The Ultimate Guide to Healthcare Costs for FIRE

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1:36You know how the change in seasons hits and suddenly you just want to declutter the garage, clean out the closets, and get everything all organized? That same feeling hits me with my finances every spring. I used to have accounts scattered everywhere, making it hard to stay on track with my money goals. Let Monarch do your financial spring cleaning for you. One dashboard that gets your entire financial life organized. No more clutter, no more mess, no more scattered logins, just accounts, investments, property, and more all in one place. One thing that really surprised me was pulling up the cash flow view and seeing what percentage of my income was quietly going to lifestyle creep.

2:08Dining out and subscriptions I barely notice. It motivated me to make some quick adjustments. Get your first year of Monarch for half off, just 50 bucks, with the promo code POCKETS. Use the code POCKETS at Monarch.com to get your first year half off at just$50. That's 50 % off your first year at Monarch.com with the code P-O-C-K-E-T-S. Healthcare is one of the biggest and most misunderstood expenses when preparing for early retirement or self-implant. And in this episode, I'm going to share a lot of detailed research I've done personally on this subject to help break down everything you need to know about healthcare in 2026 if you don't have a regular job and are not on Medicaid, for example.

2:48That includes Affordable Care Act plans, also known as Obamacare, subsidies or premium tax credits, Medicare, cost projections, and the strategies you can use to build a healthcare plan that supports your long-term financial goals. By the end of today's episode, you're going to know how to estimate your healthcare costs in 2026 under current law immediately, and how to think about healthcare costs over the course of the duration of your early retirement or self-employment up through the point when you qualify for Medicare at age 65. All right, Scott, let's jump into this episode.

3:27Hello, hello, hello, and welcome to the BiggerPocketsMoney podcast. My name is Mindy Jensen, and with me, as always, is my pre-existing co-host, Scott Trench. Thanks, Mindy. That's a great, healthy intro to today's topic. I'm really excited to talk about this. I've spent a lot of time researching this. I have produced four artifacts that we'll link to in the show notes here. One is a discussion about how to think about healthcare costs in 2026 and get an estimate. The second is a discussion about how to project healthcare costs into the future over the next several decades. For example, if you're retiring early or you're self-employed and plan to get something other than employer health insurance for several decades.

4:04The third artifact is a healthcare cost projection tool, which I'm really proud of. This is a calculator that basically gives you an estimate for what your premiums would cost in year 2026 and also maps out under current law what those premiums would look like over the next few decades through to Medicare eligibility. And then the fourth app is a related income tax projection tool because that's really important when we talk about healthcare costs because you need to qualify, you need to keep your income low enough to qualify for premium tax credits in order to defray these costs. So those are the four tools.

4:34We'll get into this in a lot of detail over the course of the day. And the goal I have for today is two parts. One is to answer the basic question about how healthcare costs work today for people who don't have regular jobs and are not, you know, very low income on Medicaid. So you can get a feel and get comfortable with estimating those costs. You should be able to do that in minutes or seconds by the end of this show. And then the second part of this is going to be to address the nagging discomfort that many people in the early retirement or self-employed world have about what healthcare costs are going to look like over the next 20 to 30 years.

5:05There's a lot of genuine unknowns, but framing them, I think, is very helpful to folks who want to plan on this. Sound good? Scott, that sounds great. I'm excited to see all of these things when you share them on your screen. And I would like to remind our audience that this might be a really great episode to watch over on our YouTube channel, which is YouTube dot com slash bigger pockets money. Awesome. So let's get into the mechanics and give some answers right away here. Right. So if if you're thinking about how do I get health care coverage mechanically, it's very easy. There's not this is not a challenge.

5:35This is not something to build up in your head. You go to health care dot gov and you shop plans. That's it. If you have a state that has a specific exchange, you'll find that out very quickly via Google search. And, you know, for healthconnect.vermont.gov, for example, is the one, the state-specific one for Vermont. But you go there, you shop a plan, you get one. That's it. You have insurance. Scott, isn't it more complicated than that? No and yes. So it's literally that easy if you're just going to shop it. You might be pleasantly surprised and get a good answer. But yes, in the sense that this is a really big expense and we need to really have a good framework for how to handle it and think about what decisions we make and how they interplay with health care costs here.

