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- [00:00]
Scott Trench
Health care 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 health care 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 health care plan that supports your long term financial go. By the end of today's episode, you're going to know how to estimate your health care costs in 2026 under current law immediately, and how to think about health care 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.
- [00:49]
Mindy Jensen
All right Scott, let's jump into this episode. 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.
- [01:05]
Scott Trench
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 several decades. For example, if you're retiring early or you're self employed and plan to get something other than employ health insurance for several decades. The third artifact is a healthcare cost projection tool which I'm really proud of. This is a calculator that basically gives you an estimate for what your premiums would cost in your 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 tool. 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 you can get a feel and get comfortable with estimating those costs. You should be able to do that in minutes or 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 health care 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
- [02:39]
Sponsor/Advertisement Voice
to folks who want to plan on this.
- [02:40]
Scott Trench
Sound good?
- [02:41]
Mindy Jensen
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 awesome.
- [02:56]
Scott Trench
So let's get into the mechanics and give some answers right away here.
- [02:59]
Sponsor/Advertisement Voice
Right.
- [02:59]
Scott Trench
So if, if you're thinking about how do I get healthcare coverage? Mechanically, it's very easy. There's not, this is not 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 via 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.
- [03:24]
Mindy Jensen
Scott, isn't it more complicated than that?
- [03:27]
Scott Trench
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 decisions we make and how they interplay with health care costs here. So let's start with the Affordable Care act, otherwise known as Obamacare. Okay. This is the governing law 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 or 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. And most other conditions 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 off 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.
- [04:49]
Mindy Jensen
Is that in every state? Scott?
- [04:51]
Scott Trench
It is not in every state there. I think there are two states that are exceptions to that. I think it's in New York and Vermont. And I will specific call out Vermont as a specific example in this position. It's very interesting in terms of how I think it's very illustrative for how the system works and will help you understand what's going on here. I also make an assumption here. Right. So there's a difference in 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, you know, use up your deductible, 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 self employed community because the triple tax advantaged nature of the health savings account plan and so that that's what we assume for a lot of this. Now let's get into a couple of nuances here. One of 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@biggerpocketsmoney.com healthcare costs. One word. It's also 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@healthcare.gov that's where you get an estimate or that's where you get a real quote for how much is going to cost. This is an estimate. This is built. I spent a lot of time trying to build a database and trying to help make it useful, but it's not
- [06:39]
Sponsor/Advertisement Voice
going to be perfect.
- [06:40]
Scott Trench
But I think it will be useful and help you get an idea for how to think about these costs 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 $12,000. 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 $4,000.
- [07:13]
Sponsor/Advertisement Voice
You can play with that or change
- [07:14]
Scott Trench
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 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 that surprise you, Mindy, how cheap it is in a place like New Hampshire?
- [07:43]
Mindy Jensen
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 childbirth age, knock on wood that they're not going to have kids. For anytime soon.
- [08:07]
Scott Trench
You're 53 and Carl's what, 51.
- [08:10]
Mindy Jensen
Carl's 52.
- [08:11]
Scott Trench
And then we got two kids, 16. And what was the other age?
- [08:14]
Mindy Jensen
19.
- [08:15]
Scott Trench
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, that's a big number. It's not pleasant. It's a reality in health care in the United States. But you're probably also not like, whoa, that blows up my entire life plan here for that number. Is that, is that a fair reaction?
- [08:32]
Mindy Jensen
Correct. But yes, 16,000 is more what I thought it would be because that's more what I was paying before I got health care.
- [08:40]
Scott Trench
Now let's play around with this. Let's move across the state border to Vermont. Okay. I'm going to 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.
- [08:55]
Sponsor/Advertisement Voice
Whoa.
- [08:55]
Scott Trench
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 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 health care for older Americans versus younger ones. And so everyone pays the same amount.
- [09:24]
Sponsor/Advertisement Voice
Right.
