Back to your point, brooklynguy, here's my thinking on the matter.
You're right that an increase in withdrawals will not necessarily correspond 1:1 with an increase in income. Existing post-tax savings like cost basis in a taxable account and Roth basis will be freely withdrawable and will not count as income. The amount of such freely withdrawable cash is finite. To get more, you generally have to realize a corresponding amount of income. If I want to plan on getting ACA subsidies for years to come, I don't want to exhaust all my basis early on in FIRE keeping my income at an unsustainably low level. Instead I probably want to spread these tax-free withdrawals out pretty evenly until ACA subsidies are no longer a consideration (i.e. old enough for Medicare, or a significant change happens in the law).
Here are some rough numbers of where I'm at.
Taxable basis: ~$900k
Roth basis: ~$400k (hooray mega backdoor)
Mortgage balance: ~$550k
Spending (exclusive of health care, income tax, and mortgage): ~$50k/year
Mortgage payments (principal + interest): ~$35k/year
We have existing basis of ~$1.3M, and that needs to last the next 25 years until our Roth earnings also transform into freely withdrawable cash. This gives us the ability to sustain an income of $52k less than our outgoing cash flow for the next 25 years. With spending and mortgage of $85k, that implies an income of $33k prior to health care.
What if we sold some taxable stock to wipe out the mortgage? In our case this would mean eliminating around half of our taxable basis, bringing our total basis down to around $850k. Divide that by 25 years and we can sustain income $34k less than our spending, or $16k prior to health care.
Paying off the mortgage eliminates the need for $35k of cash flow and reduces our income by $17k at first glance.
This isn't quite the whole story though. This $16k income if we remove the mortgage doesn't really seem achievable for a few reasons. First, the taxable account is going to throw off some dividends, perhaps $25k if we keep the mortgage and $15k if we don't. That sort of acts as a floor on our income. Then if we want to actually access our taxable basis we're going to need to realize some amount of capital gains income. Plus I'd be surprised if we never earn another cent from working ever, so that's more potential income. In short, the $33k number might be pretty achievable most years if we keep the mortgage, but there's no real way we're getting down to $16k by paying off the house. Therefore the reduction in income from paying off the house will be even less than the $17k number I calculated above.
That's okay though! My main income goal for the ACA is to stay under 200% of the poverty level (roughly $50k for our family of four). This will get us some pretty nice cost sharing subsidies, and premiums are already pretty reasonable at this level. Going from $50k to $35k would get us an additional ~$2,000 in annual premium subsidies, plus potential out-of-pocket costs would go down by a similar amount. That's not an insignificant amount of money, but I'm pretty comfortable with the costs anywhere in that income range. Get much below $35k and we'd be in Medicaid territory, which I have mixed feelings about.
Looking through all this I'm becoming a bit more inclined to keep the mortgage in our situation. Losing it won't change our income by a huge amount, I think we (over)saved enough that we're unlikely to run out of money even if we keep the mortgage and 2008 happens again, and keeping the mortgage seems like it will lead to a higher expected value in wealth down the road. Not that we need more money, but having it might open up some interesting charitable and/or investment opportunities that could be pretty rewarding to pursue.