6:13So let's start with the Affordable Care Act, otherwise known as Obamacare. Okay, this is the governing law that drives a lot of the health insurance industry right now. There's a whole bunch of complexity behind it, but the basic premise is health insurance companies cannot discriminate against the insured based on preexisting conditions, right? So if you have a chronic illness, you cannot be denied coverage. They can discriminate or charge different pricing based on your age, however. They can also do it based on whether you're a tobacco user, and those are the two major considerations. age and tobacco use, and most other conditions are disqualified with some nuance.

6:47But for today's discussion, those are the most important things. So what that means in practice is that as you age in most states, your premiums can rise up to three times the level of a young person's, right? So if I'm age 25 in Colorado, I'm going to pay one third the amount of somebody age 64 the year before they go off Medicare, what they're going to pay for insurance premiums, okay? So that's the big, big headline to take away here is that these premiums are going to rise over the course of your early retirement or through, you know, as you age as a self-employed individual. Is that in every state, Scott?

7:21It is not in every state. I think there are two states that are exceptions to that. I think it's New York and Vermont. And I will specifically call out Vermont as a specific example in this, because then it's very interesting in terms of how, I think it's very illustrative for how the system works and will help you understand what's going on here. I also make an assumption here, So there's a difference in how we're going to approach health care costs, I think, if you have chronic illness or pre-existing conditions or poor health or otherwise know that you're going to need to use up your deductible, your out-of-pocket maximum in many years.

7:50But if you're an able-bodied, healthy, early retiree or self-employed individual, I presume that you're going to want to get the lowest cost, the lowest premium insurance plan, the bronze plan. And you're going to have to, as part of that, take the highest deductible or highest out-of-pocket max. That makes perfect sense. It's what I do when I shop for insurance. Many of those plans are HSA compatible, which is a very important thing for a lot of people in the FIRE or self-employed community because the triple tax advantaged nature of the health savings account plan. And so that's what we assume for a lot of this.

8:22Now let's get into a couple of nuances here. One of the things that I think is going to surprise people is when they shop insurance, you're going to have one of two reactions. You're going to be absolutely appalled at how expensive it is, or you're going to be pleasantly surprised at how cheap it is. And that's going to depend on where you're located. One of the main artifacts from today is going to be at biggerpocketsmoney.com slash healthcare costs. One word. It's also, you can find it in the nav bar if you're using your desktop. So it's right there. And this is a tool I've built. It's an estimator tool.

8:52It's meant to be educational and informative. It's not a prescriptive exact estimate. Your exact estimate will be on the exchange, which you can get anytime at healthcare.gov. That's where you get an estimator. That's where you get a real quote for how much it's going to cost. This is an estimate. I spent a lot of time trying to build a database and trying to help make it useful, but it's not going to be perfect. But I think it will be useful and help you get an idea for how to think about these costs right away. So I'm going to play with my two favorite state examples here. I'm going to start with New Hampshire.

9:19New Hampshire is in the Northeast, reasonable income environment. And for my family of four, two 35-year-olds and two kids, my health insurance premiums for an Affordable Care Act compatible bronze health insurance plan are going to be around$12 ,000,$11 ,733, the calculator spits out for this example. I'm also going to have some out-of-pocket expenses each year that I'm going to estimate as part of that, maybe about$4 ,000. You can play with that or change that assumption if you don't like it. If you're watching this video, you may be like, what? That's really cheap. My employer pays a lot more than that for my health care plan.

9:51And yes, that's a known surprising thing in many states, maybe a little more than half the states, you go through this and you're like, wow, healthcare costs really aren't this big blocker to my early retirement or self-employment desires. And my employer doesn't have that much sway over me because of their health insurance. I can actually get a pretty good plan, no problem on the exchange. So does that surprise you, Mindy, how cheap it is in a place like New Hampshire? When you said$12 ,000, I was like, really? That's super cheap. That is not what I pay. But Scott, let's point out you're 35. I'm 53.

