I hate you, cliff – Best interest

No, not Cliff. Cliff is doing well.

But cliff. I hate you, cliff.

As in “income cliffs.”

Part of the drama unfolding in America’s health care/ACA/Obamacare system has to do with the way the Big Beautiful Bill is eliminating temporary, expanded ACA subsidies while tightening coverage rules.

Pre-OBBBA = more subsidies = you pay less.

Post-OBBBA = fewer subsidies = you pay more.

For many people who buy insurance on the ACA exchanges before 2026, their premiums (also called insurance costs) will increase significantly. Some households that previously qualified for assistance are no longer able to do so.

But instead of a smooth transition of benefits, this ACA premium change is a cliff. Here’s an example Cody Garrett recently shared on LinkedIn.

The impact of the return of the ACA cliff 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/month. = $24,912/yr.

But with an income of $84,601, their premium tax credit is $0.

Yes, a $1 increase in income leads to a $24,912 increase in their health insurance premiums.

This kind of situation will be an ugly surprise when taxpayers file in early 2027 – requiring them to repay $10,000 in excess advances to PTC.

And the number of early retirees hiring a financial planner will likely increase.

$1 additional income = $25,000 in expenses. Are unbelievable. Who wants to fall off That cliff?

The world of taxes, income limits, government benefits, etc. is usual a world of slopes. Phased in and out, marginal rates, sliding scales. These slopes are deliberately designed because cliffs are so stupid. I’m an engineer. Come on. Who doesn’t love a driveway?!

But some parts of this financial planning world are steep cliffs. Take one small step over that cliff and whoooooooooooooaaaa, it’s a long way down. Who wrote this policy? Which Signal chat am 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 and child care subsidies are especially heinous because they hit the more financially vulnerable families. For example:

Child care assistance is typically provided at the state or county level, but for many programs, eligibility is approximately 200% – 300% of the federal poverty level.

Consider a family of three whose childcare subsidy is 250% of the FPL, or $64,500 of the family’s income.

Under the cap, that family could pay $300-$500 a month, with the state covering the rest

Above the threshold, the subsidy disappears and the full costs for childcare apply 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 increase, which means an expense of $10,000. Yes.

The lower cliff is a major villain. Make sure you know where he lurks.

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