Scott: Healthcare is one of the biggest and most misunderstood expenses when preparing for early retirement or self-employment. 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. That 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.
Mindy: All right, Scott, let’s jump into this episode.
Mindy: Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen and with me as always is my pre-existing co-host, Scott Trench.
Scott: 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 special 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. The third artifact is a healthcare cost projection tool, which I’m really proud of. Um, this is a calculator that basically gives you an estimate for what your premiums would cost in here in 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. We’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 that you can get a feel and get comfortable with estimating those costs. You should be able to do that in minutes, 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. There’s a lot of genuine unknowns, but framing them, I think, is very helpful for folks who want to plan on this. Sound good?
Mindy: 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.com/biggerpocketsmoney.
Scott: 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 healthcare coverage, mechanically it’s very easy. There’s not, this is not a challenge, this is not something to build up in your head. You go to healthcare.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, uh, via a 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: Scott, isn’t it more complicated than that?
Mindy: 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 what the decisions we make and how they interplay with healthcare costs here. So, let’s start with the Affordable Care Act, otherwise known as Obamacare. Okay, this is the governing law that 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 pre-existing conditions, right? So if you have a chronic illness, you cannot be denied coverage. They can discriminate or change 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. Um, and most other conditions are are disqualified with some nuance. But 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 on to 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.
Mindy: Is that in every state, Scott?
Scott: It is not in every state. There are, I think there are two states that are exceptions to that. I think it’s New York and Vermont. and I’ll specifically call out Vermont as a specific example, um, in this, because then it’s very interesting in terms of how it, I think it’s very illustrative for how the system works, and it’ll help you understand what’s going on here. I also make an assumption here, right? So there’s a different how we’re going to approach healthcare 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 to you know, use up your deductible or your out of pocket maximum in many years. But 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 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 of the triple tax advantaged nature of the health savings account plan. And so that that’s what we assume for for a lot of this. Now let’s get into a couple of nuances here. One of the the things that I think is going to surprise people is when they shop insurance, you’re going to have one of 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/healthcarecosts, one word. It’s also so you can find it in the nav bar if you’re using your desktop. So it’s right there, and this is a, this is a tool I’ve built. It’s an estimator tool. It’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 um at healthcare.gov. That’s where you get an estimator, that’s where you get a real quote for how much this is going to cost. This is an estimate. This is that we’ve built, I spent a lot of time trying to build the 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 how to think about these costs um right away. So I’m going to I’m going to play with my two favorite state examples here. I’m going to start with New Hampshire. New 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 grand, 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 four grand. 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. And yes, that’s a known, surprising thing. In many states, maybe maybe a little more than half the states, you go through this and you’re like, wow, health care 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 does that surprise you, Mindy, how cheap it is in a place like New Hampshire?
Mindy: 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. My health care 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 childbearing age, knock on wood that they’re not going to have kids for anytime soon.
Scott: You’re 53 and Carl’s what, 51?
Mindy: Carl’s 52.
Scott: And then we got two kids, 16 and what was the other age?
Mindy: 19.
Scott: So recalculating that, you’re going to pay 16 grand in a place like New Hampshire, right? Still not something that you’re like, you know, yes, this is that’s a big number. It’s it’s not pleasant. It’s a reality of health care in the United States, but you’re probably also not like, whoa, that blows up my entire life plan here with that number. Is that is that a fair reaction?
Mindy: Correct. But yeah, 16,000 is more what I thought it would be because that’s more what I was paying before I got health care.
Scott: Now, let’s play around with this. Let’s move across the state boarder to Vermont. Okay? I’m gonna put this back for my family. Remember, I was paying 12 grand a year for my family in premiums if I’m in New Hampshire. Let’s go to Vermont. Now the premium is 35 grand.
Mindy: Whoa.
