On this episode of the Fiscal Blueprint we are going to continue our discussion on Health Care Before Medicare and were going to get into some detail on one particular option today! Trust me...you don’t want to miss this episode because we are going to cover the ACA or what is commonly referred to as Obama Care.
We are going to talk about:
How it all works What has changed since the law was first passed? How do the states differ in the way they apply the law? What are premium tax credits anyway and will you qualify? Are there planning opportunities do think about if you are retiring early?So, lets gets busy!.......................But first we must go to our disclaimer.
(1:00) Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. Unless you’re a client I can’t give you advice because I don’t know you. Think of this as helpful hints and education only! And please, before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser.
(2:00) Practical Planning Segment: This is the second episode in our series Healthcare Before Medicare and we have a lot of ground to cover on our topic today which is the ACA or affordable care act. The whole point of this series is to help the listeners out there figure out how to afford medical insurance before Medicare kicks in. If you have ever considered early retirement this is an important series for you to listen to since the healthcare system in the United States can be extremely confusing.
The ACA is a mess! But it’s a mess that you need to consider. When I say it’s a mess, I mean a political mess! We have no idea what the future holds for this program and there have been a few changes since the law was passed.
Let’s start with a little history of the program: https://www.ehealthinsurance.com/resources/affordable-care-act/history-timeline-affordable-care-act-aca
Affordable Care Act was signed into law by President Obama on March 23, 2010. January 2011: A Florida judge rules that elements of the Affordable Care Act are unconstitutional. November 14, 2011: The US Supreme Court agrees to hear arguments in the Obamacare case brought by 26 states and the National Federation of Independent Business. It argues that elements of the Affordable Care Act are unconstitutional. June 28, 2012: The US Supreme Court upholds the major provisions of the Affordable Care Act. November 6, 2012: President Obama is re-elected, effectively ensuring the ACA will survive. July 2, 2013: The White House agrees to a one-year delay for large businesses to provide workers with affordable health care. October 1, 2013: Healthcare.gov, the federal exchange serving 36 states, experiences technical difficulties and eventually goes offline before reopening on December 2, 2013. December 20, 2017: GOP’s tax bill passes. The tax penalty associated with the individual mandate isrepealed. The IRS will stop charging the tax penalty for not having a qualifying health insurance plan beginning this year in 2019, effectively and possibly killing the program.
There is a lot of other things that happened from 2010 to 2019 and ehealthinsurance.com has a great chronological timeline of every major event regarding the ACA.
(7:50) What are some of the challenges facing the ACA?
The ACA is a challenge to plan for since no one knows what the future of the health exchanges will look like. This brings up so many questions when one tries to plan for the future.
There are plenty of ways to improve the program, but unfortunately, no one knows what the politicians and insurance companies will choose to do with the program.
The different health insurance companies involved in ACA either drop off or raise their rates sky high each year. There is no clarity as to the future of the program, and no one is quite sure as to what will happen in the next year or two.
The average cost of an ACA premium is a staggering $1000 or more a month.
I will say this! Even with the political turmoil that surrounds it, the website is actually pretty good. I was pleasantly surprised with the amount of good information and the ease of navigating the Federal web site.
Yes, the federal website. Some states have created their own exchange and website rather than use the federal exchange and the federal website. So, I’m talking about the federal website which is: www.healthcare.gov
(10:20) Basics of the ACA:
Well first, The ACA is set up differently in each state. All the plans have gold, silver, and bronze categories. The ACA covers young adult kids up to age 26 and chronically ill people or those with pre-existing conditions can’t be denied. The cost of premiums depends on a person’s modified adjusted gross income, or MAGI.
Also, Insurance Companies can’t raise premiums without approval of their respective state government, and they must spend 80% of the premiums that they are paid on medical services. (this mandate is most likely to make sure insurance companies aren’t spending all their money on advertising and ensures that they provide the services they are set up to provide.)
The ACA also covers mental health treatment, lab tests, out of patient care, emergency services, hospitalization. You can see it is robust with what it promises. However, with all of those features and services there comes a cost…
How does the ACA work? The ACA was created to help people that couldn’t afford health insurance be able to afford it. This is why 85% of ACA users have some sort of subsidy or advanced premium tax credit.
