The Art of Cliff Jumping

Editor's Note:

For those unfamiliar with the innerworkings of the Affordable Care Act (ObamaCare) and how all the pieces fit together, one should first consider reading: The ACA Subsidy Squeeze: How Premium Tax Credits Phase Out (and Impact Your Taxes!) (out of date but helpful to understand) and The 2026 Subsidy Cliff and the Shadow Tax:  It’s (Probably) Back.

Posted February 2, 2026, By Cole Ferrier

In 2026, the "ACA Subsidy Cliff" has returned, but viewing it as a one-year problem is a mistake. For some Washington retirees, earning just one dollar too much could cost you over $25,000 in health insurance help this year. However, a narrow focus on today’s savings can lead to a "tax debt" that crashes your plan later. By looking at your retirement as a multi-year roadmap, you can choose when to stay under the cliff and when to intentionally "jump" it to secure a more favorable outcome for the decades ahead.

In financial planning, we often talk about the "efficiency" of your income. Much like training for a marathon, it’s not just about how much energy you have; it’s about how effectively you use it. In 2026, a hidden cost is about to trail every dollar many early retirees earn, making certain income "heavier" than others.

For the last few years, we’ve lived in a "Cliff-less" world. Thanks to temporary enhancements, health insurance subsidies (Premium Tax Credits) didn't just disappear if you earned a dollar over a certain limit. Instead, they faded out gradually as your income rose.

But according to the current law—and reinforced by the latest guidance in Revenue Procedure 2025-25—the hard "Subsidy Cliff" has returned in 2026.

For a married couple, once your Modified Adjusted Gross Income (MAGI) hits $84,601 (400% of the 2025 Federal Poverty Level used for 2026 coverage), your subsidies don't just decrease. They vanish.

The Physics of the Cliff: Age-Rating vs. Income-Caps

Think of ACA subsidies like a Mountain Guide. As long as you stay on the path (under 400% of the FPL), the guide carries the heavy gear. No matter how steep the mountain gets—meaning how high the insurance premiums rise due to your age—your burden is capped.

You only ever have to pay a set percentage of your income. However, it is vital to understand that this is the average cost across your total income. Marginally, the true cost of earning an additional dollar can be significantly higher. We call these "Shadow Taxes.” They are like hidden obstacles on a trail—you don't see them until you trip over them.

But the moment you step off that path, the guide leaves. You are now responsible for the Full Market Price of that insurance.

Crucially, while the "Cliff" (the income limit), a multiple of the Federal Poverty Level, adjusts for standard inflation (Consumer Price Index for All Urban Consumers) per 42 U.S.C. § 9902(2), the "Fall" (the cost of the premiums) is driven by medical inflation, which has historically outpaced the CPI. This means the penalty for falling off the cliff is expected to grow "heavier" every single year.

The Pierce County Washington Breakdown: A Tale of Two Ages

To see this in action, I’ve analyzed data collected from the Washington Health Plan Finder (as of 1/29/2026) for a popular plan in our backyard: UnitedHealthcare of Oregon, Inc. Cascade Bronze.

The Plan Specs:

• Deductible: $6,000 Individual / $12,000 Family

• Out-of-Pocket Max: $10,150 Individual / $20,300 Family

• Network: Accepted by major systems like MultiCare.

Let’s look at two couples, both earning exactly $84,600—the edge of the 2026 cliff:

• The Younger Early Retiree (Age 40):

  • Market Price (Total Cost): $1,111

  • Monthly Tax Credit (Subsidy): $493

  • Estimated Premium (Net Cost): $618

  • Annual Cliff Penalty: $5,916 (What they lose by earning $1 more).

• The Older Early Retiree (Age 64):

  • Market Price (Total Cost): $2,609

  • Monthly Tax Credit (Subsidy): $2,103

  • Estimated Premium (Net Cost): $506

  • Annual Cliff Penalty: $25,236 (What they lose by earning $1 more).

The "cost" of going over the cliff is more than four times higher (getting close to five times higher) for the 64-year-old couple than the 40-year-old couple.

The Charity Care Bonus: There is a secondary benefit to staying under the 400% FPL cliff in Washington. At this income level, you qualify for Washington Charity Care at systems like MultiCare. This law mandates a minimum 50% discount for those up to 400% FPL at Tier 1 hospitals on medically necessary care. It effectively acts as a statutory backstop that covers a massive portion of your high deductible, co-pays, and co-insurance. Read our Guide to Washington Charity Care.

Diving Into the Data:

For the data nerds out there, below are a graph and table of the yearly tax credits and premium costs for the couple while right at the subsidy cliff. As you can see, the slope of the line changes around Age 44, if we look at the 20 years after and before we can quantify the "cost of getting older." The total cost of a 64-year-old couple is $31,306 whereas the 44-year-old couple is $14,578, this is a on average $836 dollars per year. This is in contrast to comparing that 44-year-old couple to a 22-year-old couple that has a total cost of $10,435 which creates a yearly increase on average of $207.

The total cost of healthcare is increasing (accelerating) at a rate that is approximately 4 times higher when someone is over 44, than when they were before. The thing to remember is that this is the rate of increase, whereas the total cost is cumulative. This is why the later years have such a huge tax credit as shown below.

