Millions of Americans who buy health insurance through the Affordable Care Act marketplace will face staggering premium increases in 2026 if expanded subsidies expire on Dec. 31. Although Congress discussed extending subsidies during the recent government shutdown, negotiations stalled, leaving millions of people in limbo.
The return of the so-called “subsidy cliff” means that anyone with income above 400% of the federal poverty level — $62,600 for individuals or $128,600 for a family of four — will lose all federal aid and will pay full premiums, regardless of cost.
ACA subsidies help lower insurance costs for 22 million of the 24 million market participants. Approximately 1.8 million applicants have incomes between 300% and 400% of the federal poverty threshold, and another 725,000 have incomes between 400% and 500%.
Current members receiving subsidies will see their average monthly premium payments. more than doubled, an increase of approximately 114% if the tax breaks expire, according to estimates from KFF, a nonpartisan health policy research firm. ACA premiums for seniors ages 50 to 64 can be as high as three times higher than for young people.
The ACA looks at participants' modified adjusted gross income (MAGI) and unadjusted gross income (AGI), a key distinction that many participants don't understand, he said. Tim McGrathis a certified financial planner and managing partner of Riverpoint Wealth Management in Chicago.
MAGI adds certain deductions to your AGI, such as tax-exempt interest and the foreign income exclusion, potentially pushing recipients toward the 400% threshold or even above it. Here example from KFF: A 60-year-old earning $64,000 a year would pay approximately $14,931 in premiums without subsidies, while a person earning $62,000 would pay just $6,175 in federal assistance. That's a $2,000 difference in income and an $8,756 difference in insurance costs.
“If you're over $1, you're over $1 and you're out of the pot,” McGrath said. “For people who are on a budget, this is very important and they try to make things work month after month.”
Landmine in politics and health
Without action from Congress, returning to the subsidy cliff will further complicate the financial picture for millions of Americans already struggling with rising health care and everyday living costs.
“Removing subsidies and making insurance unaffordable for people is a political issue, and from a political perspective, raising the cost of health insurance undermines the market and raises premiums for everyone,” said Dylan H. Roby, chairman and professor at the Joe C. Wen School of Population and Public Health at the University of California, Irvine. For example, premium prices in California are about 20% higher than they would be because insurers assumed fewer people would buy insurance if the premium tax break were eliminated, Roby noted.
“Those who remain in the market are more likely to have health care needs than those who leave, driving up premiums across the risk pool,” he said. “The expiration of the ACA tax credits benefits the federal budget (we will spend less on tax credits in 2026 than in 2025).”
“However, the federal budget is insulated from state budgets, hospital finances and personal budgets, where additional costs will be incurred to obtain insurance or due to the use of health care services when someone is underinsured or uninsured.”
How ACA Enrollees Can Avoid a Subsidy Cutoff in 2026
To avoid exceeding the ACA subsidy threshold, McGrath and other experts recommend the following strategies.
1. Make the most of your annual 401(k), HSA, IRA or other tax-advantaged account.
Maximizing contributions to a pre-tax account such as an employer-provided 401(k) or 403(b), IRA, or health savings account (HSA) can also help lower your income if you're close to the cliff. And if you're older, you can make additional contributions to lower your income even further, McGrath said.
For workplace retirement accounts such as 401(k), the annual contribution limit for 2026 is $24,500.and employees age 50 and older can contribute up to $8,000 more. Workers aged 60 to 63 can now make an additional “catch-up” contribution of $11,250 for a total of $35,750.
For 2026, the maximum annual IRA contribution limit is US$7500and those age 50 and older are allowed an additional $1,100 in additional contributions. Annual HSA Contribution Limit for high-deductible health plans, $4,400 for self-only and $8,750 for whole family coverage. If you are 55 or older and do not have Medicare, you can pay an additional $1,000 supplemental contribution.
2. Be strategic about taxable distributions.
Avoiding or minimizing taxable distributions from retirement accounts or deferring earnings (such as bonuses) is another step to consider, especially if those distributions would push your adjusted gross income over the edge, McGrath said. But don't try to figure it out alone, but consult an accountant or financial advisor, he added.
3. Work fewer hours
The subsidy cliff presents another difficult choice for those who need managed health insurance: cutting back on work hours. This applies to hourly workers or those who are self-employed with flexible income and can adjust their work schedule to reduce their income enough to qualify for the subsidy.
Working (and earning) less may make more sense for those who already have costly health problems to avoid skyrocketing insurance premiums.
4. Increase in charitable donations
If you are 70 and a half years old or older, do qualified charitable payments Directly from an IRA to a qualified charity is one way to reduce your modified adjusted gross income if you're on the ropes, McGrath says.
“They take it and it's tax-free. It's a win-win,” McGrath said. “But usually, if someone does this, they need to have enough wealth so that they can give up that wealth.”
He added that 2025 could be a particularly important year for charities to consolidate, as tax law changes in 2026 through the One Big Beautiful Bill will require 0.5% of income as a non-deductible minimum before claiming an itemized deduction for charitable donations, according to the Tax Foundation. In other words, you might be better off making charitable contributions for both 2025 and 2026 before the end of this year, McGrath said.
