By Elizabeth O'Brien

Deep cuts to Medicaid are one of the more controversial features of Republicans' "big beautiful bill." But a stealth cut to insurance subsidies in Obamacare marketplaces is also taking shape that would raise costs sharply for early retirees next year. It's not too soon to prepare.

The tax-and-spending megabill that Republicans are working to pass in the coming weeks contains many measures that would affect Americans' health and finances. But the legislation doesn't extend extra premium subsidies that have been in place for Affordable Care Act $(ACA)$ health plans since the pandemic. The assistance is set to expire at the end of 2025. If Congress doesn't act before then to renew it, premiums will rise by $700 on average per year, according to the left-leaning Center on Budget and Policy Priorities.

Older adults would face bigger premium hikes, since insurers are allowed to charge them more for coverage. A typical 60-year-old couple making $82,000 would see monthly marketplace premiums more than triple, from $581 to $2,111 -- an annual increase of about $18,400, according to the Center on Budget and Policy Priorities.

Opened in 2014, the ACA marketplaces were a boon for older adults. The law that created them prohibited discrimination based on pre-existing conditions. Previously, consumers buying individual policies on the nongroup market could be charged more or denied coverage based on their health status. This contributed to a phenomenon called "job lock," when older workers stayed in their jobs just for the health insurance.

The enhanced premium subsidies made ACA coverage an even better deal. They removed the so-called subsidy cliff that disqualified people who made a dollar over the income limits from receiving any government support. In addition, they reduced costs for people across income levels, including lower-income consumers, who could enroll in plans with $0 monthly premiums.

Thanks partly to the enhanced subsidies, a record 24 million consumers are now enrolled in marketplace plans, up from 12 million in 2021. If the enhanced subsidies are allowed to lapse, 4.2 million people will be uninsured as a result in 2034, according to projections by the Congressional Budget Office.

Before the end of the year, consumers will likely receive a letter from insurers about how much their premiums are expected to rise for 2026. "The impact will really heat up when people start shopping for plans" during open enrollment in the fall, says Gideon Lukens, senior fellow and director of research at the Center on Budget and Policy Priorities.

What can you do to prepare? If you're thinking about retiring before you turn 65 and become eligible for Medicare, make sure you price out policies beforehand to understand how much you'll pay for insurance. (Exact premiums for 2026 marketplace coverage won't be available until later in the year.) If the cost is prohibitive, it might pay to stay on the job longer.

If the enhanced subsidies lapse, the subsidy cliff will return, and anyone making more than the income limits will be ineligible for government help lowering their monthly premiums. The income limits are 400% of the federal poverty level, or $62,600 for a household of one and $84,600 for a household of two in 2025.

The system requires consumers to estimate their income for the year they're enrolled, so premiums for 2026 will be based on expected income for that year. Your modified adjusted gross income for ACA purposes includes capital gains, federal taxable wages, investment income, rental and royalty income, retirement or pension income, self-employment income, Social Security, tips, and unemployment compensation.

Income from post-tax Roth IRAs isn't included, so it can be helpful to pull from one of those accounts if you have it. Other than that, be aware of how selling appreciated stock or a house that's above the capital gains exclusion will affect your bottom line, says Kevin Knauss, an independent insurance agent in California. If you would realize big capital gains from selling your home, he adds, consider staying put.

Write to Elizabeth O'Brien at elizabeth.obrien@barrons.com

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June 20, 2025 11:24 ET (15:24 GMT)

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