- [09:24]
Scott Trench
And that results in one of the largest overall health care cost pools in the country. I think it may be the largest. I'm not 100% sure, but 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 absolutely insane. And by the way, that's the bronze plan. The benchmark, the one that a lot of the math is tied to, is the silver plan. And that's going to be $51,000 a year for a family of four.
- [09:54]
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- [12:36]
Mindy Jensen
okay, that kind of money is going to derail your five plans, especially if you're thinking that you're going to be paying a much lower amount. Maybe your employer provides you health care 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, $50,000 a year just
- [12:59]
Scott Trench
on insurance premiums and before we get to using the health care. Right. So that's before any deductibles out of pocket maxes. This is the highest deductible, highest out of pocket max plan. So your health care costs could be much more than this amount every year. That's just. Just the premiums for the silver plan.
- [13:16]
Mindy Jensen
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.
- [13:30]
Scott Trench
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 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 intent 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 mattified adjusted gross income is below that cliff. Then my $50,000 premium is offset by $38,000 in premium tax credits.
- [14:07]
Sponsor/Advertisement Voice
Right?
- [14:08]
Scott Trench
So those tax credits are a direct offset. 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. Healthcare 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?
- [14:47]
Mindy Jensen
That is crazy. And state of Vermont, I'm sorry for saying that you weren't a great place to retire to.
- [14:52]
Scott Trench
Arguably. What? I'll show you. Watch this now. Okay, so this is going to make you mad or it makes me a little frustrated here. I'm going to go to New Hampshire now. Remember, we're. 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 premium tax credit, when I switched 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. I'm all in for 10 grand. In Vermont, my premiums are 35 grand, but I get 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 early 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.
- [16:31]
Mindy Jensen
This is really helpful, Scott. When you first said that this is for entertainment purposes only and the real numbers will be on the health care exchange, I thought, well, why would somebody go and play with this health care cost projection calculator that you shared? But this is why. Because you can change the state so easily. And some states, but not all states have their own ACA plan. So you have to go to their different websites. 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 don't even know if Arizona is a good state for health care.
- [17:36]
Scott Trench
Let's see, I don't know, but let's see. Arizona, right? So same deal. I'm moving to Arizona. Arizona is 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 has got to be so, you know, frustrating to the good folk of New Hampshire the way that their state is one of the cheapest for insurance but actually costs them the most. So. But yes, Arizona is in between.
- [18:05]
Mindy Jensen
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.
- [18:14]
Scott Trench
That's kind of the first part of this, right? Is, is 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 count towards 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 you're close to this stuff, if you think you're going to be anywhere in the ballpark, really worth talking to a professional. I think you know 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 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 in here. And again if you're close, you've really got to pay attention to this. I have also to help with this built a another tool@biggerpocketsmoney.com taxprojection which is intended to help build up the complicated tax positions that many Biggerpockets money listeners have and attempt to produce an estimate. This is not a perfect thing. It's nice. This is for entertainment educational purposes only. But I think it is useful understanding how taxes are computed in many places and it also includes each state as well depending on where you're at and builds through the progressive tax brackets depending on where you're at. That's the federal so Colorado for example has a flat tax but California we will build out 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 of 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 the switch if you go over that cliff in Vermont. So it's pretty insane how health care costs work, isn't it?
- [21:11]
Mindy Jensen
It has always been untenable how health care 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.
- [21:21]
Scott Trench
Okay, in practice, 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 a household of four to household of three, that number changes. It changes again when you move to a household of two or one. So you got to be careful about that number. Make sure you go under that. You stay under 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 past these cliffs. And then remember that many Ron's Affordable Care act plans are health savings account compatible and the HSA contribution reduces your modified adjusted gross income. So that's an easy and obvious win in years where you're going to be somewhat close to this magic cliff to just max out your HSA and that will bring it down 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 will be at least helpful or useful to you in this journey. Sound good?
