By Joanne Bump
Affordable Care Act (ACA) Premium Subsidies Expire – According to the Wall Street Journal, negotiations to renew the health care subsidies for the next two years have effectively stopped. Americans are now facing higher insurance premiums, as these ACA subsidies expired on December 31, 2025. Some 21.8 million ACA enrollees received premium tax credits (PTCs) to help pay for their coverage in February 2025. [Centers for Medicare & Medicaid Services (CMS)]
As reported by the Center for Budget and Policy Priorities (CBPP), about 23 million people selected an ACA plan nationwide for 2026, a fall of more than one million compared with 2025, when open enrollment closed. In Michigan, 497,064 consumers selected the ACA in 2026, a fall from 531,083 consumers in 2025. [CMS] The ACA enrollment is expected to decline further if consumers can’t make their payments.
Middle Income Families Pay the Largest Dollar Premium Increases – Starting January 1, 2026, premium costs for most ACA enrollees have gone up, reverting to the pre-expansion system. These rate hikes are not just for low-income workers. The largest cost increase in ACA premiums has been assessed for people making more than 400 percent of the federal poverty level (FPL). These people weren’t eligible for any federal subsidies under the original ACA plan. Households with incomes exceeding 400 percent of the FPL or about $62,600 for an individual or $128,600 for a family of 4 in 2026 are no longer eligible for any premium tax credits.
Big Picture Impact – The expiration of the ACA premium tax credits doesn’t directly change the State-sponsored insurance provided to State employee retirees. However, the larger health system feels pressure. Enrollees have to pay significantly higher ACA premiums or become uninsured. This particularly affects older adults, aged 50-64, not yet qualifying for Medicare until age 65. This leads to worsening or higher uncompensated care for hospitals. When healthier, young people frequently exit ACA first, this leaves the sicker, costlier group, that drives up premiums for those remaining. When more people are uninsured, it increases costs that may be shifted to private health care insurance plans.
Impact on State of Michigan (SOM) Defined Benefit Retirees – Most retirees in the defined benefit pension plan receive health care insurance as a retirement benefit. Those under age 65 qualify for Blue Cross Blue Shield health insurance. When they turn age 65, and receive Social Security, they qualify for Medicare Advantage or traditional Medicare, if they prefer it. However, some may not apply for Social Security and Medicare at age 65 because they are still working, but outside of State government employment, and may be receiving ACA insurance benefits. Statistics on the number of SOM state employee retirees receiving ACA are not available.
Impact on SOM Defined Contribution Retirees – Theymay receive State retiree health care benefits in retirement, depending on their circumstances. According to the Office of Retirement Services (ORS) website, “SOM state employee retirees in the defined contribution (DC) plan may be eligible for a state sponsored health, prescription drug, dental and vision insurances upon terminating employment if you have vested with the equivalent of 10 years full-time state service and have met eligibility age requirements. Health care insurance benefit is through the Premium Subsidy or Personal Healthcare Fund, depending upon when you first hired, elected, transferred or defaulted into that benefit option.”
Further, DC retirees, that are 65 years old or older, receiving Social Security usually qualify for Medicare. However, those DC retirees, under the age of 65, could already have coverage through the ACA plan and be subject to these new higher unsubsidized premium rates.
Active SOM State Employees may be reassessing their planned age of retirement and the affordability of options for health care benefits that will be available upon retirement. If the ACA insurance rates are not affordable, they may choose not to retire as early.
State of Michigan Investment Board (SMIB) – The SMIB met on December 17, 2025, and discussed Resolution 2025-2 as follows:
- According to the Resolution 2025-2, The Bureau of Investments (BOI) and ORS “have determined that DC Plan Participants now face greater challenges when saving for retirement due to inflation, market volatility, and interest rate changes.”
- Executive Order 2018-10 and the Investment Policy Statement on 11-27-2018 require that SMIB approve any recommended changes to the investment options of the SOM 401(k) and 457 plans (the “DC Plans”).
- The “BOI and ORS have determined that removing the Prudential High Yield Fund and replacing it with the State Street IndexPlus Multi-Asset Fund, which includes a 10% allocation to alternative assets, will provide participants with a more broadly diversified multi-asset investment option compared to the Prudential High Yield Fund, which aligns with the evolving needs of DC Plan participants.”
The SMIB approved “the removal of the Prudential High Yield Fund from the DC Plans investment options and replacement of it with the State Street IndexPlus Multi-Asset Fund.”
Defined Contribution (DC) Plan Ending September 30, 2025 – SMIB reported that “U.S. equities posted significant gains for the quarter. The S&P 500 increased by 8.1%, while the Nasdaq Composite rose by 11.2%. Strong performance in technology and artificial intelligence-related stocks, along with a shift toward easing monetary policy drove the market higher. The technology and communication services sectors outperformed while the consumer staples sector lagged. Small-cap stocks beat large-cap stocks, and growth outperformed value stocks.”
Defined Benefit Michigan State Employee Retirement System (MSERS) – SMIB reported on the total fund returns as shown in the “Cumulative and Consecutive Total Fund Returns” chart. Over longer time periods, the returns are higher than peer median returns. Peers are defined as the State Street Universe of public pension plans larger than $10 billion.
Reminder – See if you qualify for the new Senior Deduction on the federal income tax return, filed in 2026. A general description of it was included in the October 2025 SERA-Nade. The standard deduction was adjusted for inflation. Plus, the new senior deduction provides an extra $6,000 deduction per person, or $12,000 per couple, for those 65 years and older, effective 2025 – 2028.
(Editor’s Note: Joanne Bump serves as feature columnist for “Retirement Matters.” Column content is time sensitive and is based on information as of 2/8/26. Sources are primarily from non-profit, and government policy research organizations. Joanne can be contacted by e-mail at joannebump@gmail.com.)