The amount a person pays for coverage depends on how much they make. Take for example a random couple aged 60 that lives in Cape Coral Florida and makes $100k annually…………. they would pay $2174 per month for a bronze plan and $3159 per month for a Silver plan! Wow!!!!
Reduce that income to $65k and they would qualify for a premium tax credit of $2318 per month bringing those same plans down to $0.00 for bronze and $204 per month for Silver. Now both of those plans have high deductibles of $12,000 per year. There are other silver plans with lower deductibles and higher monthly premiums. But still with that subsidy you can see how your MAGI really effects your HCV costs prior to Medicare age.
This is where an income plan and your sources of income really come into play if you are retiring early and some well thought out strategic planning can save thousands of dollars per month for many years prior to Medicare age.
The ACA setup what they call premium tax credits or a subsidy, based on income levels.
So, a married couple in Florida, for example, makes $1 dollar over those amounts they don’t qualify for a tax credit. If you go online and play with the calculator on healthcare.gov you will see if you plug in 65,841 instead of 65,840 you get NO tax credit or subsidy…. ZERO! We’ll run some numbers and do some comparisons
Income can be no more than 400% of the federal poverty level in order to receive subsidy. As of 2019, income for a single household could be no more than $48,560 and if married no more than $65,840 in order to receive a subsidy.
(17:35) How they determine what is income and what is not? They look at MAGI to determine the amount of the subsidy.
MAGI= Wages + Tips + Self Employment Income + Unemployment Comp + Social Security + SS disability + Retirement and Pension income, including withdrawals from IRA’s + Alimony + Investment income + Capital Gains + Rental Income
Deductions from MAGI = Alimony payments, IRA contributions, educational expenses, student loan interest, tuition costs
Most folks have the bulk of their nest egg is tax-deferred accounts, so this is important to consider when planning for retirement because those withdrawals could potentially affect the amount of subsidy you receive. This is yet another reason why having assets in that ‘tax free’ bucket is important. You could spend that money down prior to age 65 in order to preserve those tax deferred accounts and manage your MAGI
This does come with a catch-22, because all growth within a Roth for example, is tax free. So, we generally think of these assets as being one of the last ones we should draw from in order to let it grow (tax free.)
(21:20) Example of a 60-year-old couple living in Sussex County Delaware compared to that same couple in Maryland. We will run the numbers with an income of 75k, 65k, and then 50k. So, stick with me here on these numbers and we’ll place a table in the show notes for the listeners to check out.
Hypothetical Married Couple Filing Jointly 2019
Delaware Tax Credit
Maryland Tax Credit
60-Year-old Married Couple ($50,000 income / Year)
Estimated financial help: $2,497 per month ($29,962 per year)
as a premium tax credit. This covers 86% of the monthly costs. Your cost for a silver plan: $411 per month ($4,930 per year)
in premiums (which equals 9.86% of your household income). The most you have to pay for a silver plan: 9.86% of income for the second-lowest cost silver plan Without financial help, your silver plan would cost: $2,908 per month ($34,892 per year)
Estimated financial help: $2,534 per month ($30,411 per year)
as a premium tax credit. This covers 86% of the monthly costs. Your cost for a silver plan: $411 per month ($4,930 per year)
in premiums (which equals 9.86% of your household income). The most you must pay for a silver plan: 9.86% of income for the second-lowest cost silver plan Without financial help, your silver plan would cost: $2,945 per month ($35,341 per year)
60-Year-old Married Couple ($65,000 income / Year)
Estimated financial help: $2,374 per month ($28,483 per year)
as a premium tax credit. This covers 82% of the monthly costs. Your cost for a silver plan: $534 per month ($6,409 per year)
in premiums (which equals 9.86% of your household income). The most you must pay for a silver plan: 9.86% of income for the second-lowest cost silver plan Without financial help, your silver plan would cost: $2,908 per month ($34,892 per year)
Estimated financial help: $2,411 per month ($28,932 per year)
as a premium tax credit. This covers 82% of the monthly costs. Your cost for a silver plan: $534 per month ($6,409 per year)
in premiums (which equals 9.86% of your household income). The most you must pay for a silver plan: 9.86% of income for the second-lowest cost silver plan Without financial help, your silver plan would cost: $2,945 per month ($35,341 per year)
60-Year-old Married Couple ($75,000 income / Year)
Estimated financial help: $0 per month ($0 per year)
as a premium tax credit. This covers 0% of the monthly costs. Your cost for a silver plan: $2,908 per month ($34,892 per year)
in premiums (which equals 46.52% of your household income). The most you must pay for a silver plan: No maximum Without financial help, your silver plan would cost: $2,908 per month ($34,892 per year)
Estimated financial help: $0 per month ($0 per year)
as a premium tax credit. This covers 0% of the monthly costs. Your cost for a silver plan: $2,945 per month ($35,341 per year)
in premiums (which equals 47.12% of your household income). The most you must pay for a silver plan: No maximum Without financial help, your silver plan would cost: $2,945 per month ($35,341 per year)
So again, do you think if you are close to those numbers some strategic income planning might make sense?!?!?!?
