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FIRE and the ACA

March 24th, 2015 at 09:25 pm

I've been taking steps in recent months to get my health care finances in order. During open enrollment at the end of last year, I switched to a high-deductible, HSA-eligible insurance plan, which dropped my annual premiums from $1690 down to $1144. Add in the $1000 HSA match that my employer kicks in, and I'm effectively paying only $144 per year for my health insurance. Even accounting for the new, higher $1500 deductible, I still come out on top.

And the out-of-pocket max of $3000 is definitely affordable in case I blow through the deductible due to a catastrophic circumstance.

Plus, I get a shiny new tax-advantaged investment vehicle to play with, which can be used to pay Medicare premiums or even function as a 401(k) when the time comes. Awesome. So I'm all set for the near-term.

Health insurance coverage and costs in early retirement might be more tricky -- or so I thought. One possibility is to go on the SO's employer plan -- that is, if he decides to continue working, and we actually get married. Currently, that would cost $1344 per year after adjusting for the $500 HSA match. Okay, so not nearly as good as my current employer plan, but is certainly tolerable.

But what if going on his plan is not an option? I certainly don't want him to keep working a job just for the health insurance if he doesn't want to!

We live in CT, so I went on our state health exchange to do research. I put in my expected FIRE income (which I guestimated at $10,000 if solo)... and kept getting bumped to the login page because, "Based on the income information you entered your household may be eligible for HUSKY D/Low Income Medicaid."

Erm... huh? I was so, so confused. I was expecting to look at subsidized private plans, not Medicaid. I mean, we may be freaks of nature, but we're certainly not poor, not if we're FIRE'd. Surely this can't be right?

But, as it turns out, with expanded CT Medicaid under the ACA, the annual income limit for a single-person household is $16,243, and for a two-person household, it's $21,984. There are no asset tests for eligibility. No matter how you slice it, whether solo or married, we are going to come in under these limits post-FIRE, especially since these figures are for MAGI (modified adjusted gross income), and thus easy to manipulate using deductions and Roth distributions.

I looked further into CT's implementation of the ACA, and Medicaid in particular. Apparently, ACA subsidies operate along a linear income scale. Above 400% FPL, there are no subsidies. Between 250% and 400% of FPL, one tier of subsidy kicks in (tax credits). Between 138% and 250% of FPL, a second tier of subsidy kicks in (cost-sharing).

Below 138% FPL, you are supposedly considered too poor to afford health insurance, and the subsidy is essentially 100%. And that means getting covered by Medicaid, where the government pays for all your health care costs.

There is no way to change what tier of subsidy you qualify for because it is predetermined by income. Furthermore, the subsidy is all-or-nothing -- you either take what's offered, or you turn down all subsidies. In my case, the choice is to either go on Medicaid, or pay full price for a private health plan. I don't have the option of getting a partially subsidized private plan.

And the cheapest private plan on the state exchange costs $2400 per year for a $6000 deductible, and goes quickly downhill from there. Yuck. And ouch?

I am honestly feeling seriously conflicted right now. On the one hand... it looks like health insurance will literally be completely free in FIRE (I actually spent quite a while trying to google "Medicaid premiums" before I finally realized how the program worked and that premiums don't exist). This is amazing and totally unexpected, since I've just been assuming that health insurance was going to be a major unknown expense in my projections. CT Medicaid even covers dental!

On the other hand... I feel so guilty (not to mention shocked) about potentially going on Medicaid. It is just strange to be mooching off a program intended for the socioeconomically disadvantaged. I mean, I am both willing and capable of paying a reasonable amount for health insurance. It's just that it genuinely looks like the program is working exactly as intended, and full price of a private plan is... kind of outrageous. How do you expect a rational decision-maker to turn down free given the alternative (or lack thereof)?

What does make me feel slightly better is the knowledge that on Medicaid, I would only cost the government money if I incur health care costs -- compared with an otherwise constant stream of private insurance premium subsidies. So the government might actually come out ahead, considering that I never go to the doctor (last time I went was in... 2007?) -- at least while I'm still young and healthy.

I think I'd budget $3K per year for health insurance anyway, just in case, but Medicaid being the preferred route is going to take some getting used to.

5 Responses to “FIRE and the ACA”

  1. Another Reader Says:

    Medicaid??? Try finding a competent doctor or getting an appointment. Medicaid in California is not much of an improvement over no medical care.

    You are much better off manipulating your income so that you are just over the limit and can get a cost-sharing silver plan. Spend some time over at early-retirement.org and the mrmoneymustache.com forums reading the threads on FIRE and the ACA if you have not done so.

  2. creditcardfree Says:

    Your income will be $10K annually or monthly? I would have a really hard time picking Medicaid, because as AR mentioned, not all doctor even accept Medicaid.

  3. amberfocus Says:

    I've actually been reading a lot on the MMM and ER forums. It seems like the MMM folks are okay with taking Medicaid, whereas the ER folks are twisting themselves into knots to avoid it. The discrepancy is not lost of me, and I'll investigate and find out what's right for me. There's plenty of time before I have to decide on a course of action (and the health care landscape could change completely by then).

    The issue with artificially boosting income through Roth conversions is that the ER folks only have to stall for a few years, whereas my timeline is more like three DECADES. Also, it might be fine to tweak your income if you're slightly below the cutoff, but our expenses are so low that we'd literally be withdrawing DOUBLE what we need, which feels kind of absurd, frankly, and is definitely not sustainable long-term (pre-tax dollars are only 25% of my investment portfolio).

    And yes, that's $10K per YEAR. (There is no way someone drawing $10K per month would qualify as low-income! I don't even make $10K per month right NOW!) We only need ~$20K per year to live on, which is why I used $10K for my solo income estimate. Check out my spending review if you want to know the breakdown. Smile

  4. Kiki Says:

    What is FIRE?

  5. amberfocus Says:

    FIRE = Financially Independent, Retired Early

    Essentially, FIRE is achieved when one's assets can passively generate enough income to cover one's living expenses indefinitely (namely, financial independence). When that happens, then there is no more need for earned wages, and that's the early retirement part.

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