- [23:02]
Mindy Jensen
That sounds great. Scott. What's next?
- [23:04]
Scott Trench
Okay, so to recap everything for 2026, we talked about magic. 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 lift 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 that you have to think about is how to approach healthcare cost modeling in the context of a financial independence journey. And we're going to move out of the world of fact here. What is what the current law is to conjecture we have to project here. And this is where people are going to disagree from 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?
- [24:07]
Mindy Jensen
Yeah, that sounds great.
- [24:08]
Scott Trench
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 in the world of healthcare 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. As for our cash flow, assume constant spending relative to inflation. But health care 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. So this gives us three problems when it comes to planning for early retirement or self employment, long term self employment health care costs. The first is that health care 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 $4,000 in 2026. I'm probably going to spend much less than that and not need much health care. And then another year I'm going to spend the entirety of my deductible and my out of pocket max, you know, because some event happens, that's why we have insurance, is to protect against those things.
- [25:28]
Mindy Jensen
Things.
- [25:28]
Scott Trench
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 and health care or whatever. But 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 those seem like the challenges to you Mindy, or do you have any other ones that you've observed?
- [26:16]
Mindy Jensen
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 when 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 vein than wrong in the oh, I thought I had enough money and now I don't.
- [26:54]
Scott Trench
I agree with that philosophically and many people disagree with it philosophically. Right. You can go, you can be conservative everything. You can find every conceivable risk in the world and add it in there and you'll never retire early. I get that. But I think this one is too important and too large a variable to ignore under the umbrella and sweep it into the umbrella of everything else going on here. Especially if you're going to really be close on your numbers 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, if my costs 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's going to happen with these premium tax, what are these premium tax credits? This is where I get controversial and people get pissed off and that's I'm going to say how I feel and you can agree or disagree, but this is not going to continue for decades. Or it's a bad silly plan. It's a bad plan to assume that the taxpayer is going to fund your early retirement by subsidizing your health care costs for the next several decades. So my model decides to model the unsubsidized premium. It says you're not going to get any of these premiums in retirement. You're going to pay the costs 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 the system is going to blow up at some point in the next 10, 15, 20 years, I think 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 allow insurers to price based on lifestyle, health or other factors or some combination of that, some technology improvement that's I believe is going to disrupt this industry. But in the meantime we can't really plan on that. Right. That'd 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 model, you can move this to zero inflation, for example, 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 premium is 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. So 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. That'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.
- [29:55]
Mindy Jensen
Yes, I agree with you, Scott, because someday somebody is going to wake up and say, oh, there should be an, a net worth component to these subsidies, not just an income component.
- [30:07]
Scott Trench
That's what we got here, right? I'm, I'm saying every year this number is going to go up over the course of time. And you got to plan on this, right? This can blow you up 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 $40,000, $22,000 a year more, adjusted for inflation, I'm gonna have a problem on my hands that can be a real issue for my 4% rule withdrawal. So this engine runs a present value calculation. It says if I'm gonna spend 18 grand this year, I'm gonna 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 computation for those, and that number, depending 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.
- [31:10]
Mindy Jensen
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 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 plants coming on the ACA market, premiums rose an average of 20 to 26% in 2026.
- [31:39]
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- [34:28]
Scott Trench
So remember what we just talked about was not inflation. Right. It's just your premiums go up because you get older.
- [34:34]
Sponsor/Advertisement Voice
Right?
- [34:35]
Scott Trench
I don't think it's not. And healthcare is not inflating this year. If I change my age from 35 to 60 in the model and get a different quote, that's just guaranteed rise in the cost of premiums under today's law and 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, 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, 2026, insurance premiums before subsidies increased 26% year over year. That's a huge increase. That is healthcare inflation in the United States, 26% in one year. And I believe that number is 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 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 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 double year over year from 2025 to 2026. 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 in the last year.
