There’s a new threat that could force Americans to scrap their early-retirement plans: skyrocketing health care costs. The enhanced Affordable Care Act (ACA) subsidies that expired at the end of 2025. That means 24 million Americans will see a sharp spike in their health care costs unless Congress extends the money-saving premium tax credits.
The most at-risk segment of the population relying on ACA health insurance is middle-income Americans aged 50 to 64. This group is still years away from being eligible for Medicare coverage and faces a doubling or tripling of medical care costs, according to data from KFF, an independent health policy organization.
The scrapping of this key ACA subsidy, coupled with the estimated 18% increase in premiums for ACA Health Insurance Marketplace plans, is making health care unaffordable for many Americans. Early retirees and the self-employed, who don’t get health coverage at work or through Medicare, would see some of the steepest increases, KFF data show.
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Half of ACA enrollees eligible for the enhanced tax credit are ages 50 to 64, according to KFF. “It’s a budget buster,” said Jamie Cox, managing partner at Harris Financial Group. “Health insurance is there to basically save your life. But it can also kill your retirement.”
Just how much will ACA premiums rise?
The out-of-pocket marketplace cost increases are sizable enough to blow a hole in many Americans’ retirement plans.
A 50-year-old would see their annual costs nearly double from $5,328 to $9,828, KFF estimates.
A 60-year-old with an income just about the subsidy cutoff line ($62,700, or 401% of the federal poverty level), for example, could pay roughly $9,600 more per year, or $800 more a month for a mid-range ACA marketplace plan, according to KFF.
A 64-year-old nearing the Medicare start age of 65 could see their annual costs more than triple from $5,328 to $16,500, an annual increase of more than $11,000, adding nearly $1,000 to their monthly cost.
“Older marketplace enrollees face some of the largest financial burdens if the enhanced tax credits expire,” KFF policy analyst Matt McGough noted in a blog post.
Premium payments in 2026 for people currently receiving the tax credit will more than double, from $888 in 2025 to $1,904 in 2026, if ACA enhanced premium tax credits expire, according to KFF.
It’s a catch-22 for most Americans: Many can’t afford health insurance, but they can’t do without it, either.
Will Congress rescue ACA premium affordability?
There is, of course, hope that Congress will act soon to extend the enhanced subsidies. The House of Representatives on Jan. 8, 2026, passed a three-year extension of ACA subsidies. But it’s unclear whether the Senate will take up the House measure, amend it, and sign off on it.
The Senate has been hammering out its own deal, which would extend the federal health-insurance subsidies for two years. This shorter extension window, though, would likely come with limits, such as income caps to reduce the number of Americans eligible for the subsidy and antifraud measures.
Stay tuned to see how the Senate moves forward on this key affordability issue early in 2026. Keep in mind as well that President Donald Trump has indicated that he may veto any efforts to extend ACA subsidies.
The ACA cost increases are a wake-up call. Americans who get coverage through the marketplace may get a brief reprieve if Congress extends the subsidies. But it doesn’t change the longer-term affordability challenge: health care costs are becoming increasingly cost-prohibitive for many Americans and, as a result, are forcing many older Americans to redo the math to see if they are financially able to retire early or if soaring health insurance costs are effectively wrecking their plans.
The ever-rising cost of health care may also force early retirees who have already stopped working to revisit their decision and re-run the numbers to see if they can still afford to stay retired. The rising cost of health care might also emerge as a top budgeting concern for proponents of the so-called FIRE movement (Financial Independence Retire Early) who save the bulk of their income and live frugally so they can stop working as early as their 30s and 40s.
No doubt, health care costs, which have always been a concern for retirees, are now more top of mind than ever. “The cost of health care is one of the major issues and concerns for most of our clients and retirees,” said Rob Williams, head of wealth management research at Charles Schwab. “So, if you’re planning to retire early, making sure you can manage and pay for any health care costs you have is significant.”
Health care challenge for everyone: building rising costs into a retirement plan
The challenge, of course, for anyone wanting to retire early or who is already retired but too young to qualify for Medicare, is to build these extra costs into their financial plan. Unfortunately, many Americans have not done so. One in five Americans (and 25% of Gen Xers between the ages of 46 and 61) say they have never considered health care needs during retirement, according to Fidelity Investments’ most recent Retiree Health Care Estimate report. And nearly two of 10 Americans (17%) said they have “taken no action at all when it comes to planning for health expenses in retirement.”
