Don’t miss an episode of our podcast, Personal Finance for Long-Term Investors. Tune in on:
Now, here’s today’s article:
No, not Cliff. Cliff is fine.
But cliff. I hate you, cliff.
As in “income cliffs.”
Part of the drama unfolding in the American healthcare / ACA / Obamacare system involves how the “Big Beautiful Bill” allows the temporary, expanded ACA subsidies to fade away while tightening eligibility rules for coverage.
Pre-OBBBA = more subsidies = you pay less.
Post-OBBBA = fewer subsidies = you pay more.
For many people buying insurance on the ACA exchanges for 2026, their premiums (aka insurance costs) will rise meaningfully. Some households that previously qualified for help may no longer do so.
But rather than a smooth transition of benefits, this ACA premium change is a cliff. Here’s an example that Cody Garrett recently shared on LinkedIn.
The impact of the ACA cliff returning in 2026:
A married couple (age 64) covered by a Marketplace plan (in Texas):
With a household income (MAGI) of $84,600, their Premium Tax Credit is $2,076/mo. = $24,912/yr.
But with an income of $84,601, their Premium Tax Credit is $0.
Yes, a $1 increase in income triggers a $24,912 increase in their health insurance premiums.
This type of situation will be an ugly surprise when taxpayers file in early 2027 – having to repay $10,000s of excess advance PTC.
And will likely increase the number of early retirees who hire a financial planner.
$1 of extra income = $25,000 in expenses. It’s unbelievable. Who wants to fall off that cliff?
The world of taxes, income limits, government benefits, etc, is usually a world of ramps. Phase-ins, phase-outs, marginal rates, sliding scales. These ramps are intentionally designed because cliffs are so asinine. I’m an engineer. C’mon. Who doesn’t love a ramp?!
But some parts of this financial planning world are sheer cliffs. Take one little step over that cliff and whooooooooooaaaaaa it’s a long way down. Who wrote these policies? Which Signal chat was I excluded from?
Some other common cliffs include:
- Medicaid eligibility
- IRMAA surcharges
- FAFSA / financial aid
- Certain childcare subsidies and tax credits
I think the Medicaid eligibility and childcare subsidies are especially heinous, as they tend to affect more financially vulnerable families. For example:
Childcare assistance is usually administered at the state or county level, but many programs cap eligibility around 200% – 300% of the Federal poverty level.
Take a family of 3, whose childcare subsidy cutoff is at 250% of FPL, or $64,500 of household income.
Below the cutoff, that family might pay $300- $500 per month, with their state covering the rest
Above the cutoff, the subsidy disappears, and full daycare cost kicks in. Daycare is ridiculously expensive…annual cost: $15,000+ per child.
So the cliff looks like this:
- Earn $64,500…childcare costs ~$5,000/year
- Earn $65,000…childcare costs ~$15,000/year (or more)
That’s a $500 raise creating a $10,000 expense. Yikes.
Lower-c cliff is a major scoundrel. Make sure you know where he lurks.
Thank you for reading! Here are three quick notes for you:
First – If you enjoyed this article, join 1000’s of subscribers who read Jesse’s free weekly email, where he send you links to the smartest financial content I find online every week. 100% free, unsubscribe anytime.
Second – Jesse’s podcast “Personal Finance for Long-Term Investors” has grown ~10x over the past couple years, now helping ~10,000 people per month. Tune in and check it out.
Last – Jesse works full-time for a fiduciary wealth management firm in Upstate NY. Jesse and his colleagues help families solve the expensive problems he writes and podcasts about. Schedule a free call with Jesse to see if you’re a good fit for his practice.
We’ll talk to you soon!
Jesse, Really great article highlighting this. I was unaware of it until I saw Cody’s post. I think it’s the nastiest cliff in the history of financial planning, with a MAGI twist to make it extra slippery. Trying to wrap my head around this, my understanding is that someone who received an ACA subsidy in 2025 is not in trouble (yet), but if they continue to pay similar plan premiums in 2026 they could have a shock in 2027. So we’re pumping the brakes on Roth conversions for now and thanking the Lord for HolistiPlan.
That’s right, Rob. The rubber is hitting the road right now in 2026. Sharpen that Holista-pencil!
Great points as always, Jesse. I was not aware of this cliff… seems that even relatively low-income people should talking with someone who has all of the latest info in these areas. A good tax prep person may be able to find a deduction to lower income just enough to avoid falling off the cliff. Of course that’s just another expense for people! Ugh.
Thanks Nicolle! Yes, always a challenge when the policy landscapes shifts beneath your feet!
This “cliff” was part of the original ACA bill signed in 2010. It was changed during the pandemic to give short term relief to those affected by the pandemic. The extended subsidies were to sunset in 2025 under the Inflation Reduction Act. As with anything that is changed for a temporary boost, it is now expected even without a pandemic crisis. The original cliff should be inflation adjusted, but that makes sense when thinking about what the original bill was intended to correct. Affordable coverage for those with preexisting conditions and low income pre-medicare participants. It seems to be another government program being gamed by those it was never meant to cover. No mention of the bloated national debt in the article.
Cheers Dan. I’ll bite.
First – cliffs are bad policy. Full stop. We don’t need to carry water for bad policies or policymakers.
Second – I already covered benefits hacking. Here you go: https://bestinterest.blog/is-benefits-hacking-genius-or-immoral/
Third – don’t confuse the absence of a topic with the absence of thought. “No mention of the bloated national debt in the article.” This article is about asinine income cliffs, not about government debt. Let’s not distract from the main point. I didn’t write about corporate tax breaks either. Should I have? What about military spending? What-about-ism is a bad argument.
Fourth – I don’t write to an audience of macro wonks. But if I did, I would tell them to stop treating government debt like household debt, and to go read up on modern monetary theory.
Thanks, Jesse.
+1 to “What-about-ism is a bad argument.”
(I will refrain from talking about more tax cuts for the well-off and corporations. 😉