Planning for Healthcare Premium Inflation: The ACA Makes It Simple if You Qualify

I’ve made two prior posts about healthcare costs and I’ve gotten some good feedback, so I’ll tempt Reddit fate with one more about planning for healthcare inflation.

Early retirees worry a lot about inflation. And especially about healthcare inflation since it is likely to the the #1 cost in retirement, and premiums have been rising fast. However, if your income is under 400% of the Federal Poverty Level, budgeting for healthcare premiums in early retirement is surprisingly straightforward. Just plan for 9.96% of your household AGI (or less). For a couple at the top end of current limits, that means premiums of about $8,400 a year.

Here’s an example for a couple at 399% FPL using ACA Silver benchmark Marketplace plans from my area:

Note that your expected contribution stays the same as you age. Even though nominal premiums rise, the ACA’s premium tax credit automatically adjusts, so your premium remains stable. MAGI limits and ACA subsidies are also indexed for inflation, so your expected contribution stays roughly the same year to year. Yes, of course, this assumes the ACA stays in place. These estimates assume a silver plan, so you’ll have cheaper bronze plans and more expensive gold plans to choose from.

If you’re not planning on subsidies, or your income is above 400% FPL, you can still make some estimates. Look online, pick the age you’re retiring (like 50), take the premium rate, and inflate it by at least 8% per year (roughly 4% age-graded increase + 4% healthcare inflation). For example, if the premium at 50 is ~$20,000/year, I think your budget should allow for 20,000×1.08¹⁴ ≈ $57,500 by the time you’re 64. Without the subsidies to insulate you, that is obviously a substantial number to plan for.

I know the general withdrawal sequence has people exhausting their taxable accounts first and saving Roth for last, but I think people might hedge a bit to ensure they have ways to carefully manage their MAGI in the final years before they are on Medicare, because that's when income management will matter the most.