Financial planners are raising awareness about the impending return of the Affordable Care Act (ACA) subsidy cliff set to take effect in 2026. This situation could lead to significant increases in health insurance premiums for eligible households unless corrective measures are taken. The subsidy cliff pertains to the income threshold that determines eligibility for premium tax credits, which help around 22 million Americans make their monthly insurance payments more affordable when purchasing through the ACA marketplace.
Historically, the subsidy eligibility cutoff was established at 400% of the federal poverty line. Individuals whose incomes exceeded this threshold, even by a dollar, lost access to the valuable tax credits, resulting in full, unsubsidized premium payments. Following legislative changes during the Biden administration, these subsidies became more generous, effectively eliminating the cliff. However, without additional congressional action, the cliff will return in January, creating a substantial financial strain for those impacted.
Tommy Lucas, a certified financial planner at Moisand Fitzgerald Tamayo, warns that approximately 1.5 million ACA enrollees, who earn just over the poverty line threshold, could face a dramatic increase in bankruptcy. Lucas describes this phenomenon as a “phantom tax” that can have an enormous financial impact on households situated near the threshold.
The specifics of the subsidy cliff vary by household size; for instance, individuals with an income surpassing $62,600 will lose subsidies in 2026, while a family of four will see the cutoff at $128,600. A recent analysis indicates that older adults, who tend to have higher premiums, will likely be hardest hit. For example, a 60-year-old making $64,000 could end up paying nearly $15,000 annually in premiums without subsidies, as opposed to the approximately $6,200 owed by someone earning $62,000 and still qualifying for credits.
While the political landscape suggests that the return of the subsidy cliff is likely, advocates remain hopeful. Senate Minority Leader Chuck Schumer has indicated the possibility of discussions around health care legislation that might address the stopping of the cliff’s reintroduction. However, financial experts recommend proactive measures to prevent falling over the cliff.
Households at risk should focus on managing their income for 2026, as financial advisors suggest several strategies to reduce yearly earnings to qualify for subsidies. Among the options are Roth IRA conversions and withdrawals, contributions to tax-advantaged accounts like IRAs or Health Savings Accounts (HSAs), and potentially selling investments at a loss. These options could allow those near the subsidy threshold to maintain their tax credits, ultimately leading to significant savings.
Overall, while the return of the ACA subsidy cliff poses a challenge, there are various pathways available to households to mitigate financial impacts. As individuals and families navigate these changes, a proactive approach can make a difference in sustaining access to affordable health care coverage.