Scott: 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. There’s competitive dynamics for the insurance um companies that are allowed on the exchange and how they 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 healthcare for older Americans versus younger ones. And so everyone pays the same amount, right? And so that results in one of the largest overall healthcare cost pools in the country. I think it may be the largest. I’m not 100% sure, but it’s 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. So that number is crazy. It’s it’s absolutely insane. And by the way, that’s the bronze plan. The benchmark, the one that the that a lot of the the the math is tied to is the silver plan, and that’s going to be $51,000 a year for a family of four.
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Mindy: Okay, that kind of money is going to derail your fire plans, especially if you’re thinking that you’re going to be paying a much lower amount. Maybe your employer provides you healthcare 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.
Scott: $50,000 a year just on insurance premiums and before we get to using the healthcare, right? So that’s before any deductibles, out-of-pocket maximums. This is the highest deductible, highest out-of-pocket max plan. So your your healthcare costs could be much more than this amount every year. That’s just, just the premiums for the silver plan.
Mindy: 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.
Scott: 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, uh, about how this works. This is this 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 intention 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 modified 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 to 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. And 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, health care costs are crazy, to I actually have totally free insurance in Vermont, and I’m only responsible the out-of-pocket numbers here. Is that crazy or what?
Mindy: That is crazy and state of Vermont, I’m sorry for saying that you weren’t a great place to retire to.
Scott: Arguably, what I show you this what watch this now. Okay, so this is gonna make you mad or makes me a little frustrated here. I’m going to go to New Hampshire now. Remember, same situation. We’re back we’re back in New Hampshire. My total premiums for my family in New Hampshire are 12 grand, $11,700 bucks, right? Rounding up to $12,000. However, because the silver plan is so cheap, right? And I’m benchmarked to that, I have a certain amount of income that’s helping me project my MAGI here and the the premium tax credit. When 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, so I’m all in for 10 grand. In Vermont, my premiums are 35 grand, but I get an 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 on 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 plus thousand dollars cheaper. But I actually have to pay $10,000 out of pocket in earlier retirement because of the way the premium credit tax credits work versus when I go to Vermont, I pay three times as much for the insurance, but the taxpayer refunds me entirely. So 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?
Mindy: This is really helpful, Scott. When you first said that this is for entertainment purposes only and the a real numbers will be on the health care exchange, I thought, well, why would somebody go and play with this health care costs projection calculator that you shared, but this is why, because you can change the states so easily and some states, but not all states, have their own ACA plans, so you have to go to their different website. 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 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. I’m going to look at other states. Oh, New Hampshire’s 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 I don’t even know if Arizona is a good state for healthcare.
Scott: Let’s see. I don’t know but uh, let’s see Arizona. Right, so same deal, I’m moving to Arizona. Arizona’s in between, right? $17,000 in total premiums with a $9,000 estimated premium tax credit in this scenario. So in between, I’m paying about, I’m actually paying less than New Hampshire again, so which is got to be so, you know, frustrated to the good folk of of of New Hampshire that the way that their state is one of the cheapest for insurance, but it actually costs them the most. So, but yes, Arizona is in between.
Mindy: 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.
Scott: That’s kind of the first part of this, right? Is is I I think we’ve kind of 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. It’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 uh count towards your 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. So you want to be careful about that. There are real nuances in here that, you know, if if you’re close to this stuff, if you’re thinking you’re going to be anywhere in the ballpark, really worth talking to a professional, I think, you know, in in 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. Untaxed foreign income and then the non-taxable portion of Social Security, which is unlikely to apply in most cases, um, 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 um in here. and again, if you’re close, you really got to pay pay attention to this. I have also, to help with this, built another tool at biggerpocketsmoney.com/taxprojection, which is intended to help build up the complicated tax positions that many Bigger Pockets money listeners have and attempt to produce an estimate. This is not a perfect thing. It’s it’s for entertainment, educational purposes only, but I think it is useful in understanding how taxes are computed in many places and it also includes each state as well depending on where you’re at and bills through the progressive tax brackets depending on where you’re at. So the federal, so Colorado for example, has a flat tax, but California, we will build out a 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, and it’s almost a non-factor. It doesn’t really even matter to a large degree for, you know, 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 a switch if you go over that cliff in Vermont. So it’s pretty insane how health care costs work, isn’t it?
