Author Topic: Strategy to transition to ACA  (Read 1380 times)

frugalor

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Strategy to transition to ACA
« on: June 14, 2023, 02:07:43 PM »
When transitioning from working into FIRE, health care cost is one of my biggest considerations.

After leaving a job, we would probably have to pay $1500+ or even $2000+ a month for health care for the whole family.  But if we can get ACA, it could be free or less than $200.

That's make or break for my FIRE plan.

So it's better to leave the job towards the end of the year, and sign up for ACA in January right?  Will we be covered by ACA in January or will we have to keep the private insurance until the end of January?

farmecologist

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Re: Strategy to transition to ACA
« Reply #1 on: June 14, 2023, 02:23:47 PM »
I'm looking into the same thing.  The key is to engineer your income to be under the ACA income caps.

However, the "transition year" can be difficult because your income will often still be high enough to be over the ACA cap the year you cut the cord with work.   Some just eat the cost that year and some try to time it better.  Not sure there is any easy answer.

reeshau

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Re: Strategy to transition to ACA
« Reply #2 on: June 14, 2023, 02:39:07 PM »
It's a matter of optimization, but I would hope 6 or 9 months of full freight insurance isn't make or break for your FIRE plans.  If so, then you might be playing it a little too close.

So, for example: quit at the end of the year, to transition to ACA, but then skip out on a bonus paid out in February?  Or, pass on a "voluntary separation" window that happens midyear?  Probably not good moves.

To answer your question:  signing up for ACA is effective the following month, if you sign up before the 15th of the month, or 2 months after, if you sign up after the 15th.  So, signing up for ACA at the normal open enrollment time for employer insuance plans works OK.

However, loss of a job triggers an ACA "special window."  Even a planned, future loss of a job (I.e. job is gone by time ACA plan would start)  So, as far as the ACA is concerned, they don't care when.  You would, of course, have to take into account the income you have earned.  I was coming onto ACA from overseas, and landed with an ACA plan in place.  Of course, you could always COBRA for a month or two, if you need time to transition, or even if you mess up the timing,

Be careful about that income, too:  it is not your spending.  If you are spending from cash, your income is $0.  If you are spending from taxable investments, your income is your capital gains.  So, be careful not to fall into Medicaid territory accidentally, or even worse the gap area for states that have not expanded Medicaid.

EnjoyTheJourney

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Re: Strategy to transition to ACA
« Reply #3 on: June 14, 2023, 03:44:19 PM »
Since you seem to be mentioning children, take a careful look at how your children would be given insurance. If it's through state medicaid you should be aware that even if your children are covered right away the level of coverage may or may not be as wide as you're used to having. Make certain to inquire specifically about the breadth of health insurance coverage at different points in the process of onboarding your children into the ACA.

We ran into a situation where all the NJ state people said "Your sons are covered" when I asked them about their coverage through medicaid. I asked about coverage several times on the phone to try to cut down on the odds of a problem. What nobody told me when I inquired is that the breadth of coverage is very very narrow for the first few months, until a health insurance company is involved. That fact wasn't clearly explained anywhere on the state websites, either, as they focused almost exclusively on explaining medicaid eligibility criteria and the signup process.

It turned out that ABA therapy wasn't in the coverage received for the first few months for our sons. Because one of our sons was receiving ABA therapy for many hours a week during that period we were initially given a bill that totaled about $30,000, which was the uninsured total. We negotiated that down to what insurance would pay, which was slightly under 25% of the total. It was still a very expensive learning experience in the end. Hopefully you and your family won't have a similar kind of misfire to what happened in our case.

frugalor

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Re: Strategy to transition to ACA
« Reply #4 on: June 14, 2023, 05:33:48 PM »
It's a matter of optimization, but I would hope 6 or 9 months of full freight insurance isn't make or break for your FIRE plans.  If so, then you might be playing it a little too close.

So, for example: quit at the end of the year, to transition to ACA, but then skip out on a bonus paid out in February?  Or, pass on a "voluntary separation" window that happens midyear?  Probably not good moves.

To answer your question:  signing up for ACA is effective the following month, if you sign up before the 15th of the month, or 2 months after, if you sign up after the 15th.  So, signing up for ACA at the normal open enrollment time for employer insuance plans works OK.

