Overview: Recently FI/RE'd and want to harvest the collective wisdom here to analyse and critique our draw down strategy, immediate health care plans and how they will interact. Please help me with brainstorming, pointing out anything I missed, and making sure I understand the situation fully in terms of financial implications and possible optimizations.
Background: Wife (34) and I (33) quit our jobs earlier this year and we are travelling through the USA and Canada in an RV. We have a son (2) and it appears my wife is pregnant (to be confirmed) and expecting next summer. Healthcare will be important through her delivery, and ideally it would be nice, but not necessary, to have health insurance that would cover us as we move around the US.
Currently, all three of us are covered under my wife's employer plan through the end of 2016, in January we have the option of continuing that under COBRA, or finding new insurance. Our last fixed address was in California but we don't currently plan to physically return to California anytime before my wife gives birth. We anticipate that as part of selecting a health plan we will choose our state of domicile strategically. We are Canadian citizens, and US permanent residents of less than five years, I note that as it can affect healthcare options, namely Medicaid, on a state by state basis.
Estimated Expenses: $40,000, but we're not really sure. We have sufficient cash cushion, taxable investment account balance, and Roth principal to meet this amount for several years as long as our ballpark estimate of expenses is not totally off. So our "income" can be optimized for tax and health subsidy optimization and not driven by our expenses.
Relevant Assets and Estimated Income: Estimate baseline $20,000 - 25,000 Gross Income as follows.
$200,000 in cash. At 1% average interest, I expect this will generate $2000 interest income.
$500,000 taxable investment account, essentially Total US and Total International with small and value tilt (approximate as VTSAX and VTIAX even split). Assuming 2.5% average yield, I estimate $13,000 dividend income
No plans for serious earned income, but allow buffer of $5,000 - 10,000 for other income, which can as needed be filled in with Roth conversions or capital gains as required for some time.
Other assets:
$300,000 in pretax 401k and IRA which can be converted to Roth to generate income as required (and provide spending money in five years).
$100,000 in Roth (mainly principal) and HSA which can be tapped if tax free income is needed, but I do not anticipate doing this and currently plan to spend down cash cushion and taxable first.
Note: Large cash balance is due to sale of principal residence. If we settle down, we may use this towards purchasing a new residence in the future, otherwise currently plan to spend down cash buffer without replenishing, as a lazy approximation to rising equity glide-path <-- Question: Reasonable strategy for cash buffer?
Note: Taxable investment account is mainly principal, less than $50,000 of capital gains. Provides a ceiling on taxes from liquidating investment account holdings and room for tax gain harvesting.
For ease of reference, the relevant Federal Poverty Level for a family of three and four is approximately $20,000 and $24,000 for calculating ACA subsidies, etc.
Current Assumptions:
1) If wife is indeed pregnant, we will be heavy healthcare users next year with prenatal care and delivery costs meeting out of pocket maximum on any chosen healthcare plan. I'll estimate costs as total of premiums for year + out of pocket maximum. Is it most sensible to minimize gross income in order to either qualify for medicaid if desired, or maximize ACA subsidies and cost sharing, or are there other tax optimizations we miss out on by going that route?
2) We can and will choose to remain relatively mobile until three months before delivery date. Starting in April 2017, we stay at fixed location through delivery. This will be period of highest healthcare utilization, assuming healthy pregnancy before.
3) Since we have essentially broken all ties with California, we can and will choose state (or country) of domicile based on health care choices and/or where we would like birth to happen. I estimate $500 in costs for taking up new state of domicile (driver and vehicle registration, any notarization, mail forwarding, etc).
4) Not sure if ACA marketplace would accept our stated low income given that previous years tax returns shows high income. If not accepted, tax credits would be reconciled when we filed taxes, but cost sharing reduction would be lost, making ACA plans much less appealing. Perhaps same problem with medicaid, and they have 30-60 days before acceptance or not is known.
Considerations:
1) We haven't decided where delivery location will be. This will impact healthcare options greatly, but we have no strong criteria to pick that location yet. Western NY is the only current contender as it is close to home, we have family in the area, and by April the weather shouldn't be horrible. No strong attachment to this choice though.