Mindy: It has always been untenable how healthcare costs work and I think they’re just getting worse and I can’t wait for them to change, but I’ve been waiting for a long time.
Scott: Okay, in practice, what does 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. And 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 to from from a household of four to a household of three, that number changes. It move changes again when you move to a household of two or one. So you gotta be careful about that number and make sure you go under that you stand on 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. So you 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 uh past these cliffs. And then remember that many bronze Affordable Care Act plans are health savings account compatible. And the HSA contribution reduces your modified adjusted gross income. 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 um 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’ll be at least helpful or useful to you in this journey. Sound good?
Mindy: That sounds great, Scott. What’s next?
Scott: Okay. So to recap everything for 2026, we talked about Magi. Mechanically, getting insurance is straightforward. Go 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 magic cliff becomes the single most important planning constraint in 2026 in many jurisdictions for many early retirees or self-employed folks. Okay, so if that’s 2026, the second component of this analysis we have to think about is how to approach health care cost modeling in the context of a financial independence journey and are going to move out of the world of fact here or what is what the current law is to conjecture. We have to project here, and this is where people are going to disagree in reasonable stance. I’ll present my opinion about how to do this and you can agree or disagree and modify it how you want. Sound good, Mindy?
Mindy: Yeah, that sounds great.
Scott: Okay, so let’s take my household and I’m going to move me back to Colorado where I actually live. My household of four with two age 35 adults, two children is going to pay about 14 grand in unsubsidized premiums for a bronze plan in calendar year 2026, plus I always think you have to estimate some out of pocket costs, right? You’re not going to go most years paying zero in health care costs. Something’s going to come out, uh, in the world of health care spending. I estimate four grand for my family across the course of the year. Remember, if I change my age, if we just, you know, insert Mindy’s numbers here, these numbers move because insurers can change the pricing based on age. That is not inflation, right? And so we have to think about when we’re projecting this, the 4% rule, and other retirement rules of thumb for our cash flow assume constant spending relative to inflation. But healthcare costs are going to rise, and it’s not because of inflation. It’s because of this structural feature of the insurance marketplace, and so we have to think about that here. So this gives us three problems when it comes to planning for early retirement or self-employment, long-term self-employment healthcare costs. The first is that healthcare costs are inherently variable. The amount of coverage that I’m going to need in each year is not going to be four grand. I’m not going to spend four grand in 2026. I’m probably going to spend much less than that and not need much healthcare. And then another year, I’m going to spend the entirety of my deductible and my out of pocket max, you know, because some some event happens. That’s why we have insurance. It’s to protect against those things. And so that’s that’s a challenge. The second is, again, that those premiums are going to rise because of the way that the healthcare system allows it to price based on age. And then the third is that healthcare inflation is real and going to rise very quickly over the next few years and is rising very quickly in 2026 for reasons I’ll explain. This gets controversial because people don’t like to, you know, hey, CPI includes everything, so you can’t, you know, assume a higher rate in health care or whatever. But I I’m telling you, I think you got to in this case for a number of reasons. I’ll make my case and you can agree or disagree. The model that I built here does allow you to assume that there is no health care cost rises in excess of inflation, if you choose to model it that way. But I choose to default it to a reasonable number here. So, do those seem like the challenges to you, Mindy, or do you have any other ones that you you’ve observed?
Mindy: Well, I want to go back to this comment really quickly. You’re being very conservative with your numbers, or very aggressive with your inflation. And if you’re wrong and it comes in less, then great, you have more money. But if you’re aiming for, oh, I don’t think it’s going to be more than what CPI is, and then it comes in higher, I mean we’re in a very inflationary time right now. So, plan for an aggressive inflation or plan really conservative numbers because if you’re wrong, it’s just it’s better to be wrong in the, oh, now it doesn’t cost me so much vain than wrong in the, oh, I thought I had enough money and now I don’t.
