affordable Care Act, there was a lifetime maximum. And speaking from someone that has personal experience in this, you know, it's very important, I think, to not be on the hook for tens of millions of dollars uh if you hit that lifetime maximum. Uh there's definitely trade-offs. You know, I think retirees who are, you know, 58 to 64, you know, they've they've retired early. Maybe they're on social security, maybe they're not, but they're not they don't have access to that employer-sponsored plan. They're in a little bit of a shock sometimes what healthcare really costs. They're used to these kind of Goldilocks plans from their from the corporate corporate employers, the TVAs of the world, the Knox Utility Boards, the Johnson ⁇ Johnsons, any of these large companies that have so many employees that it's easy for them to offer you know good health insurance. So when they're no longer employed, they just have no idea what it really costs. And so there's some sticker shock. And so without these extended subsidies, it is not probably uncommon to have premiums jump by maybe thousands per year. And so what you need to do as someone that is either retired but not on Medicare or looking to retire is you know start to be thinking about okay, if my expenses are going to go up, how am I going to pay for that? How am I going to offset that? Because again, if that subsidy cliff expires at the end of 2025, then we would we should expect and and will uh I've heard rumors through the rumor mill that a lot of these insurance companies are are asking uh state insurance boards to uh approve a 20% premium increase. You know, it could be a costly jump if you're not prepared for it. And so what what you have is a large gap or sudden gap for those that are not eligible for Medicare and need to out you know outlay this additional cost and then a stepped up cost depending on where premiums go to. And so, you know, I think some of the risk people have is they're delaying retirement or they spin down their assets faster, or they take on debt. And so, you know, I think what what is important here is don't you know when we're when we think about taxes, a lot of times we will say this phrase, don't let the tax tail wag the dog, which means don't make a decision just because of the taxes. And I would say that that has some impact here. You don't need to necessarily take on unnecessary debt or uh delay retirement just because expenses are going to be a little bit higher, because it's only going to be in those gap years until you get to Medicare. Once you're on Medicare, you know, there's still cost for that, and it gets reduced out of some of your Social Security expenses, and then you may have to get some Medigap coverage or you know additional plan. But you know, usually that is doesn't cost as much as just going to the Affordable Care Act route. So what I would want to encourage you is be thinking over the next three months and planning for what if these, what if these really do expire? Now, you have a midterm election next year, and so we may see um potentially these get passed and and you know extended and all this becomes a mute point. But what you don't want to do is not plan for it and then it not happen. If you plan for it, it doesn't happen, great, no big deal. You wasted a couple hours planning, but at least you were prepared. If it does happen and you're not planning, then you're caught flat footed. So what you want to do is make sure that you've got a plan on paper on purpose for what happens if my Medicare or not Medicare, but my Affordable Care Act premium premiums, my health insurance premiums go up. So what can you do to prepare? What strategies can we do to prepare? You know, I think the first thing to do again is just be intentional with how you're managing your income. Um you know, make sure your your emergency fund is a little bit extra fluffed up for you know, potentially those additional expenses, or or making sure you have an emergency fund at all. That's what these things are for, for the unexpected expenses to come up to help you cover it. And what I need I notice a lot of time is people have$30,000 in cash at the bank and they don't ever want to spend it because it's like they're cash reserves. They they're totally comfortable with that there and they don't want to see that go down. What in reality is like that money's planned for these types of events when if if something doesn't go our way, if the ball doesn't bounce the way we want, and we have these extra expenses, dip into it. It doesn't mean we can't flush it back up later, it doesn't mean we can't, you know, restore it, but that's where that extra cash is perfect for. It's not earning very much, it's set aside for these exact reasons. So, you know, think about how you could plan your income with intentionality to, you know, maybe flush up a little bit of that cash, maybe tuck away that bonus if you're still working. If you already are retired, you know, maybe you don't go buy the new car yet. Maybe you don't go get the new couch yet. You know, let's just kind of see how some of this unfolds before we make those big moves. And then we can sit down and figure out okay, how do we still accomplish these goals, but you know, also be able to pay for these increased premiums. It's important to know that subsidies are based on your modified adjusted gross income. And so, you know, if you're working with a financial planner or your CPA, and a lot of times financial planners and CPAs will work together. I know we do, we work with client CPAs on a regular basis. We can think through how do we keep your modified adjusted gross income low. And so some of that's through some careful tax planning, but doing that can help, you know, make sure that we're getting as much subsidy as we can until we get onto Medicare. So, you know, that's kind of one thought. The other thought is, you know, bridge bridge bridge that gap until Medicare with, you know, maybe your HSA account. You know, a lot of people have HSAs when I'm working with clients. I tell people not to use your HSAs for band-aids and you know other frivolous expenses that are qualifiable, but save those to use in your gap years. Use those to pay for health insurance between you know retirement and Medicare. Um, you can also use those for long-term care insurance later down the road, but HSAs are are