Retire Before 65 and $1 Can Cost You Thousands: The Health Insurance Cliff Is Back for 2027

You did it. You retired at 62. The commute is gone, the alarm clock is gone, and Medicare is just three years away.

Three years is the catch. Between your last day at work and your 65th birthday, you need health insurance, and for most early retirees that means buying a plan through the marketplace. In New Jersey, that's Get Covered New Jersey.

For the last five years, the government's extra help made those plans affordable for almost everyone. That extra help is gone. And with it, an old trap is back: a hard income line where earning one more dollar can make your health insurance cost thousands more.

Open enrollment for 2027 coverage starts November 1. Here's what you need to know before you pick a plan, or before you take a big IRA withdrawal.

What changed

From 2021 through 2025, Congress boosted the federal tax credits that lower marketplace premiums. Anyone could qualify, no matter their income, and nobody had to pay more than 8.5% of their income for a standard plan.

That boost expired on December 31, 2025. Congress didn't renew it. The original rules came back, including the 400% cliff: if your income is above four times the federal poverty level, you get no federal help at all.

Early retirees took the biggest hit. KFF, the health research group, found that the average person getting help now faces about double the premium payments for the same plan. People ages 50 to 64 with incomes just above the line see the biggest increases of all, because insurers can charge older adults up to three times what they charge younger people.

The number to tape to your refrigerator

For 2027 coverage, the line is set using the 2026 poverty guidelines:

• Single: 400% of poverty is $63,840
• Married couple: 400% of poverty is $86,560

Below the line, there's a cap. In 2027, a household between 300% and 400% of poverty pays no more than 10.22% of income for the benchmark silver plan, and the tax credit covers the rest. Go above the line, and the cap disappears. You pay full price.

What "$1 over" really costs

Here's a simple illustration. Say a married couple, both 62, live in Central Jersey, and the benchmark silver plan for the two of them costs $2,000 a month, or $24,000 a year. (Your real price depends on your age, your town and the plan. Check your own quote.)

• Income of $86,000 (just under the line): they pay at most 10.22%, or about $8,789 a year. The federal credit covers about $15,211.
• Income of $87,000 (just over the line): no federal credit. They pay $24,000 a year.

One thousand dollars of extra income, about $15,000 more in premiums. No tax bracket in America works like that. This one does.

The New Jersey difference

New Jersey residents get some extra help. The state runs its own subsidy, New Jersey Health Plan Savings, on top of the federal credit. In 2026, it reached households earning up to 600% of the poverty level, up to $93,900 for a single person. That softens the edge of the cliff, but it doesn't necessarily replace everything the federal credit was paying. Check the 2027 numbers on GetCovered.NJ.gov when shopping opens.

The bad news: prices are rising fast. New Jersey's insurance department says individual-market rates are going up an average of 19.8% for 2027:

• Horizon: +15.3%
• AmeriHealth: +17.0%
• Ambetter from WellCare: +20.8%
• Oscar: +29.3%
• UnitedHealthcare: +35.7%

The good news: New Jersey kept its longer enrollment window. You can sign up from November 1, 2026, through January 31, 2027. Generally, you need to pick a plan by December 31 for coverage to start January 1.

And don't forget that New Jersey has its own requirement to have health coverage, with a penalty on your state tax return if you go without it and don't qualify for an exemption.

The new tax-time trap

This one catches people off guard. Your tax credit is paid to the insurer every month, based on your estimate of the year's income. At tax time, the IRS checks your real income against that estimate.

It used to be that if you guessed too low, the amount you had to pay back was capped. Starting with tax year 2026, the caps are gone. The IRS now says you must repay the full amount of any extra credit you received.

So if you estimate $85,000, then take an extra IRA withdrawal in December and end the year at $90,000, you could owe back every dollar of credit you got for the whole year, in one bill, in April.

What counts as "income" here

The marketplace uses a measure called modified adjusted gross income. In plain English, it's your adjusted gross income from your tax return, plus any tax-free Social Security, tax-free municipal bond interest and untaxed foreign income.

Counts toward the line:

• Traditional IRA and 401(k) withdrawals
• Roth conversions
• Capital gains, including the gains from selling investments to raise cash
• Pensions, wages and part-time pay
• Social Security, including the part that isn't taxed
• Municipal bond interest, even though it's tax-free

Generally doesn't count:

• Spending cash you already have in the bank
• Qualified withdrawals from a Roth IRA
• The part of an investment sale that's your original money (only the gain counts)
• Loans, including a home equity line

Seven ways to stay on the right side of the line

1. Estimate carefully, and update it. Put a real number on your application, not a guess. If your income changes during the year, report it to Get Covered New Jersey right away so the credit adjusts before tax time.
2. Live on cash and Roth money in the bridge years. Spending from savings or a Roth IRA can keep your countable income low while you wait for Medicare. This is exactly why some retirees build a cash "bridge" before they leave work.
3. Think twice about Roth conversions before 65. Conversions can be smart, but every converted dollar counts as income. A conversion that saves taxes later can cost you your health insurance help now. Run both numbers. We covered the conversion timing question in The Roth Conversion Window.
4. Sell investments with smaller gains. If you need to raise money from a regular brokerage account, selling shares with little or no gain keeps your income down.
5. Use the deductions you still have. If you pick an HSA-eligible plan, contributions to a health savings account lower your income. Part-time or consulting income may let you put money into a pre-tax retirement plan.
6. Time Social Security deliberately. Claiming early adds income, and even the tax-free part counts. Waiting can help you keep the credit and get a bigger check later.
7. Plan the handoff to Medicare. Your Medicare sign-up window opens three months before the month you turn 65. Sign up on time so there's no gap, and cancel the marketplace plan when Medicare starts.

One thing not to do: go without coverage to save money. One hospital stay can cost more than years of premiums.

Quick answers

What is the ACA subsidy cliff for 2027?

For 2027 coverage, households with income above 400% of the federal poverty level get no federal premium tax credit. That's $63,840 for a single person and $86,560 for a married couple.

Did the enhanced premium tax credits get extended?

No. The enhanced credits expired on December 31, 2025. The original credit is still available for households between 100% and 400% of the poverty level.

When is open enrollment in New Jersey for 2027?

Get Covered New Jersey's open enrollment runs from November 1, 2026, to January 31, 2027. Pick a plan by December 31 for coverage starting January 1.

Do I have to pay back the premium tax credit if my income goes up?

Yes. Starting with tax year 2026, there's no cap on repayment. If your actual income is higher than your estimate, you must repay the full extra amount when you file your taxes.

Does tax-free Social Security count as income for marketplace subsidies?

Yes. The marketplace adds back the untaxed part of your Social Security, plus tax-exempt interest, when it measures your income.

The years between retirement and Medicare are where good income planning pays off the most. Every withdrawal, conversion and Social Security decision interacts with this line. If you want to see how it fits your plan, join our Retirement Webinar: Setting the Stage for 2027, or talk with an advisor before you lock in a number on your application.

Sources: HealthCare.gov, federal poverty levels and income and savings; coverage-year 2027 thresholds and required contribution (IRS Rev. Proc. 2026-26); IRS, repayment caps eliminated; KFF, loss of enhanced credits and older adults; NJ Department of Banking and Insurance, 2027 rates and open enrollment dates; GetCoveredNJ, New Jersey Health Plan Savings. The $24,000 premium example is a simplified illustration. Your actual premium and tax credit depend on your age, location, household and plan. Checked October 26, 2026. This is general information, not tax, legal or insurance advice.