Scott: I agree with that philosophically and and many people disagree with it philosophically, right? You can go, you you can be conservative about everything. You can find find every conceivable risk in the world and add it in there and you’ll never retire early. I get that. But I I think this one is too important and too large a variable to to ignore under the and sweep it into the umbrella of uh of everything else going on here, especially if you’re going to really be close on your numbers over over that period and your plan has a very small margin of safety here. Remember, my household costs will rise drastically as I age. and that will happen gradually over time, it won’t happen overnight. But every year, my costs will go up a little bit. So by age 40, my cost if my cost today are 18 grand including my premiums and my out of pocket expenses, then my unsubsidized premiums plus out of pocket max will be 20 grand by the time I turn 40 in five years. At age 50, they’ll climb to $29,000, and age 60, they’ll climb to $36,000, even after both of my then adult children roll off my plan. I think this is really important, right? What what’s going to happen with these premium tax, what are these premium tax credits? This is this is where I get controversial and people get get pissed off, and that’s okay. Um, I I’m gonna say what how I feel and you can agree or disagree. But this this is not going to continue for decades, or it’s a or it’s a bad, silly plan. You’re just it’s a bad plan to assume that the taxpayer is going to fund your early retirement by subsidizing your healthcare costs for the next several decades. So my model decides to model the unsubsidized premium and says, you’re not going to get any of these premiums in in retirement, you’re going to pay the cost on the exchange today. That’s almost certainly too conservative, but not because premium tax credits are going to stick around, but it’s because this system’s going to blow up at some point in the next 10, 15, 20 years, I think, and and be reformed. Either we’re going to go to a single payer system that was Obamacare Affordable Care Act’s original intent, or there’s going to be some reform from the right wing that’s going to, you know, allow insurers to price based on lifestyle health or other factors or some combination of that, some technology improvement that’s going I I believe is going to disrupt this industry. But in the meantime, we can’t really plan on that, right? That that would be preposterous for me to model a political reform to the system. So I’m modeling based on what the current law says will happen today’s prices, right? You can you can move this to zero inflation, for example for for the time being here to get an idea of this. But without any inflation, I know my costs are going to rise because I’m going to get older, and my premiums going to go up, and I should probably also model in a little bit of rising out of pocket maximums because age is the number one correlate to health care spend, independent of everything else. So I know I’m going to need to spend more on health care as I get older, before inflation comes in as I approach age 65. And by the way, this is all before the retirement spending smile, right? The retirement spending smile research where you spend less as you age, applies, it’s a real thing, but it applies to traditional retirees, not to people age 40, you know, or 50 spending less. That’s not a likely thing. It’s not something I’m planning on. So, anyways, I think that you should plan on paying the full unsubsidized premium over the course of the next, you know, 30 years here. Makes sense?
Mindy: Yes, I agree with you, Scott, because someday, somebody is going to wake up and say, oh, there should be a net worth component to these subsidies, not just an income component.
Scott: That’s why we got here, right? I’m I’m I’m saying every year, this number’s going to go up um over the course of time. And you got to plan on this, right? This can blow you up um if you’re not planning on it, right? If I’m if I’m straight lining my health care spend at $18,000 per year today, when I’m age 55 and I’m spending 40 grand, $22,000 a year more adjusted for inflation, I’m going to have a problem on my hands. That can be a a real issue for my 4% rule withdraw. So this engine runs a present value calculation. It says if I’m going to spend 18 grand this year, I’m going to spend 20 grand at age 42 and you know, 32 at age 51 and 36 at age 59, well, those increments, those dollars above and beyond the $18,000 today, I can perform a present value computation for those and that number depending on on what assumptions you want to put in place and you can toggle them is $250,000 in my situation. So I need $250,000 more than the 4% rule calls for in order to declare financial independence if I don’t want to count on premium tax credits subsidizing my health care in my early retirement or self-employment.