The Paradox: Why Getting Older Makes the Plan Cheaper

You’ll notice the 64-year-old couple actually pays $112 less per month for the same plan. This is because subsidies are tied to a "theoretical" 2nd Lowest Cost Silver Plan (SLCSP). In many areas, including Pierce County, there aren't actually any Silver plans available. When this happens, the Marketplace uses a calculation to estimate what that Silver plan would cost if it existed.

Because the cost of those theoretical Silver plans rises more steeply with age than the Bronze plan does, the tax credit grows faster than the Bronze premium. This creates a scenario where the older you get, the more the government "over-subsidizes" your Bronze coverage—as long as you stay under the cliff.

The "Under the Cliff" Dilemma: How Close is Too Close?

If you decide to stay on the path (under 400% FPL), you face another strategic choice: How far under the cliff should you stay?

As your income moves from 300% to 400% FPL, your required contribution to premiums increases toward that 9.96% cap. It is important to note that as the applicable percentage increases across these income tiers, it creates significantly higher marginal tax rates. Because you are losing a portion of your subsidy for every new dollar earned, your "true" tax rate on that extra income can be far higher than the statutory brackets. (For a technical breakdown of these invisible hurdles, read our full article on The Shadow Tax).

There are two primary ways to engineer this:

• The "Minimalist" Approach: Keep your income as low as humanly possible every year. This maximizes your monthly subsidies and minimizes your out-of-pocket costs today. This is the "path of least resistance" for current cash flow.

• The "Bucket Filling" Approach: Intentionally earn up to the $84,600 limit (for a couple) even if you don't need the money for spending. Why? To create "Nimble Funds." By realizing gains or taking distributions up to the edge of the cliff, you can build a reservoir of taxable assets with a high cost-basis.

While you "pay" for this today via higher premiums (due to the subsidy phase-out) and any federal income tax paid, you are effectively buying future flexibility. Those high-basis assets can be sold in later years for spending money that doesn't count as income, allowing you to stay safely under the cliff when your age-rated premiums are at their peak.

A Word of Caution: If you choose to fill your bucket, leave a safety margin. It would be a catastrophic planning error to be pushed over the cliff by a slightly larger-than-expected year-end dividend, a minor capital gain distribution, or a small item you forgot to account for. If you hit $84,601, the guides leave and you're carrying the full burden yourself. Just remember, "Pigs Get Fed, Hogs Get Slaughtered," and leave enough room that you there is no doubt you will stay safely under the threshold. 

Strategic Income Engineering: Timing the Move

If your roadmap suggests you will eventually be pushed off the cliff (perhaps by large future business sales) or forced off because you lack the high-basis assets or accessible Roth dollars needed to fund your lifestyle, it is often better to jump on your own terms.

By choosing to go over the cliff earlier in your retirement years when you are "nimble," you can:

• Pay Tax When You Pay Less Tax: Jumping now allows you to pay market rates when age-rated premiums are at their lowest. Choosing to "jump" now is effectively paying for your future tax-free income when the "entry fee" is 75% cheaper than it will be in your 60s. Furthermore, if you are going to go over the cliff, it often makes sense to strategically think about how far to go over the cliff. By significantly exceeding the threshold in a single year, you can "amortize" the fixed cost of the lost subsidy over a much larger pile of dollars. This reduces the marginal cost of each dollar moved when viewed through the lens of total amount over the cliff, rather than obsessing over the impact of a single extra dollar.

• Clear the Runway (Income Smoothing): Much like prepping a home for a long winter, realizing a large gain early allows you to build a "reservoir" of already-taxed assets. By shifting value into taxable accounts with high basis or Roth IRAs (where original contributions and aged conversions can be accessed tax-free), you create a pool of spendable money that doesn't increase your reportable income. This allows you to fund your lifestyle in your 60s while keeping your income low enough to secure those massive monthly subsidies.

• Plan for the IRMAA Look-Back: If you realize you are going to fall off the cliff, there is a strong argument for "going big"—harvesting as much income as needed to clear future tax hurdles. However, you must account for the Medicare IRMAA look-back period. If you trigger a massive income spike at age 63 or later, that data will be used to calculate your Medicare surcharges at age 65. Jumping while you are younger ensures you stay clear of this "double-dip" penalty where high income triggers both a subsidy loss and a Medicare surcharge.

The Elephant in the Room: Public Policy Risk

This strategy assumes current rules remain static. In finance, we call this Public Policy Risk. Just as a city might change the zoning laws for your neighborhood, Congress can change these rules at any time. Your plan must remain a "living document"—nimble enough to adapt if the government moves the cliff or changes the height of the fall.   The challenge is that potential rule changes could make whatever decision, the wrong decision. The question is do you want to take today's known savings by staying under the cliff or do you prefer a potentially larger but not guaranteed amount later?

The Bottom Line

Health insurance in early retirement is a variable tax rate. Just as a contractor wouldn't try to pour a concrete foundation during a rainstorm, you shouldn't push a heavy income year when your "Age-Rated Latency" is at its peak. Decide now if you should jump the cliff while the ground is closer.

Clarify Your Retirement Strategy

Navigating the 2026 ACA cliff is a complex challenge that requires precise planning. If you want to review your current roadmap and ensure you aren't paying a "tax cost" you didn't plan for, let’s schedule a Strategy Session.

At EnoughFP LLC, we can help you break down intricate financial decisions into actionable steps. Contact us today to start the conversation.