However, loss of a job triggers an ACA "special window."  Even a planned, future loss of a job (I.e. job is gone by time ACA plan would start)  So, as far as the ACA is concerned, they don't care when.  You would, of course, have to take into account the income you have earned.  I was coming onto ACA from overseas, and landed with an ACA plan in place.  Of course, you could always COBRA for a month or two, if you need time to transition, or even if you mess up the timing,

Be careful about that income, too:  it is not your spending.  If you are spending from cash, your income is $0.  If you are spending from taxable investments, your income is your capital gains.  So, be careful not to fall into Medicaid territory accidentally, or even worse the gap area for states that have not expanded Medicaid.

I was thinking you could only sign up for ACA in January during open enrollment.  So in my mind, if I leave the job 12/1, my family will be covered till 12/31 by my company's plan.  And I would use Cobra for next January while signing up for ACA.  So I would pay about $2000 out of pocket for January, and then I will covered by ACA going forward.

It seems like you are saying one can sign up for ACA in any month?  So say I leave my job right now, I can sign up for ACA tomorrow? No need to wait for open enrollment?

The the "Medicaid territory" is the most tricky part.  I live in California.  I have done some research, but I don't know definitively if using Medicaid is a problem.  I have read that in California, they don't check assets.  So we could be on Medicaid and not have to pay anything with a low income.  I still need to find out more.

frugalor

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Re: Strategy to transition to ACA
« Reply #5 on: June 14, 2023, 05:47:53 PM »
Someone from Bogleheads said they paid $40K year using ACA: https://www.bogleheads.org/forum/viewtopic.php?p=7312403#p7312403

They have to be high income right?  $40K a year is more than my annual expenses excluding health care costs.  I won't be able to FIRE if I had to pay that much for health care.

My expectation of ACA is free or less than $200 a month -- is that realistic?

lhamo

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Re: Strategy to transition to ACA
« Reply #6 on: June 14, 2023, 05:52:43 PM »
Depends on the state but here in Washington the ACA open enrollment period is typically sometime between mid-October and mid January.  What I would probably do in your situation is have my resignation be effective sometime after December 1 so that you get coverage on your old plan for December, and then have the ACA plan start January 1.

FWIW our family has been on expanded Medicaid here in Washington state since 2016 and have been very happy with the coverage, at least in the greater Seattle area.  I have had several surgeries (two cataracts removed, a retinal repair, and a MOHS procedure) all with top notch specialists.  Wait times to see specialists you haven't established care with are longer now due to post-Covid backups in the system, but no worse than in other insurance networks as far as I can tell.  If you are in an area with a robust health system, you might want to look into what networks/drs are covered with medicaid and consider giving it a try.  If you decide you don't like it it is pretty easy to manufacture income with a few months of consecutive Roth conversions to bump you onto an ACA plan.

ixtap

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Re: Strategy to transition to ACA
« Reply #7 on: June 14, 2023, 06:08:14 PM »
If you leave your job, you generally do not need to wait for open enrollment as you have a qualifying event. Depending on how you are funding your lifestyle, it may make sense to work a few months into the new year to get the minimum income for ACA subsidies. If your state has expanded Medicaid, then the lower income might not be an issue.

secondcor521

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Re: Strategy to transition to ACA
« Reply #8 on: June 14, 2023, 06:17:04 PM »
Someone from Bogleheads said they paid $40K year using ACA: https://www.bogleheads.org/forum/viewtopic.php?p=7312403#p7312403

They have to be high income right?  $40K a year is more than my annual expenses excluding health care costs.  I won't be able to FIRE if I had to pay that much for health care.

My expectation of ACA is free or less than $200 a month -- is that realistic?

That person is including everything - premiums, copays, and out of pocket expenses.  They also have multiple kids in college who are not on ACA but are using their colleges' plans at $6K per year (per kid I'm guessing).

They are probably high income.  I'm guessing they are also choosing to go with the highest priced coverage.

To get an idea of your costs, you should be able to go to your state marketplace and pretend to sign up for coverage.  All you really need to provide (my state at least, which is not CA) is birthdates and income (put your AGI from your tax return, or your estimated AGI for when you quit work) and maybe tobacco status.  I can see plans and prices and coverage all without even signing up.

If that's too intimidating, you can try the KFF calculator at https://www.kff.org/interactive/subsidy-calculator and it should give you a similar if not identical answer.