Mindy: And that’s real numbers that people need to be considering when they are planning for their health care. I’m so glad you included that in here. We’re recording this in June of 2026. We’re halfway through the year. I remember that health care costs went up this year across the board. This was a big news story back in, you know, November, December, January when there were new plans coming on. The ACA market premiums rose an average of 20 to 26% in 2026.
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Scott: So remember, I what we just talked about was not inflation, right? It’s just your premiums go up because you get older, right? I don’t think it’s not health care is not inflating this year, if I change my age from 35 to 60 in the model, I’m going to get a different quote. That’s that’s just guaranteed rise in the cost of premiums under today’s law in my health insurance premiums, and a very likely chance that I’m going to spend more out of pocket, which again is not inflation, it’s just the fact of life of aging, you know, human biology here. Now, what you’re talking about is inflation and I think is a serious discussion here that we need to have because what you’re talking about is this observation where last year from 2025 to 2026, insurance premiums before subsidies increased 26% year over year. That’s a huge increase. That is health care inflation in the United States, 26% in one year. And I believe that number’s going to get worse before it gets better in the next few years. I do believe it will eventually get better because I’m an optimist here. I think there will be breakthroughs. But I think for the next few years, it’s very hard to come up with the answer about why that number will stop inflating at very high rates here, much less begin to deflate. Now again, there’s a a big law change, I think many people are familiar with as well where the enhanced premium tax credits that did not have the 400% federal poverty line cliff expired. They were put in place for COVID, um, to help more more people including higher earners qualify for premium tax credits here. Those expired and so the premiums that people actually pay net of those those tax credits more than doubled year over year from 2025 to 2026. So there’s the health care inflation and there’s what you pay and both are going up, but what you pay went up a lot more on average across in this country uh in the last year.
Mindy: Yeah, I think it’s foolish to ignore or assume that inflation is going to be very low in your health care costs.
Scott: One thing I want to note here about what happened, right? Because I think this is important understanding this. The Affordable Care Act basically said, everybody’s going to have insurance, single payer system here or or or or one marketplace. Everyone’s going to have an insurance, we’re all in this together. And if you don’t have insurance, you’re going to pay a penalty. Now, in 2017, the Tax Cuts and Jobs Act eliminated that penalty, right? That I think that law went into effect in 2019. And so you saw some people stop with their insurance on the exchange in that period, you saw a small decline here. Then COVID hit and they put in place these enhanced premium tax credits which subsidized heavily subsidized premiums for many many people across the country, all but the the you know, extraordinarily high income earners. You know, because they were they were subsidizing you if your premiums are more than eight and a half percent of your household income, and with no cap on income. Now you see up in the COVID aftermath, a huge surge in marketplace enrollment in part because of those premium tax credits. Well, they expired. And so KFF, which is a leading authority on this, projects that the number of people in the marketplace, Affordable Care Act marketplace, is going to fall 17% in a single year from 22 and a half million to 17 and a half million people that are going to be insured on these plans. Guess who’s leaving these plans, right? If if I’m no longer getting premium tax credits and I got to pay 35 grand in Vermont, and I’m not going to have insurance, I’m probably likely to be very healthy. And so the healthy people are leaving these exchanges and the unhealthy people who are more likely to need care are staying on there, and that’s creating a vicious feedback loop that insurers are aware of and price in ahead of time. So those prices rose this year. I I think it’s very hard to be optimistic that this pattern is not going to continue again into from 2026 into 2027, Mindy.
Mindy: I agree. I think it’s going to continue until something changes.
Scott: That’s why we got, and I think I think that it’s irresponsible to not assume that there’s going to be larger than expected health care cost inflation in here. Now, whether you want to just assume higher inflation in your overall spending target or you want to bump up health care specifically, I don’t know. I do think that long term, there’s reasons to believe that AI and other technology progress will bring down costs in many cases, um across the board, perhaps including in health care. But for the next few years, I think this problem is going to get worse before it gets better. We’ll see how wrong that is. Um and you can laugh at me like you can laugh at me for many predictions um that I’ve made over the years that have turned up poorly. Some have gone the way I’ve I’ve thought, some have definitely been misses. But that’s that’s what I’m seeing right now based on the data.