10:22My healthcare costs are going to be a lot more expensive. Plus, I have a 16-year-old daughter and a 19-year-old daughter. So they are in a more expensive category as well because they are of childbirth age. Knock on wood that they're not going to have kids for anytime soon. You're 53 and Carl's what, 51? Carl's 52. And then we got two kids, 16 and what was the other age? 19. So recalculating that, you're going to pay 16 grand in a place like New Hampshire, right? Still not something that you're like, yes, that's a big number. It's not pleasant. It's a reality in health care in the United States.

10:56But you're probably also not like, whoa, that blows up my entire life plan here for that number. Is that a fair reaction? Correct. But yes,$16 ,000 is more what I thought it would be because that's more what I was paying before I got health care. Now, let's play around with this. Let's move across the state border to Vermont. OK, I'm going to put this back for my family. Remember, I was paying$12 ,000 a year for my family in premiums if I'm in New Hampshire. Let's go to Vermont. Now the premium is$35 ,000. Whoa! That's a huge difference, right? And why is that? It's because every state has different dynamics with the way that they price insurance.

11:32There's competitive dynamics for the insurance companies that are allowed on the exchange and how they compete. There's the costs of local care that vary from state to state. And most importantly, in Vermont's specific example is they override the ACA law that allows insurers to charge more expensive health care for older Americans versus younger ones. And so everyone pays the same amount. Right. And that results in one of the largest overall health care cost pools in the country. I think it may be the largest. I'm not 100 percent sure, but it's certainly up there. Now, all of a sudden, I'm staring down for my family a$35 ,000 unsubsidized insurance premium before I get to any out-of-pocket expenses and actually use the plan.

12:11So that number is crazy. It's absolutely insane. And by the way, that's the bronze plan. The benchmark, the one that a lot of the math is tied to, is the silver plan. And that's going to be$51 ,000 a year for a family of four. Okay, that kind of money is going to derail your five plans, especially if you're thinking that you're going to be paying a much lower amount. Maybe your employer provides you health care living in Vermont at, you know,$300 a month. And you're thinking that it's not going to be that much more when you go out of pocket. Holy cats. $60 ,000 a year? $50 ,000 a year just on insurance premiums.

12:50And before we get to using the health care, right? So that's before any deductibles, out-of-pocket maxes. This is the highest deductible, highest out-of-pocket max plan. So your health care costs could be much more than this amount every year. That's just the premiums for the silver plan. Okay, Scott, at$50 ,000 a year, you're going to need an additional$1.25 million in retirement money to be able to pay that. That's making Vermont look like not the state I want to retire to. But here's the thing. So yes, that's the headline number. That's why people get so scared about all this stuff. Now, let me get into some real wacky, crazy stuff here about how this works.

13:31This is wild what you're about to see here. Remember, that was all without subsidies. Now, if I'm going to plan on premium tax credits, which exist in 2026, and I should be planning on, if my intent is to use an Affordable Care Act plan, I should be aware of this number. When I turn on premiums and make sure that my MAGI is below that cliff, my Mattified adjusted gross income is below that cliff. Then my$50 ,000 premium is offset by$38 ,000 in premium tax credits, right? So those tax credits are a direct offset the taxes I pay or are returned to me with a tax refund at the end of the year. So it's cash that I'll get from the government to cover that.

14:06And that will go up to the full amount of the premium here, but no more. Now watch this. This is where it gets crazy, Mindy. Remember we were using a bronze plan previously? Because those credits are pegged as a percentage of your income against the silver plan, In Vermont, I will get the entire premium for a bronze plan refunded to me. So my health insurance is totally free for a bronze plan in Vermont in this scenario. We went from thinking Vermont is an impossible place to retire to. Healthcare costs are crazy to I actually have totally free insurance in Vermont. And I'm only responsible for the out-of-pocket numbers here.