I'm 54 and FIRE and use a Bronze HSA qualified HDHP.  I'm a low user of health services generally.  In 2022, I spent $1,038.60 on my health, which includes ACA premiums, OTC medicine, a dentist checkup, a new pair of glasses and frames, and my gym membership.

secondcor521

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Re: Strategy to transition to ACA
« Reply #9 on: June 14, 2023, 06:24:15 PM »
I was thinking you could only sign up for ACA in January during open enrollment.  So in my mind, if I leave the job 12/1, my family will be covered till 12/31 by my company's plan.  And I would use Cobra for next January while signing up for ACA.  So I would pay about $2000 out of pocket for January, and then I will covered by ACA going forward.

It seems like you are saying one can sign up for ACA in any month?  So say I leave my job right now, I can sign up for ACA tomorrow? No need to wait for open enrollment?

The the "Medicaid territory" is the most tricky part.  I live in California.  I have done some research, but I don't know definitively if using Medicaid is a problem.  I have read that in California, they don't check assets.  So we could be on Medicaid and not have to pay anything with a low income.  I still need to find out more.

Normally you sign up for ACA in the fall during ACA open enrollment, which is October-ish through December-ish, for coverage the following calendar year.

If you have a qualifying event, then you can sign up for ACA because of the qualifying event.  Losing your job is a qualifying event, even if you're quitting/retiring/FIREing.

Usually the job insurance goes through the end of the calendar month in which you quit, but sometimes it can be the day you quit.  Check with your employer.

As mentioned, if you sign up in the first half of the month, you can start ACA coverage the first of the next month.

The other thing to know is that you can sign up for ACA knowing you will be leaving your job on a date in the near future (at least in my state you can).  So for example, I left my job on February 19, but I put in my ACA paperwork in early February.  So my employer coverage was good for February, and ACA coverage started March 1st.  Since I left my job early in the year, I got a decent subsidy that first year.

I think it can take just as much time, if not more, to enroll in COBRA than to switch to the ACA.  Personally I wouldn't bother with a month of COBRA - complicated, hassle, and just as expensive if not more so than ACA coverage.

frugalor

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Re: Strategy to transition to ACA
« Reply #10 on: June 14, 2023, 07:42:23 PM »

If you have a qualifying event, then you can sign up for ACA because of the qualifying event.  Losing your job is a qualifying event, even if you're quitting/retiring/FIREing.


Oh I remember what the problem is now. lol.  If I apply for ACA just after I quit, I won't get any subsidy since my income is high.  But if I apply in January, I can use the investment income for the current year -- the projected income.  Then I will get the subsidy.  Am I thinking correctly?

frugalor

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Re: Strategy to transition to ACA
« Reply #11 on: June 14, 2023, 07:44:40 PM »
If you leave your job, you generally do not need to wait for open enrollment as you have a qualifying event. Depending on how you are funding your lifestyle, it may make sense to work a few months into the new year to get the minimum income for ACA subsidies. If your state has expanded Medicaid, then the lower income might not be an issue.

Google search shows California has expanded Medicaid:



I hope I am not missing anything.

NotJen

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Re: Strategy to transition to ACA
« Reply #12 on: June 14, 2023, 08:15:06 PM »

If you have a qualifying event, then you can sign up for ACA because of the qualifying event.  Losing your job is a qualifying event, even if you're quitting/retiring/FIREing.


Oh I remember what the problem is now. lol.  If I apply for ACA just after I quit, I won't get any subsidy since my income is high.  But if I apply in January, I can use the investment income for the current year -- the projected income.  Then I will get the subsidy.  Am I thinking correctly?

No, at least not for the federal marketplace.

I applied in Nov 2019 for coverage starting in Jan 2020 (quit in Dec).  The application asked for my 2020  income.  I got the full subsidy even though my 2019 income was too high (because I wasn’t getting coverage in 2019).

reeshau

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Re: Strategy to transition to ACA
« Reply #13 on: June 14, 2023, 09:13:21 PM »

If you have a qualifying event, then you can sign up for ACA because of the qualifying event.  Losing your job is a qualifying event, even if you're quitting/retiring/FIREing.


Oh I remember what the problem is now. lol.  If I apply for ACA just after I quit, I won't get any subsidy since my income is high.  But if I apply in January, I can use the investment income for the current year -- the projected income.  Then I will get the subsidy.  Am I thinking correctly?

Well, you will have 1/2 of your annual income.  (let's say, through June) where does that fall?

