Would Obamacare encourage 401k saving?

[Left]

Obamacare as well as other government programs cover part of the cost if one earns less than the amount they set. IE: "For instance, those making $17,235 a year will pay no more than 4% of income, or $57 a month, while those with incomes between $34,470 and $45,960 will pay a maximum of 9.5% of income, or $364 a month. The federal government will cover the rest."

Just wondering if people put away their money into 401k's, it could drop their tax bracket so they pay over all lower federal income tax. But with obamacare they could be reimbursed for some of the health insurance too.

I just keep hearing how people keep saying this will be bad for the economy and all, but why not think of it this way and think it might encourage people to save money for retirement? Sure the 401k may or may not be the best vehicle for it but it's better than nothing. And it wouldn't really be "taking advantage" of the system in my eyes either. Sure the government pays out money to people if they "make less", but they would save money by not having to cover so many uninsured people either. Plus it's tax dollars coming back to the people, instead of subsidies to other non-peoples/corporations

Anyone think this could work? Or is this a moot point being on MMM since everyone encourages saving where they can?

[dragoncar]

Obamacare as well as other government programs cover part of the cost if one earns less than the amount they set. IE: "For instance, those making $17,235 a year will pay no more than 4% of income, or $57 a month, while those with incomes between $34,470 and $45,960 will pay a maximum of 9.5% of income, or $364 a month. The federal government will cover the rest."

Just wondering if people put away their money into 401k's, it could drop their tax bracket so they pay over all lower federal income tax. But with obamacare they could be reimbursed for some of the health insurance too.

I just keep hearing how people keep saying this will be bad for the economy and all, but why not think of it this way and think it might encourage people to save money for retirement? Sure the 401k may or may not be the best vehicle for it but it's better than nothing. And it wouldn't really be "taking advantage" of the system in my eyes either. Sure the government pays out money to people if they "make less", but they would save money by not having to cover so many uninsured people either. Plus it's tax dollars coming back to the people, instead of subsidies to other non-peoples/corporations

Anyone think this could work? Or is this a moot point being on MMM since everyone encourages saving where they can?

Well, people saving more is also bad for the economy.  I can't speak authoritatively, but it seems like your understanding is correct regarding 401k contributions. 

[Left]

how is saving bad for the economy? Because they aren't spending it presently instead of in the future? Or is it bad because they'd pay less income tax?

[matchewed]

It's bad for our consumer based economy. Our economy relies on the constant consumption of crap. There are other economic models out there, not sure if any really do well or not.

But yes I can see how the ACA would "incentivize" pre tax savings with that reasoning. Do I think it would actually happen, probably not, or at least it would take a great deal of time for the shift in habits for the majority of Americans.

[Dr. A]

I agree in theory; however, if your employer provides a plan that meets minimum criteria, you are not eligible for subsidies.

I suspect (but don't know for certain) that most employers that offer a 401(k) will also offer qualifying health insurance plans. So, while real, this incentive probably impacts a very small set of people.

[seattlecyclone]

As Dr. A says, the only people who would have the ability to adjust their health insurance costs by making 401(k) contributions are the relatively rare group whose employer offers a 401(k) plan but does not offer health insurance.

I expect Obamacare to have a bigger effect on early retirees and those considering retirement. For many, I'm sure that the cost of health insurance is a huge factor in whether or not they keep working. Now there's basically an income-based cap on how much a person has to pay for health insurance. This pushes the cost of living way down for those who are living a Mustachian lifestyle on their investment earnings.

I think Obamacare's incentives post-retirement are more interesting. You'll want to keep your income above 133% of the poverty line, otherwise you'll be pushed into Medicaid and ineligible for help paying for a plan on the exchanges. Past that, however, every additional dollar you report as income on your tax return will decrease your health insurance tax credit by a few cents. This means that capital gains and qualified dividends at levels that currently qualify for 0% tax will effectively have a small tax rate associated with them for anyone who buys their health insurance from one of the exchanges.

The math will be different for everyone, but I imagine that some families might do better rolling some of their retirement savings over into a Roth while they're still working and accepting a higher short-term tax bill in exchange for a lower reported income and lower health insurance premiums for the duration of their early retirement. Then once they're old enough for Medicare to kick in, they can go back to taking more withdrawals from tax-deferred 401(k) and IRA accounts, as well as relying more on capital gains income from taxable brokerage accounts.

[notquitefrugal]

Our office has a SIMPLE IRA but no health insurance. And I'll be contributing the max to the SIMPLE IRA this year. Getting a higher subsidy on my health insurance is just a bonus!

seattlecyclone raises a good point, if in early retirement, your MAGI falls below 133% of the poverty line, you lose your incentives but become eligible for Medicaid. I'm not sure to what extent the Affordable Care Act reforms Medicaid, but presently, under most Medicaid programs, it's difficult to travel and obtain care outside of your home state... Basically, inferior coverage. I'm not sure whether this changes under the Affordable Care Act.

[sol]

I'm not sure to what extent the Affordable Care Act reforms Medicaid, but presently, under most Medicaid programs, it's difficult to travel and obtain care outside of your home state... Basically, inferior coverage. I'm not sure whether this changes under the Affordable Care Act.

At least in Washington state, I think Medicaid is pretty clearly superior to most other health insurance.  It covers vision AND dental AND long term care insurance AND prescription drugs in addition to all the regular stuff.  Seems like a pretty sweet deal to me, even though I have a job with employer-sponsored insurance and won't be able to use it.

Depending on the details, it might actually be better for us to keep our MAGI below 135% of the federal poverty level after we retire in order to get the better insurance.  It wouldn't be hard, with large taxable accounts to draw on.  Now that Medicaid isn't going to have an asset test anymore, this plan is available to all early retirees with large nest eggs.

[Another Reader]

Next time you are at your doctor, ask the front desk person if the practice accepts Medicaid.  Chances are it does not.  Medicaid acceptance is voluntary - the practice, lab, clinic, or hospital decides whether to accept it.  In California, you can wait months to see a specialist if you are on Medi-Cal (Medicaid in California).  Several months ago the LA Times ran an article that described people with obvious cancer symptoms that could not get specialist appointments through Medi-Cal.  Most Medi-Cal is now managed care - the users are herded to the few doctors that accept the Medi-Cal contracts.  No medical practice I use accepts Medi-Cal patients. 

[sol]

Several months ago the LA Times ran an article that described people with obvious cancer symptoms that could not get specialist appointments through Medi-Cal. 

I sure am glad I don't live in a state with crappy Medicaid.

For anyone who does, and AR suggests that includes Californians, you have my sympathies.

[Another Reader]

Talk to a few folks in your state on Medicaid and see if your assumption is correct.  I suspect medical practitioners in Washington make the same choices, because the reimbursement rates and the hassles just are not worth it.  It's just not as extreme as it is down here.

[notquitefrugal]

Most of the doctors in my area do accept our own state's Medicaid. If you're a California MediCal recipient traveling in Maine and have a heart attack, I doubt the local providers will be paid by MediCal. I'm not sure whether this interstate compatibility is addressed under the ACA.

Note that if you're 55 or older and Medicaid pays for your long term care, they will seek recovery against your estate when you die.