14:36Is that crazy or what? That is crazy. And state of Vermont, I'm sorry for saying that you weren't a great place to retire to. Arguably, watch this now. Okay, so this is going to make you mad or it makes me a little frustrated here. I'm going to go to New Hampshire now. Remember, we're same situation. We're back in New Hampshire. My total premiums for my family in New Hampshire are 12 grand,$11 ,700, rounding up to$12 ,000. However, because the silver plan is so cheap, and I'm benchmarked to that, I have a certain amount of income that's helping me project my MAGI here in the premium tax credit.

15:06When I switch to the bronze plan, I only get a$2 ,000 premium tax credit to offset that. So in New Hampshire, my premiums are 12 grand, but I only get a$2 ,000 credit. I'm all in for 10 grand. In Vermont, my premiums are 35 grand, but I get the entire premium covered under this law by taxpayers. So I have zero insurance premium. So we just flipped it, right? Like this, this is why it's so crazy, right? I was like, hey, how do you work this mechanically? You go in the exchange and get a quote. Well, as you can see, there's a lot more detail here because of the way these dynamics intersect. It's absolutely bonkers that I'll go to New Hampshire and my plan is literally $20 ,000,$20 ,000 plus cheaper, but I actually have to pay$10 ,000 out of pocket in early retirement because of the way the premium tax credits work versus when I go to Vermont, I pay three times as much for the insurance, but the taxpayer refunds me entirely.

16:01So this dynamic is really important. It plays out in every state to varying degrees when you net out these items here. As long as you stay below that modified adjusted gross income cliff. And by the way, you can't go too low because if you go below the poverty line, below 100 % of the poverty line, then you go on Medicaid and you have a whole bunch of other issues. So how am I doing so far? Helpful? This is really helpful, Scott. When you first said that this is for entertainment purposes only, and the real numbers will be on the healthcare exchange, I thought, well, why would somebody go and play with this healthcare costs projection calculator that you shared.

16:37But this is why, because you can change the state so easily. And some states, but not all states, have their own ACA plan, so you have to go to their different websites. You could be hopping around a bunch of different websites. This one allows you to take the different states, choose between silver and bronze, play with all the different variables that you can have. This looks like a great way to spend a lot of time I'm really, really researching what your potential health care costs are. And then maybe you've decided I live in Vermont. I'm not choosing to take the health care subsidies. Therefore, Vermont is very expensive for health care.

17:12I'm going to look at other states. Oh, New Hampshire is right next door. That's actually more consistent with what I thought I would be paying anyway. I could just hop state lines or, hey, I'm going to go down to Arizona. I don't even know if Arizona is a good state for health care. Let's see. I don't know. But let's see Arizona. Right. So same deal. I'm moving to Arizona. Arizona is in between. Right. Seventeen thousand dollars in total premiums with a nine thousand dollar estimated premium tax credit in this scenario. So in between I'm paying about I'm actually paying less than New Hampshire again.

17:43So which has got to be so frustrating to the good folk of New Hampshire, the way that their state is one of the cheapest for insurance, but actually costs them the most. So but yes, Arizona is in between. If you're thinking about early retirement, if you're thinking about moving in early retirement, this is a great tool to just change some of the variables and see what you get. That's kind of the first part of this, right? I think we've covered this at the highest level. We should probably spend a minute on MAGI, Modified Adjusted Gross Income. Modified Adjusted Gross Income is adjusted gross income, which is your total income minus certain adjustments.

18:19It's earning income plus investment income. So capital gains and qualified dividends and stuff do count, retirement and government benefits, and most other types of income count towards adjusted gross income. And then from there, you subtract things like retirement contributions, HSA, health savings account contributions, self-employment taxes, and those types of things. And you also can subtract health insurance premium costs from your modified adjusted gross income, but only if you are self-employed and only from your self-employment income. So you cannot do that if you're an early retiree and do not have any type of self-employment income, for example.