Your income does not have to be annualized.  It's literally how much you are going to make in the calendar year.  If you have the cash to live off of, you could make sure you make $0 more.  (of course, you may still have interest and dividends coming in)

More on special enrollment periods:

https://www.healthcare.gov/coverage-outside-open-enrollment/special-enrollment-period/

secondcor521

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Re: Strategy to transition to ACA
« Reply #14 on: June 14, 2023, 09:30:57 PM »

If you have a qualifying event, then you can sign up for ACA because of the qualifying event.  Losing your job is a qualifying event, even if you're quitting/retiring/FIREing.


Oh I remember what the problem is now. lol.  If I apply for ACA just after I quit, I won't get any subsidy since my income is high.  But if I apply in January, I can use the investment income for the current year -- the projected income.  Then I will get the subsidy.  Am I thinking correctly?

Correct.  ACA subsidies are always based on the estimated AGI for the year in question, not the actual AGI for the year before.  (The advance subsidies are reconciled based on the relationship between your estimated AGI and your actual AGI when you file your taxes - see the bottom of IRS Form 8962.)

frugalor

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Re: Strategy to transition to ACA
« Reply #15 on: June 14, 2023, 09:32:59 PM »

If you have a qualifying event, then you can sign up for ACA because of the qualifying event.  Losing your job is a qualifying event, even if you're quitting/retiring/FIREing.


Oh I remember what the problem is now. lol.  If I apply for ACA just after I quit, I won't get any subsidy since my income is high.  But if I apply in January, I can use the investment income for the current year -- the projected income.  Then I will get the subsidy.  Am I thinking correctly?

Well, you will have 1/2 of your annual income.  (let's say, through June) where does that fall?

Your income does not have to be annualized.  It's literally how much you are going to make in the calendar year.  If you have the cash to live off of, you could make sure you make $0 more.  (of course, you may still have interest and dividends coming in)

More on special enrollment periods:

https://www.healthcare.gov/coverage-outside-open-enrollment/special-enrollment-period/

My income so far for the year will put me out of any meaningful subsidy.  I am not ready to quit yet.  It's just that I am feeling more stressed out at work and I am preparing for FIRE, say if they lay me off or fire me.

plog

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Re: Strategy to transition to ACA
« Reply #16 on: June 15, 2023, 10:13:39 AM »
Quote
if I apply in January, I can use the investment income for the current year -- the projected income.  Then I will get the subsidy.  Am I thinking correctly?

Seems like people are confused as to what the actual question is.  So let me address them both:

1.  ACA coverage enrollment.  You lose your job (for whatever reason) you can apply for ACA coverage whenever your existing coverage ends.

2.  ACA subsidy.  It does matter when you get on the ACA.  ACA subsidy is based on calendar year income.  So if you get on in November 1 and made a decent salary up until then you will most likely be paying full freght for November and December because you had a lot of income in that calendar year.  If you continue on it for the entire next year then you can manipulate your income (dividends, capital gains) so that you receive the full ACA subsidy available.   

Again, it's all about income in a calendar year.  If you start on the ACA in January but take a nice job in June, you most likely will lose your subsidy (or part of it) and have to pay the difference when you file that year's income taxes. 


frugalor

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Re: Strategy to transition to ACA
« Reply #17 on: June 15, 2023, 08:41:46 PM »
Again, it's all about income in a calendar year.  If you start on the ACA in January but take a nice job in June, you most likely will lose your subsidy (or part of it) and have to pay the difference when you file that year's income taxes.

What happens when I put $60K as my projected annual income thinking I would get $20K capital gain distribution but I ended up getting only $40K dividend income because the mutual fund didn't perform well and didn't have a distribution, like 2022?

Will I get a tax refund because I should have received more ACA subsidy? ($40K income would put my family into medicaid category)

secondcor521

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Re: Strategy to transition to ACA
« Reply #18 on: June 15, 2023, 11:15:47 PM »
Again, it's all about income in a calendar year.  If you start on the ACA in January but take a nice job in June, you most likely will lose your subsidy (or part of it) and have to pay the difference when you file that year's income taxes.

What happens when I put $60K as my projected annual income thinking I would get $20K capital gain distribution but I ended up getting only $40K dividend income because the mutual fund didn't perform well and didn't have a distribution, like 2022?

Will I get a tax refund because I should have received more ACA subsidy? ($40K income would put my family into medicaid category)

Yes.  It's done similarly to regular tax withholding, where you settle up with the IRS once a year and either pay more or get a refund.  For ACA subsidies, the settling up is done on Form 8962.  The ACA subsidy "refund" ends up on line 26 of that form, then goes through Schedule 3 and ends up on line 31 of the main Form 1040.  It's a refundable credit, so whatever ACA subsidy "refund" you get would first pay off any regular income tax you owe, then anything beyond that would be refunded to you.