what I call the Swiss Army knife of accounts. They you get a tax deduction for putting money in, they grow tax deferred, and if they're taken out for qualified health expenses, they come out tax-free. Affordable care premiums are perfect for being able to use some of the money that you've got tucked away in your HSA if it's available. Um, if it's not, you know, maybe let's sit down and think how much more do we need for those expenses and how are we gonna take it? Are we gonna take it from a taxable account? Are we gonna take it from a retirement account? Are we gonna take it from a tax-free account? But but you know, trying to figure out where we come up with that. And a lot of times what we do in our firm, we've talked about the 654 method in the past, but we use the five-year war chest. This is a bucket of money that we know is set aside to get you your retirement expenses. And so if that means we have to borrow from, you know, year five to bring forward some of those expenses in year two or three to make sure we cover these healthcare expenses, we can do that. Maybe it's when we're building out the portfolio, we don't know what these health expenses are gonna be. So instead of booking a five-year war chest, we do a six-year to give us a little extra padding. So, you know, there's a lot of ways that we can work with how do we figure out, you know, how are we gonna offset this? That again, I just don't think it needs to be delay retirement. Not that some people don't need to do that, sure. Some people need to delay retirement, but I wouldn't make that decision again just because you're you're gonna see a slight increase in in cost. And then the other option is, you know, consider part-time work with health benefits. Now, you may it may there may be some certain requirements depending on how much you have to work to get those health benefits. So you might want to weigh that. But you know, I don't think part-time work is bad for a lot of people. You know, it gets you up, it gets you motivated, it gets you dressed, it gets your your mind working, and you get to go interact with people. It doesn't have to be your corporate career. There's nothing wrong with going to Joanne Fabrics or Ace Hardware and just piddling around the store for something to do. I mean, it's um I'm actually a firm believer in that, you know, we were built and designed to be in a community and not just at our house. And so that community may not be our corporate career, but it could be a part-time job. It could be volunteering, it could be anything. But, you know, it might be worth considering a part-time job to consider or to help pay for you know some of those additional health benefits or health expenses. So, you know, I think that's a few kind of a few things that I would say about kind of the state of these Affordable Care Act subsidies now and kind of the uncertainty for the remaining of the year. Again, Congress may extend these subsidies, but I think you should plan as if they will expire. And if you need to meet with a financial planner, if you're already a current client, you want to talk about this specifically, you know, reach out to us. We're happy to help and have these conversations and plan for this. And then if you're not a uh a client and you, you know, you're curious about either how we can help or help in this situation, you know, we would love to to walk you through what it looks like on how do you tackle some of these obstacles and what your options are to help overcome those. So uh in closing, what I want to do is it's kind of give you a couple of resources. So you can go to healthcare.gov to compare plans and subsidies. It's a great place. There's a cool tool that I also found that will help you estimate your premiums with and without subsidies. So I think this is a really, really cool tool to use to project for next year. Like, okay, if we get subsidies, this is what we can expect. And if we don't get subsidies, that's what we can expect. And that website is called kff.org. And if you just type in kff.org, you should be able to find that calculator. Or if you can Google this phrase, how much more would people pay in premiums if the ACA's enhanced premium tax credits expire? I know that's a mouthful, but it's at kff.org. I will link this in the show notes for you if you have a question on this. This is uh a very important topic. Meet with your financial planner and CPA, run run income and tax projections so you have a good understanding and plan for what to go as you move into 2026. Um, and again, I'll I'll say for us if you're not a client of ours and you're planning to retire early, and healthcare is one of those big questions, we help clients every day plan through this trip transition. You know, again, it's something we do for people all over the country on a regular basis. So, in closing, what I want to say is you know, these subsidies have been a lifeline for many retirees under 65, but the subsidies are ticking, they are set to expire, and now's the time to stress test your retirement plan. Think through your income strategies, meet with your CPA, meet with your financial planner, prepare for these higher health care costs and work to bridge the gap until Medigare. There's there are there are levers to pull and knobs to twist to make this work. Don't try to do this on your own. You know, reach out to your trusted contact and don't let your this this uncertainty derail you know those retirement dreams. If you have questions and you want help, you know, we're we're here to help with that. So with that said, thank you for tuning in. Thank you for listening. If you haven't already subscribed to the What the Wealth Retirement podcast, please do so. Have a wonderful day. Thanks for joining me on another episode of What the Wealth. If you enjoyed the episode today, smash that subscribe button. It helps me more than you think. Also, if you found this episode insightful and the light bulb went off, share it. Your friend Aunt Judy, the random guy in the office who's always talking about investment. Wealth isn't about just the chip change. It's about our choices, chances, and changing our financial futures. The information in this podcast is informational and general in nature, does not take into consideration. So let's first personal circumstances. 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