Going from Company Provided Health Care to ObamaCare

Health care is the topic on every retired persons mind, and those getting close are becoming more aware of it all the time. As the need for health care goes up, the cost is skyrocketing. It is often described as the number one expense for the retired. One option to mitigate this cost is the Affordable Care Act, or Obamacare.

After moving from Corporate health care to Cobra, then to the real world health care, I was shocked. I was looking at a transition from paying $450 a month for a family of 3 for a $1300 deductible plan to $950 a month for a family of two for a $6500 deductible plan.

Using on line research, a visit to my tax advisor, and an engagement with a local health insurance broker, I was able to get approved for ACA. I engaged a broker at Intermountain Agency in Boise, Idaho who placed multiple calls to different agencies, cleaning up my scattered accounts and linking them up. Choosing the health care policy was simple and took about 10 minutes. The signups, linkups and approvals along with repeated followup took many more times that level of effort. I had already applied on line for the subsidy and been approved. However, I had no recent history at this income level and the government required follow up and proof. At my brokers suggestion, I went to my tax advisor and had him generate the response, sending a letter that stated my income as he understood it for the year. An ironic note is that the most tardy piece of information for this summary was from my biggest brokerage account at JP Morgan, who pushed tax form delivery to within a week of the required date; my full service broker performed as expected. I believe without the engagement of my insurance broker at Intermountain Agency and my tax advisor, I would have been unlikely to execute all the necessary steps to get this done.

To qualify for Obamacare you must earn between 100-400% of the Federal Poverty Level. For a family of two, that is approximately $16K to $65K. If you are below that level, you need to use Medicare, and above that level you are on your own. Your taxable income is based on wages, tips, interest, capital gains both long and short term, and any other reportable income like rentals, businesses, etc. Your 401K or any other pre tax retirement is not included until you begin to withdraw. Each income point along that spectrum has a subsidy value, between 2-10% of your income. In addition, you cannot have access to a government or employer based health care program.

Lets talk about taxable income. If you have money in an investment account, it’s not based on the growth of the funds, but when the managers sell a security that has increased in value, creating an a capital gain. For large funds like JP Morgan this can be a random number generator and you need to monitor it monthly. Toward the end of the year, hopefully you can make requests to adjust if you need, either selling loosers or winners. The fund managers also make their own adjustments at the end of the year also. One of my roboadvisor accounts, Betterment, offers a tax harvesting service, where they select a security that has lost value and sell it creating a capital loss, and replace it with a similar security. For me, this is a process of income management is going to take a couple years to master.

Your estimated income for the year sets the subsidy. If you end up earning more than that, you have to pay it back to the government, and if you earn less, you can earn a credit. My tax advisor strongly urged the use of an income number that was very conservative; he had many cases of people getting to the end of the year and having to pay the entire subsidy back to the feds. You are basically settling up the account on your year end taxes.

Some question the morality of getting a government subsidy for health are when people have what most would call a sizable sum of savings. I, along with most retirees, don’t think about this for a second. That sizable sum is effectively my personal pension, and the principal and interest make up the money for my wife to live off until for the rest of the years. After years of giving egregious amounts of money to the government in the form of taxes, receiving a pittance of that back while living on lower middle class wages makes perfect sense. In addition, I always like to remember our amazing elected federal officials, who don’t need to worry about this as they get their health care on a silver platter and refused all pressure to participate in this program.

Addressing health care as a retiree, unless you have a pension provided policy, has got to be your top concern. Unfortunately, the Affordable Care Act is currently struggling. The premise that adding 20 million people to insurance roles, which would be subsidized by forcing young healthy people to buy insurance who otherwise would not, was known to be a fallacy from the beginning. The penalty for those not buying insurance has now been eliminated, and the entire plan is back on the table. You should of course watch this as it evolves, but also sign up for all you are eligible for today.