18:54So you want to be careful about that. There are real nuances in here that, you know, if you're close to this stuff, if you think you're going to be anywhere in the ballpark, really worth talking to a professional, I think, you know, in this particular domain. So MAGI takes that adjusted gross income and then modifies it further in ways that, you know, sound complicated, but probably don't apply to most people. Specifically, those modifiers are going to be municipal bonds. So if you have untaxed municipal bond interest, that will be added back to AGI and could disqualify you from getting these credits if it takes you over this cliff.

19:25Untaxed foreign income. And then the non-taxable portion of Social Security, which is unlikely to apply in most cases because most people are not going to be taking Social Security, but may apply if, for example, your spouse is taking Social Security and you are much younger, for example, or a little bit younger. You got to be careful about this in here. And again, if you're close, you've really got to pay attention to this. I have also, to help with this, built another tool at biggerpocketsmoney.com slash tax projection, which is intended to help build up the complicated tax positions that many BiggerPocketsMoney listeners have and attempt to produce an estimate.

19:59This is not a perfect thing. This is for entertainment and educational purposes only. But I think it is useful understanding how taxes are computed in many places. And it also includes each state as well, depending on where you're at and builds through the progressive tax brackets depending on where you're at that's the federal so colorado for example has a flat tax but california we will build out a full progressive tax table so we'll actually do another video on a deep dive on how to use this tool later for bigger pockets money but back to health care here modified adjusted gross income is a huge part maybe the primary concern or primary planning constraint for early retirees and maybe many in the self-employment world if you have control over your income and when to realize it because of this dynamic.

20:43And it's almost a non-factor. It doesn't even matter to a large degree in the situation I described with$125 ,000 income in New Hampshire for this year. And it literally is a$35 ,000 difference, flip of the switch, if you go over that cliff in Vermont. So it's pretty insane how healthcare costs work, isn't it? It has always been untenable how healthcare costs work. And I think they're just getting worse. And And I can't wait for them to change, but I've been waiting for a long time. Okay. In practice, what do we do for 2026? Well, if we're an early retiree or self-employed, then the most important planning constraint is, again, not moving over the modified, adjusted gross income limit for our household.

21:24And remember that number, that$132 ,000 or$128 ,600 cliff, which I would take the more conservative of the two because that number is cited differently in various sources for this year. But you want to stay below that. That's for a household of four. When you move down from a household of four to a household of three, that number changes. It changes again when you move to a household of two or one. So you got to be careful about that number and make sure you stay under that number for your household size. Remember that some income, like qualified dividends, simple interest from your emergency fund, rental income, and some other stuff may just happen to you in a given calendar year as a result of keeping your existing portfolio in place.

21:59You need to make sure you're projecting those. And then on top of those, if you're going to have other income that is your choice, like selling positions with capital gains in them, rebalancing your portfolio, doing Roth conversions, doing any early withdrawals from an IRA like a 72T, you really want to make sure that those decisions are not putting you over these limits in the calendar year and knowingly moving you past these cliffs. And then remember that many bronze affordable care plans are health savings account compatible and the HSA contribution reduces your modified adjusted gross income.

22:32So that's an easy and obvious win in years where you're going to be somewhat close to this MAGI cliff to just max out your HSA. And that will bring it down by a few thousand bucks there. Again, you can use the tax projection tool to get a very preliminary high level estimate that is not an official one that, you know, you should definitely check with somebody else. But hopefully that will be at least helpful or useful to you in this journey. Sound good? That sounds great, Scott. What's next? OK, so to recap everything for 2026, we talked about MAGI. Mechanically, getting insurance is straightforward.

23:00Go to healthcare.gov and shop your policies or healthconnect.vermont.gov or whatever your state one is if you have a specific state exchange. Location is the single biggest variable in healthcare costs. And the sticker price on the premiums for your state may be very different from the net cost you pay after premium tax credits. And that changes with your household size and your income, especially if you go over that cliff. And that means, again, staying under the Magi cliff becomes a single most important planning constraint in 2026 in many jurisdictions for many early retirees or self-employed folks.