Adding to the financial challenge is the fact that the median retirement age is 62, or three years before Medicare eligibility, according to the Transamerica Center for Retirement Studies. The reasons people retire earlier than initially planned include health reasons (46%), job loss (16%), organizational changes (16%), job unhappiness (14%), and retirement buyout (9%), according to Transamerica. Somewhat troubling is the fact that only 21% retired early because they could afford to do so.
Cox says the health care cost challenge is not just an issue facing ACA marketplace users, but also a budgeting obstacle for all Americans, whether coverage is obtained through the marketplace, an employer, or directly from a health insurer. “This is a universal problem across both public and private health insurance,” said Cox.
Harris Financial Group, for example, provides financial planning advice to Verizon employees and retirees that helps them understand and optimize the money and benefits they receive from the company. Cox says Verizon’s highly subsidized, once-stable union health care plan is also set for a steep premium increase in 2026.
“Health care costs have increased to the point where even my union people have seen their health care premiums double starting this year,” said Cox. “Some people’s premiums are going to go up from like $600 to $1,800. It’s almost like a second mortgage.”
The potential financial fallout from skyrocketing health care premiums is real for early retirees, says Cox. “It evaporates their discretionary spending budget,” he adds. “Their discretionary budget is now health insurance. They’re not taking trips or doing as many things retirees normally do. And many of them are trying to re-enter the workforce just to get health insurance.”
Cox says one of his clients, an ex-Fortune 500 executive with plenty of money who was considering early retirement, opted instead to stay on the job to keep his affordable health insurance coverage.
One short-term fix is to dip into your emergency fund to pay the higher premiums. But tapping a rainy-day savings account over the long haul to make health insurance payments isn’t ideal, says Williams. “An emergency fund is traditionally used to cover something like a car repair or some other emergency, not an ongoing expense like health care premiums,” said Williams.
How early retirees can plan for rising health care costs
Build extra costs into your financial plan. If you can, make adjustments to your saving, spending, and investing to help you cover the higher health care costs. In short, if you want to retire early, build higher expected costs into your budget now. “Covering these higher medical expenses might require cutting other expenses in your budget, or lead some people to find part-time work to earn additional income,” said Williams.
Withdraw from savings. Tapping savings, whether from a high-interest-bearing savings account, a brokerage account, or a retirement plan like a 401(k) or IRA, can help make up the difference between last year’s premiums and future, higher premiums.
Digging into your retirement savings, however, is not ideal, as it will shrink your nest egg and reduce the growth potential of your retirement account, says Cox. “It’s a more painful option,” said Cox. Taking distributions from your retirement account, however, could make sense if you’re close to age 65 when Medicare kicks in, adds Cox. “It’s not a great strategy if you’re in your 50s,” Cox added.
Wait it out until Medicare kicks in. If you’re 63 or 64 and just a year or two away from Medicare, you might simply bite the bullet and crimp and save or tap savings to pay the higher premium until more affordable Medicare coverage kicks in at age 65. One of Cox’s clients, a husband and spouse on Verizon’s union health care plan, for example, both turn 65 this year. The couple’s combined insurance premium will drop from $2,700 to $700 when they switch over to Medicare.
Shop around for a better deal. If you’re seeking lower premiums, shop around. Just like shopping for a new car or big-ticket items like home appliances, conduct research to find a health care policy that offers similar coverage to 2025 at a lower sticker price.
Consider jettisoning adult children from your plan. You might be able to net savings if you take your adult children under age 26 off your family health care plan and put them on their own plan, says Cox. “People of this age tend to pay less in premiums because they’re generally healthier,” said Cox. This money-saving strategy can work if the employer’s “family” premium is priced much higher than “employee + spouse” coverage and the adult child moves to a cheaper individual policy.
The bottom line: if your health care costs are going up sharply, you must find a way to “bridge the gaps.” You must fund both the gap between your old premium and your new, higher premium, as well as the years before you are eligible for Medicare coverage, says Williams.
Said Williams: “Have you planned for that gap? What are your assets to bridge the gap? What strategies will you employ?”
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