The Medicaid gap: when your income is too low for subsidies

By Tom, CPA · Updated October 25, 2026

TL;DR: Below 100% of FPL you usually can't get marketplace subsidies. In Medicaid expansion states, income under 138% of FPL may mean Medicaid instead. Wealthy-on-paper retirees with tiny MAGI can land in either spot, so many target a MAGI just above the floor.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Too poor on paper for subsidies? Yes, that's a thing. The marketplace premium tax credit has a ceiling everybody talks about and a floor almost nobody does. Early retirees who get very good at minimizing income can find themselves under that floor, with a seven-figure portfolio and an application that says they qualify for Medicaid.

This guide explains the two thresholds that matter, how states differ, why assets usually don't count for working-age Medicaid, and how a few deliberate dollars of income can move you back into the zone you actually want. It's the mirror image of the subsidy cliff.

CPA Warning Label: A seven-figure portfolio and a four-figure MAGI is a combination the health care system finds deeply confusing. Plan your income so the system doesn't have to guess.

The 138% threshold in expansion states

HealthCare.gov's rule of thumb: if your state expanded Medicaid and your income is below 138% of the federal poverty level, you may qualify for Medicaid. For Medicaid eligibility, the current year's guidelines are used. For 2026 that's $15,960 for one person and $21,640 for two in the lower 48, so 138% works out to roughly $22,025 for a single person and $29,863 for a couple.

Why it matters: if the marketplace application finds you Medicaid-eligible, you generally can't get the premium tax credit for a marketplace plan. Medicaid can be excellent coverage, but it's a different system with its own provider networks and, for people 55 and older, possible estate recovery rules in some states. Many early retirees prefer the marketplace and plan their income accordingly. Others are delighted to use Medicaid. Either is legitimate; the point is to choose rather than stumble.

Below 100% in non-expansion states

In states that did not expand Medicaid, adults without children or disabilities often can't get Medicaid at all, no matter how low their income. And the premium tax credit generally starts at 100% of FPL. Land below 100% and you may be in the "coverage gap": no Medicaid, no subsidy, full-price premiums.

For 2026 marketplace coverage, 100% of FPL uses the 2025 guidelines: $15,650 for one person and $21,150 for two. A couple whose MAGI is $19,000 in a non-expansion state can face unsubsidized prices on a plan that would have been heavily subsidized at $22,000. Three thousand dollars of extra income could be worth well over ten thousand dollars of credit.

There is a useful nuance: if you received advance credits based on a reasonable, good-faith estimate above 100% of FPL and your actual income ends up lower, you generally don't lose eligibility for that year. That protects honest estimates, not wishful ones.

Income vs assets

For most working-age adults, Medicaid eligibility under the ACA expansion rules is based on MAGI, not assets. There's typically no asset test for this group. That's why an early retiree with a large brokerage account but minimal taxable income can appear eligible.

Different rules apply to Medicaid for people who are 65 or older, blind or disabled, and especially for long-term care. Those programs often have asset limits and look-back rules. See long-term care planning for that separate world.

One more distinction: Medicaid often looks at current monthly income, while the marketplace looks at annual income. A retiree who takes all income in one December conversion may show near-zero monthly income in spring. States handle this differently, so be ready to explain your expected annual income when you apply.

Income timing

Because portfolio income is lumpy and controllable, timing can push you above the floor:

• Roth conversions. A conversion that lifts MAGI from $12,000 to $20,000 for a single person moves them out of the gap and into a very low applicable percentage.
• Realizing capital gains. Gains in the 0% long-term capital gains bracket can add MAGI with little or no federal income tax.
• Taking IRA distributions. Sometimes a small traditional IRA withdrawal is the cleanest way to show income.
• Spreading income through the year. If your state looks at monthly income, regular monthly distributions can make your application line up with your annual estimate.

Illustration: hitting the floor on purpose

Illustration: Frugal Fran, single, 56, lives in a non-expansion state. She spends $30,000 a year, mostly from cash and high-basis shares. Without planning her MAGI would be about $9,000 of dividends. That's 57.5% of FPL: no Medicaid for her in this state and no premium tax credit.

Fran adds a $10,000 Roth conversion, bringing MAGI to $19,000, or about 121.4% of FPL. Assume her benchmark silver premium is $8,400 a year. Under the 2026 table she's in the under-133% band at 2.10%, so her expected contribution is about $399 and her credit about $8,001. Her federal tax on the conversion is roughly zero after the standard deduction. One deliberate move turned a full-price premium into a mostly subsidized one, and she got some money into a Roth.

Same Fran in an expansion state: at $19,000 she'd be under 138% of the 2026 guideline and could be steered to Medicaid. If she prefers a marketplace plan, she'd aim above about $22,025 instead.

How to plan

1. Find out whether your state expanded Medicaid. Your state Medicaid agency or HealthCare.gov will tell you.
2. Decide whether Medicaid is acceptable to you. Consider networks, providers and any estate recovery rules for older adults in your state.
3. Pick a target MAGI band: above the floor that applies to you, below the cliff, with a buffer on both sides.
4. Choose which lever fills the gap: conversions, gains, or distributions.
5. Document your estimate in case your application is questioned.
6. Recheck in the fall and update the marketplace if income changes.

For the full set of income levers, see ACA MAGI management, and for how subsidy estimates get settled, see premium tax credit reconciliation.

What happens if your income changes mid-year

Life doesn't respect annual estimates. If you start the year expecting $14,000 of MAGI and then decide in June to do a large conversion, report the change to the marketplace or your state agency. In an expansion state you might move from Medicaid to marketplace eligibility mid-year; in a non-expansion state you might gain subsidy eligibility you didn't have in January. Changes in income are generally a reason to update your application, and some changes open a Special Enrollment Period.

The opposite happens too. A planned sale falls through, MAGI drops below the floor, and your advance credits were based on the higher estimate. Keep notes showing why your estimate was reasonable when you made it. That paper trail is what protects a good-faith estimate at tax time.

Finally, don't forget a spouse's or dependent's income. Household MAGI includes income of dependents who are required to file a return, which can push a household that thought it was in the gap comfortably above it.

Common misunderstandings

• "I have assets, so I can't qualify for Medicaid." For expansion adults, eligibility is usually income-based.
• "Low income always means bigger subsidies." Only down to the floor. Below it, the credit can disappear.
• "I can just decline Medicaid and take subsidies." Being eligible for Medicaid generally blocks the credit, whether you enroll or not.
• "Spending is income." Spending from savings and basis is not MAGI. That's why this problem exists in the first place.