The most common question I get when being interviewed about FIRE is “What about health care?”
It’s a big, scary question. Health care costs in America, if not managed properly, can easily run into tens of thousands of dollars per year, and that can really screw over someone’s FIRE plan.
So we have to deal with it, but at the same time, the reason why it’s so difficult is that the game keeps changing. Health care is a political football, and the answer to the question “How much do I need to save for health care?” varies wildly depending on where you live.
But we here are Millennial Revolution never shy away from tackling the tough questions, so let’s take a look at the current state of health care in the USA, specifically how it affects someone trying to retire early.
In the USA, there is no single system for health care coverage. Most Americans are covered through their workplace, and retired people above the age of 65 are covered through Medicare, but neither of these systems work for early retirees. So we have to rely on a combination of the ACA and Medicaid, which is the single-payer system for low-income families.
And as with everything to do with health care in America, this gets super complicated, super fast.
Local Geo Arbitrage
When the ACA was passed back in 2010, it expected states to expand their Medicaid programs to fully cover low-income families. However, not every state did so.
As of 2026, 9 states didn’t, namely…
- Alabama
- Florida
- Georgia
- Kansas
- Mississippi
- South Carolina
- Tennessee
- Texas
- Wyoming
These states are all run by Republicans, who have made it their policy to block, or actively sabotage the ACA for political reasons. In these states, not only did Medicaid not get expanded, many define eligibility on other factors other than income, such as disability status, pregnancy, or having dependents.
This has created a dangerous situation known as the ACA coverage gap, where if you report family income below the Federal Poverty Level (or FPL), you don’t qualify for coverage under Obamacare. And if you’re a healthy, child-free adult, you don’t qualify for Medicaid either. Meaning you have to purchase unsubsidized health insurance yourself, which could easily cost tens of thousands per year.
On the other end of the spectrum, liberal states that expanded Medicaid have a security net that allows early retirees to access free, or close-to-free health care in retirement. Admittedly, Medicaid isn’t perfect, especially when it comes to access to providers. But some states, notably New York, Minnesota, Oregan, and recently the District of Columbia, launched supplemental plans that offer a middle tier health care plan that offers far wider coverage, yet costing close to $0 for premiums, deductibles, and co-pays.
|
State |
Program |
Income limit |
|
New York |
Essential Plan |
Up to 250% FPL (currently) |
|
Minnesota |
MinnesotaCare |
Roughly 200% FPL |
|
Oregon |
OHP Bridge |
Roughly 200% FPL |
|
District of Columbia |
Healthy DC Plan |
Roughly 200% FPL |
So that brings me to the most important takeaway from about health care in the USA:
Where you retire matters. A lot.
It may be tempting to retire to a place based on the weather or whether it’s a low tax state, but for someone retiring early, whether that state is a Medicaid expansion can make a huge difference in your FIRE target.
And this is where geo-arbitrage can save the day. We’ve personally used geo-arbitrage to great effect to optimize living expenses such as food or rent, but for American early retirees, it’s even more important because it can make or break whether the math works at all. It makes far more sense to retire in a state like New York than Florida, because even though the tax rates are higher in NY than Florida, income taxes matter far less than health insurance coverage when you retire.
Which is actually pretty ironic, since Florida is supposed to be a retirement destination. Maybe for 65+ year old retirees, but not for the FIRE crowd.
Income Engineering
That being said, I get that not everybody can just pack up and move to another state. There are many factors that influence where someone lives, like proximity to family, their kids’ school situation, real estate holdings, etc. That brings us to the topic of income engineering.
Income engineering is the process of deliberately reporting income on your tax return. Why would you do this? Because in non-Medicaid expansion states, this could potentially save you tens of thousands of dollars in health care costs.
Health care coverage eligibility under the ACA is based on your family’s Modified Annual Gross Income, or MAGI. Normally, a family’s MAGI is primarily based on their income from their jobs, but it can also come from investment gains like interest and dividends, realized capital gains, 401(k)/Traditional IRA withdrawals, or IRA conversions.
For an early retiree, there will be normally be some amount of interest that are earned in a taxable account. That forms the “floor” of your MAGI.