- [36:08]
Mindy Jensen
Yeah, I think it's foolish to ignore or assume that inflation is going to be very low in your health care costs.
- [36:16]
Scott Trench
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 one marketplace, everyone's gonna have insurance. We're all in this together. And if you don't have insurance, you're gonna pay a penalty. Now, in 2017, the tax cuts and Jobs act eliminated that penalty. Right. 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, you know, extraordinarily high income earners, you know, because 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 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 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 think it's very hard to be optimistic that this pattern is not going to continue again in from 2026 into 2027.
- [37:58]
Sponsor/Advertisement Voice
Mindy?
- [37:59]
Mindy Jensen
I agree. I think it's going to continue until something changes.
- [38:02]
Scott Trench
That's what 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 across the board, perhaps including in healthcare. But for the next few years. I think this problem is gonna get worse before it gets better. We'll see how wrong that is. And you can laugh at me like you can laugh at me for many predictions that I've made over the years that have turned out poorly. Some have gone the way I thought, some have definitely been misses. But that's, that's what I'm seeing right now based on the data.
- [38:40]
Mindy Jensen
Scott, this is great, but it's also kind of getting discombobulated. What am I supposed to do? Tell me what to do.
- [38:48]
Scott Trench
I think the first thing is go shop on the exchange today. Just go on the exchange and look, browse plans, maybe try to get a quote. If you're considering getting health insurance on the exchange right now, you can do that@healthcare.gov the second thing is, if you want to play around with this, go to biggerpocketsmoney.com healthcare costs. 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 health insurance costs today. And for me again in Colorado, that comes out to about a $250,000 present value assumption. That number can change if I reduce healthcare inflation down to zero 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 can have more than five years hitting your out of pocket max and deductible, you should probably choose a different plan than a bronze plan. I think that will change the analysis to some degree, but I think that this tool will help you kind of contextualize or give you a concept of the risk profile of this. And it will only take a few minutes. You play with it 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 this margin of safety into your financial independence retire early plan or how to think about it as a self employed individual.
- [40:09]
Mindy Jensen
Yeah, this is great Scott.
- [40:10]
Scott Trench
Yeah, all these resources, you can find them. Go to biggerpocketsmoney.com healthcare costs. You'll find that 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 cost 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 30 years when I'm eligible or not. That's outside of the scope of today's show.
- [40:38]
Mindy Jensen
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.
- [40:57]
Scott Trench
I'm having a lot of fun tinkering with these tools. They are education and entertainment only. The data sets change, the laws change. It could change this year. So think about these a static point in time things here. This is inherently unknowable and the best thing you can do, I think think is if you have the means and 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 healthcare costs low over the course of the next 30 years.
- [41:28]
Mindy Jensen
Yeah, that's a good point. Scott.
- [41:30]
Scott Trench
Fitfi fitfi.
- [41:32]
Mindy Jensen
Your muscles are a little bit bigger than mine Scott.
- [41:34]
Scott Trench
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@Scott BiggerPocketsMoney and I'll try to incorporate them into the tools and my write ups. I'll evolve the plan or evolve the way. I think about this as the law changes, as the data changes, as I get corrected or educated on this. But I'm really not aware of other resources right now that are attempting to do this same work. So I'm proud of it and I think it will help be helpful or at least directionally useful for folks as they're thinking about this problem. At least in this year until it all changes.
- [42:08]
Mindy Jensen
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?
- [42:30]
Scott Trench
Let's do it.
- [42:30]
Mindy Jensen
That wraps up this fantastic episode about healthcare costs in the US in 2026. He is Scott Trench I am Mindy Jensen saying Toodles you high Deductible Noodles.
- [42:41]
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Scott Trench
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Scott Trench
These are some of the reasons why
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Scott Trench
that minimum for BiggerPockets Money listeners to
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Sponsor/Advertisement Voice
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- [43:38]
Scott Trench
guaranteed and may vary based on fund performance.
- [43:40]
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