2) Given consideration 1, and our desire to be mobile, a nationwide PPO plan with large selection of doctors would be ideal. These tend to be expensive, not readily available on the ACA marketplace, and I am nervous that we would pick one and then find out certain doctors or out of state care is not really covered.
3) At our proposed income levels, and given wife's pregnancy, it may be hard to avoid Medicaid eligibility. This might be a fine option, but would give us no out of state coverage, and enrolling might require more bureaucracy.
4) We are mainly looking at giving birth in the US, but Canada (and Mexico less so) are also options. This would affect future child's citizenship possibly, and maybe raise questions about our residency if we have to explain on re-entry that yes we're permanent US residents but decided to give birth outside of the country because we are retired, lazy, cheap and find navigating the US healthcare expensive and frustrating.
5) If we need to change healthcare mid-year, we have a lot of flexibility to generate a life event: take up a new state of domicile, generate income to take us from Medicaid to ACA, etc. But this would be cumbersome and expensive, prefer to pick plan and not change it.
Current Health Care Options:
1) Maintain current insurance at COBRA rates. Very expensive. Cost for 2017: $23,000. It is nationwide PPO, should have no problems finding providers in any state. Paperwork should be minimal, no need to change state of domicile.
Easiest option, but price is not appealing.
2) Currently can not find ACA subsidized PPO with nationwide network available on California marketplace. Any suggestions? Would avoid hassle of changing state of domicile, while having reduced costs due to premium tax subsidies.
3) Establish domicile in NY state and enroll in NY Essential (ACA basic plan) and/or NY Medicaid plans in county we would plan to give birth. Cost for 2017: $200 - $2,000. At proposed income levels, would be close to free care. No care out of state except emergencies. Some questions of establishing eligibility since we are going from high income year to low income year. NY is in immediate travel plans, having family in area would make establishing domicile easier
Open question: verify eligibility
Open question: verify if can enroll while still on current insurance, to expedite approval, or must we wait until Jan 1st
4) Establish domicile in FL, enroll in EPO which appears to have nationwide network: Florida Blue (BlueCross BlueShield FL) · BlueSelect Silver 1456C for example. Cost for 2017: $2,200. This has been recommended as ACA subsidized alternative to nationwide PPO. I have some concerns if we later can't find a provider out of state (don't intend on delivering in FL). FL was on travel plans, until pregnancy, now not sure due to Zika and all. Florida is popular state for RV'ers to domicile, and as such there exist more services that could help with establishing domicile, providing an address, and mail forwarding all in one.
5) Any state in the approximate NY - FL area I'm missing that would be worth establishing domicile, either for ACA market with nationwide network, or good local health plan and that would be a cool place to hang out starting in April and then deliver baby in?
6) Say fuck-it. Establish residency in a Canadian province of our choosing, meet minimal physical requirement to qualify for healthcare, and deliver for essentially free. I understand requirements easily, bureaucracy should be minimal as is cost, finding participate provider problem, balance billing, all those problems disappear. Possibly not provide US citizenship for future child. Physical presence requirements would mean spending most of winter in Canadian province. Was not in our travel plans. Might provide problems with our US residency, but could be worked around. Some locations in Canada would provide us strong network of friends/family/etc at time of birth. We probably plan on establishing Canadian tax residency anyways for other reasons so no added cost, but being eligible for healthcare would have added physical presence requirement.
7) Say fuck-it. Deliver in Mexico and pay cash. Mexico was tentatively in original travel plans, but mainly scrapped due to pregnancy, so probably not considering this option. Would be fun and interesting, language, Zika, and residency issues aside. Child might end up with triple citizenship which would be kind of neat.
Questions
1) Is my understanding of healthcare options, medicaid, vs nationwide PPO, and cost/benefit trade-offs about right? Several open questions on optimizing income for ACA subsidizes based on chosen health plan
2) Draw down plan reasonable?: spend cash buffer first, then brokerage account. Is there anything I might be missing with that. For example, I recently got curious about earned income tax credit, but we would not be eligible due to investment income, spending down taxable account faster would deal with that..
3) General input and feedback? Should I be considering anything otherwise in our draw down plan or for healthcare?
This is all kind of a moving target, I appreciate the help in brainstorming.
Edited to fix multiple typos
Edited to update income/asset numbers
Edited to rule out non-US healthcare options
Edited with updates