Next are any IRA conversions that you might be doing. A popular strategy amongst the FIRE crowd is the Roth IRA conversion ladder, which I wrote about here. Basically, it involves moving money from your Traditional IRA to your Roth IRA every year to avoid the 10% early withdrawal penalty. The amount you convert gets added to your taxable income, but if you keep the converted amounts (combined with that taxable interest floor) within your standard deduction, your total federal tax rate should be $0. For 2026, the standard deduction for a married couple is $32,200, so if you keep your conversions + interest below this number, you should be able to get away with a $0 tax bill.
After that, there are dividends. Qualified dividends earned in a taxable account are taxed at lower rate than interest, and the rate is 0% for total income up to $98,900 for a married couple.
And finally, there are capital gains that you can realize. Capital gains that are held for more than a year are classified as Long Term Capital Gains, or LTGC, and these also share the 0% tax rate for total income up to $98,900 for a married couple.
Generally, you don’t have much control over the interest and dividends that get paid. These are purely a function of what ETFs you own in your taxable income.
You do, however, have control over your Roth IRA conversions and your realized capital gains. Every year, you choose how much of these types of income happen, so it’s really important that you choose wisely.
So you can see here that income engineering is not exactly a trivial task, since it requires active effort each year. But it’s not that difficult either, as it basically involves doing some basic calculations to ensure that you minimize taxes while hitting your MAGI targets.
Unfortunately, the stakes of getting this wrong are quite high, and that’s because…
ACA Coverage Bands
There are basically 4 important bands of coverage in the ACA you need to be aware of.
The first is the one we already discussed: The ACA coverage gap.
If your MAGI is below the FPL in a non-expansion state, you aren’t eligible for coverage under either the ACA or Medicaid, and may be on the hook for tens of thousands of dollars. This is bad. Stay out of this.
Another one is above 400% of the FPL. This is when ACA subsidies end for higher-income households, and the cost of earning even a dollar over this threshold is high, often thousands of dollars a year. This is called the ACA subsidy cliff, which is a quirk of Obamacare that got fixed by the Biden administration, but came back under the current one.
But the sweet spot to hit, in my opinion, is between 100%-250% of the FPL. Why?
The ACA has a feature known as Cost Sharing Reductions, or CSRs. These are additional subsidies that help reduce deductibles, co-pays, and the Out-Of-Pocket maximums of your health care plan, which can also be worth thousands of dollars as well, so qualifying for CSRs is really valuable. However, you only qualify under the following conditions:
- Have a household MAGI between 100% and 250% of the FPL
- Buy a SILVER plan
The effect of these CSRs on insurance costs is dramatic. Without CSRs, the 2026 out-of-pocket maximums caused by deductibles and co-pays are $10,600 for an individual and $21,200 for a couple, so in a nightmare scenario of a couple retiring and someone immediately getting sick with a chronic, expensive condition like cancer could create recurring medical costs of $21,200. This would require additional savings $21,200 x 25 = $530,000 in your FIRE portfolio to cover. That’s in addition to your regular living expenses!
However, if you engineer your income to hit that magic target of 100%-250% of the FPL and purchase a silver plan, your OOP maxes are limited to $3500 for an individual, or $7000 per couple. That’s a big difference. Now, covering this nightmare health scenario of hitting your OOP max every year requires an additional $7000 x 25 = $175,000. That’s still a significant chunk of change, but it’s not nearly as bad as without the CSRs.
Conclusion
Health care in the USA is a complicated optimization problem for early retirees, with massive penalties if you get it wrong.
The safest and more reliable way to ensure you have health care in early retirement is to move to a state that expanded Medicaid. Even better, retire in New York, Minnesota, Oregan, or the District of Colombia to take advantage of their supplemental mid-tier insurance plans, which are ideal for early retirees.
Failing that, if you have to retire in a non-Medicaid expansion state, engineer your income very carefully to hit the 100%-250% FPL amount so that you qualify for CSRs, which dramatically reduce the out-of-pocket maximums of silver plans. You’ll still have to save more money in order to cover these potential OOP maxes, but it’ll be way cheaper than having to cover the nosebleed non-CSR OOP maxes of $21,200 per couple.
Or you know, just retire outside the USA and never worry about any of this crap ever again.
What do you think? How do you budget for health care costs in retirement? Let’s hear it in the comments below!
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