Mindy: Scott, this is great, but it’s also kind of getting discombobulated. What am I supposed to do? Tell me what to do.
Scott: I think the first thing is, go shop on the exchange today. Just go go on the exchange and look at look browse plans, maybe try to get a quote if if you’re considering getting health insurance on the exchange right now. You can do that at healthcare.gov. The second thing is if you want to play around with this, go to biggerpocketsmoney.com/healthcarecosts, plug in your numbers and see how age and state and those types of things change the prices you pay, see if you agree with my assumptions or not. And then this will produce a present value estimate based on the assumptions you want to put in of how much this tool estimates you could pay above and beyond your current premiums and and health insurance costs today. And for me, again, in Colorado, that comes out to about a $250,000 present value assumption. Um, that can number can change if I reduce health care inflation down to zero, um above above CPI. It can be reduced further if I assume I’m never going to have a full out of pocket maximum year. You can pick up to five years. If you think you’re going to have more than five years hitting your out of pocket back and deductible, you should probably choose a different plan than a bronze plan, I think. And that will change the analysis to some degree. But I think that this tool will help you kind of contextualize or or give you a concept of the risk profile of this. And it will only take a few minutes. You play with it one one or two times, you get an idea for the framework of the problem and you can make your own decisions about how you want to put put this margin of safety into your financial independence retire early plan or how to think about it as a self-employed individual.
Mindy: Yeah, this is great, Scott.
Scott: Yeah, all all these resources, you can you can find them. Go to biggerpocketsmoney.com/healthcarecosts, you’ll find the the calculator and you’ll be able to easily navigate from there to the two blog posts, how to think about healthcare in 2026, healthcare costs in 2026, and then how to think about healthcare costs over the course of a full early retirement or self-employment tenure through to Medicare eligibility. We can have a whole other debate about whether Medicare will be the same in in 30 years when I’m eligible or or not, but um that’s outside the scope of today’s show.
Mindy: Okay, Scott, this was a lot of fun. Thank you so much for building this. I know I’m going to spend quite a bit of time playing around with this, not only for me, but for my kids. My 19-year-old will eventually fall off of my insurance and will need to get her own and this is something that I need to show her. Not only is the cost of being an adult expensive, it’s going to go up every year.
Scott: I’m having a lot of fun tinkering with these tools. They are educational entertainment only. The data sets change, the laws change, it could change this year. So think about these as static point in time um things here. This is inherently unknowable and the best thing you can do, I think, is if you have the means and you you achieve financial independence or self-employment is fit-fi. Get fit, get healthy, and lead a bunch of healthy habits if you have the privilege and good fortune to do so because that is probably the number one thing beyond all of this that will keep your health care costs low over the course of the next 30 years.
Mindy: Yeah, that’s a good point, Scott. Fit-FI.
Scott: Fit-Fi. Your muscles are a little bit bigger than mine, Scott. You’re looking great, Mindy. That’s what I got on healthcare costs, at least in this iteration. Always looking for new updates, edge cases, tweaks. If you have them, send them to me at Scott at Bigger Pockets Money and I’ll try to incorporate them into the tools in my write-ups. I’ll evolve the plan, um or evolve the way I think about this as the law changes, as the data changes, as I get corrected um or educated on this, but I’m really not aware of of other resources right now that are attempting to do this same work. So I’m I’m proud of it and I think it will be helpful or at least directionally useful for folks as they’re thinking about this problem, at least in this year um until the law changes.
Mindy: Scott, I love all of these calculators and tools that you’re creating for our listeners. We love to hear from our listeners. If you want Scott to build something different, if you’re having a hard time modeling something, Scott’s mind works in a way that nobody else’s does. So send him a note, scott@biggerpocketsmoney.com and ask him to create you something awesome. All right, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: That wraps up this fantastic episode about health care costs in the US in 2026. He is Scott Trench. I am Mindy Jensen saying, toodles you high-deductible noodles.
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