Having the ability to manage your income sources and dip into the income tax buckets like a qualifying tax-free Roth IRA for simply a savings vehicle that doesn’t produce a lot of taxable income can save you thousands per year just in ACA tax credits alone.
(26:00) How do you enroll in the ACA and how are the premium tax credits handled? There are general enrollment periods and special enrollment periods. For 2020 plans….
Open Enrollment Period runs from November 1, 2019 to December 15, 2019. Plans sold during Open Enrollment start January 1, 2020. Special enrollment periods are exceptions if you went through any of the following major life changes: you got married, had a baby, got divorced, adopted a child…. Then you have 60 days to enroll. If you have change in residence moving to a new home in a new zip code, or if you lost health insurance (i.e. lost your job & benefits, company no longer offers benefits,) this may also trigger a special enrollment period of 60 days.If this is an option that you think makes sense to you then you simply go to your States Healthcare exchange online or the if your State did not set up an exchange you go to healthcare.gov and begin the application process. By the way if you’re not sure if your state has an exchange just start with healthcare.gov and they will point you to the right direction if your State has their own exchange.
(28:15) What about the tax credits how do you apply for them?
Well you’ll have a choice………..When you enroll in Marketplace insurance, you can choose to have the Marketplace compute an estimated credit that is paid to your insurance company to lower what you pay for your monthly premiums (advance payments of the premium tax credit, or APTC).
Or, you can choose to get all the benefit of the credit when you file your tax return for the year. If you choose to have advance payments of the premium tax credit made on your behalf, you will reconcile the amount paid in advance with the actual credit you compute when you file your tax return. Either way, you will complete Form 8962, Premium Tax Credit (PTC) and attach it to your tax return for the year.
The credit is “refundable” because, if the amount of the credit is more than the amount of your tax liability, you will receive the difference as a refund. If you owe no tax, you can get the full amount of the credit as a refund. However, if advance credit payments were made to your insurance company and your actual allowable credit on your return is less than your advance credit payments, the difference, subject to certain repayment caps, will be subtracted from your refund or added to your balance due.
(31:00) Coachable Segment:
Look there are a lot of moving parts and everything I just went over is subject to change next year. We just don’t know what the future holds in regards to HealthCare.
Last week I asked everyone to do a budget………well? Did you do it? If not, please send us an email to request our budget worksheet and start knocking this one exercise out. You may find some extra money to start funding some tax-free accounts like the Roth IRA that could be a huge benefit in more ways than one when it comes to future income planning.
Having that Tax-Free Bucket to grab some income from if you need it can save you a lot of money as we just found out in this episode. So please do that budget and find that extra money and be intentional about your planning! Don’t just let it happen because it might not!!! Life gets in the way.
Be Proactive and Be intentional……. I know you can do it!!!!!
Final Disclaimer:
“We appreciate you joining us today for this episode of The Fiscal Blueprint.
Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.
Remember it’s not about the money but about your life!
Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!