Even if your family, in retrospect, should have been on Medicaid, you can still remain on the ACA all year and get the additional ACA subsidy as described in the previous paragraph as long as you meet some minimal criteria which are mentioned in the instructions for Form 8962.  Look for "Under 100% FPL" or something like that in those instructions - I think one of the requirements is that your ACA marketplace accepted your income estimate and gave you APTC.

jim555

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Re: Strategy to transition to ACA
« Reply #19 on: June 16, 2023, 08:37:18 AM »
A mid year drop of income can get you to Medicaid since that is monthly based, while ACA subsidies are calendar year based.

frugalor

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Re: Strategy to transition to ACA
« Reply #20 on: June 17, 2023, 05:47:24 PM »
A mid year drop of income can get you to Medicaid since that is monthly based, while ACA subsidies are calendar year based.

I just learned that Medicaid is monthly based.  How does it work when in FIRE, majority of my income in the form and dividends and capital distributions are in December?  Will I lose medicaid in December and then have to apply again?  And if I were going to apply in January, will they check December numbers?

Also, in FIRE, I will have no pay stubs to show them the proof of income.


lhamo

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Re: Strategy to transition to ACA
« Reply #21 on: June 17, 2023, 08:10:23 PM »
My understanding (based on how it has worked for us in Washington) is that once you are on Medicaid you are supposed to report changes in income (such as annual or quarterly dividends), but as long as your monthly income does not exceed the monthly cutoff thresholds for your family size for TWO CONSECUTIVE MONTHS, then you will remain qualified for Medicaid regardless of whether your income in any one month pushes you over the annual income limits.

So, say for example you qualify for Medicaid in November 2023 with interest income of $2k, which is below the monthly threshold for your family).  Then in December 2023 you get a dividend payout of 50k (which would push you over the annual threshold for your family size).  If your January income reverts to 2k, then you most likely would not be kicked off Medicaid in a Medicaid expansion state.

If you are interested in exploring how Medicaid works in your state, see if you can identify a Healthcare Navigator to help you with your application and any necessary income updates, etc.  We started working with ours in 2016 and she has saved us thousands of dollars.  I have always been 100% upfront with her about our income and assets, and she has been non-judgmental in her application of the rules. 

frugalor

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Re: Strategy to transition to ACA
« Reply #22 on: June 17, 2023, 08:24:29 PM »
My understanding (based on how it has worked for us in Washington) is that once you are on Medicaid you are supposed to report changes in income (such as annual or quarterly dividends), but as long as your monthly income does not exceed the monthly cutoff thresholds for your family size for TWO CONSECUTIVE MONTHS, then you will remain qualified for Medicaid regardless of whether your income in any one month pushes you over the annual income limits.

So, say for example you qualify for Medicaid in November 2023 with interest income of $2k, which is below the monthly threshold for your family).  Then in December 2023 you get a dividend payout of 50k (which would push you over the annual threshold for your family size).  If your January income reverts to 2k, then you most likely would not be kicked off Medicaid in a Medicaid expansion state.

If you are interested in exploring how Medicaid works in your state, see if you can identify a Healthcare Navigator to help you with your application and any necessary income updates, etc.  We started working with ours in 2016 and she has saved us thousands of dollars.  I have always been 100% upfront with her about our income and assets, and she has been non-judgmental in her application of the rules.

That's excellent info.  Thanks!  I need to be careful to not have treasuries all maturing in 2 consecutive months when I FIRE.

jim555

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Re: Strategy to transition to ACA
« Reply #23 on: June 18, 2023, 12:45:30 AM »
A mid year drop of income can get you to Medicaid since that is monthly based, while ACA subsidies are calendar year based.

I just learned that Medicaid is monthly based.  How does it work when in FIRE, majority of my income in the form and dividends and capital distributions are in December?  Will I lose medicaid in December and then have to apply again?  And if I were going to apply in January, will they check December numbers?

Also, in FIRE, I will have no pay stubs to show them the proof of income. 
In NY you get it for a year.  So if income goes up it will say ineligible, but you don't lose it until the annual review.  If it has come down by the annual date it goes for another year.
« Last Edit: June 18, 2023, 12:57:37 AM by jim555 »