Healthcare in your first year of retirement

[Abe Froman]

I have been planning on using our states' exchange for healthcare once I pull the plug this year (when I do not exactly know yet). What I failed to account for was the cost of healthcare in that first year - and I am seeking those who have done it.

AFAIK - the MAGI is used to establish any ACA credits, and we were hoping to manage a decent Bronze Plan. I can reasonably understand the squeeze between the cliffs from the FPL and the limits of realized AGI to fund my Roth with little to no tax (which we expect to operate in the first of many years).  ---> BTW @seattlecyclone has a great writeup on this. https://seattlecyclone.com/marginal-tax-rates-under-the-aca/

... but that first year of healthcare cost (or discount) is based upon the previous year's income.

If I make over $150K for example in 2020 - will I need to suffer through continuing COBRA or an un-discounted exchange plan for 2021?

Wondering if I need to budget $36K for first year of healthcare in my first year of freedom.

[GillyMack]

You might have to pay the higher unsubsidized premiums the first year based on the prior year income, but when you file taxes for that first retired year, the difference should be refunded.  That is, if your first year actually has a lower MAGI within range of subsidies.  So just a cash flow problem, not a spending problem.

[Firepants]

Your first year of healthcare cost (or discount) is NOT based upon the previous year's income.
Eligibility for subsidies is always based on the current years income. When you apply in the marketplace they will ask for this year's income not last year's.

[Abe Froman]

@Firepants - so then it would make sense to pull the plug earlier in the year when income is lowest then right?

[cangelosibrown]

You will likely have to provide documentation after you sign up that your income in 2021 will be lower than it was in previous years, but you can still get the subsidies with that. And even if they decide you can't document it, the (premium) subsidies will be refunded at tax time.  There are also cost-sharing subsidies which you qualify for if you get your income at a perfect level.These are incredibly good deals if you expect to use your healthcare, but not worth that much otherwise.

In any case, it usually makes sense to quit earlier in the year. You can think of the subsidies as a marginal tax, and the more you earn, the more tax you pay per dollar (on this and most every other type of tax in the US), so the earlier you quit in the year the more you effectively earn per hour.

[Firepants]

Yes, it would make sense to quit earlier in the year. The year I switched from employer health insurance to the ACA my income was to low enough to qualify for the smallest subsidy. We maxed out our 401k and HSA contributions to get our MAGI low enough to qualify for a subsidy.
The following year our income was substantially lower (roth conversions) and we received a large subsidy. I was not asked for any proof or explanation for the change of income, but I think that varies by state.

[NotJen]

Or quit at the end of the year.

I FIREd in Dec 2019, which meant my employer healthcare ran through the end of the year, and I could have a full year of anticipated low income for ACA subsidies.  This worked pretty well for me.

I applied during open enrollment (though I qualified for a special enrollment period as well) in Nov 2019 for 2020 ACA coverage - my state uses the national marketplace.  My 2019 income was about $110k, and $100k or so on my 2018 taxes (single).  When I stated my anticipated 2020 income would be $16k, the form asked why the difference, and I was able to select "job change/loss" and it accepted it - no further questions and no proof required.  Your state might be different, but it was incredibly easy in mine.

When I re-enrolled last Nov for continued 2021 coverage, it still accepted my estimated low income, even though I still have not filed a tax return (FWIW, I hit my target $16k income almost right on through Roth conversions).

I don't anticipate being able to get max subsidies forever, but it's nice to take advantage while I can.

[seattlecyclone]

The premium tax credits are based on current-year income. The exchange can give you an advance on these credits if you convince them your income has gone down. Give that a try, and if it turns out to be too much trouble you'll get the money eventually when you file your taxes.

If you're looking to get cost sharing subsidies those are also based on current-year income, but you will absolutely need to convince the exchange about this to get them; no refund at tax time for these.

If you quit later in the year after having already earned enough to get little or no subsidy, you may find COBRA worthwhile for that partial year, and you'd sign up for an ACA plan during open enrollment for the next year.

[KarefulKactus15]

So I took a big risk and went with Sedera.  Its definitely not a fit for everyone but it solved alot of my issues.

My biggest issue was I was unable to predict my income accurately due to wildly fluctuating self employment.  This drastically changed the ACA subsidies from where it could be really good, or really expensive and I wouldnt know till the end of the year...

There are alot on here that say the risk of not having health insurance is too high. It scares me but based on my research I trust Sedera as much as bluecross when it comes down to it and for dodging bills or not covering things etc etc.

[DireWolf]

2021 is our first year on ACA. No issues signing up, just clicked the appropriate boxes and had a place to indicate our projected income for the year (way less than last year since neither of us worked).

Because our MAGI is so low, and we have a child, it did kick things to the state’s CHIP program for kiddo. Now those folks did have questions, but easy enough to clarify. Kiddo did end up on CHIP, which I wasn’t really expecting. We’ll have to see how that goes. I could always create more “income” next year if I need to.

[fiStressRelief]

2021 is our first year on ACA. No issues signing up, just clicked the appropriate boxes and had a place to indicate our projected income for the year (way less than last year since neither of us worked).

Because our MAGI is so low, and we have a child, it did kick things to the state’s CHIP program for kiddo. Now those folks did have questions, but easy enough to clarify. Kiddo did end up on CHIP, which I wasn’t really expecting. We’ll have to see how that goes. I could always create more “income” next year if I need to.

This will also be our first year on ACA starting in April.  I haven't started the application yet, projected income is also right on the border that pushes the kids to CHIP.  I'm pretty anxious about the logistics and timing of getting everything set up, particularly with the CHIP involvement.  Any income we do bring in will probably be lumpy and I'm not yet familiar with the process to report monthly income on CHIP.  Obviously every state is different but welcome any thoughts you could offer.

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[Paul der Krake]

Our 2019 income was around 300k, but when I apply during open enrollment in December 2019 I put down 30k as the 2020 estimated income.

That seems like a big difference in income, so the website asks if I am sure. I say yes I'm sure, give us insurance. They enroll us on a great, heavily subsidized plan. We get our cards in the mail a couple weeks later.

Around March 2020 I get a letter in the mail asking again if this is what I want, what I really really want. I write the letter explaining that yes, really, I'm sure, we're low-income now, sorry. I then spend the next hour figuring out how to print and mail things when you don't have an office to steal borrow supplies from.

A month later I call to confirm that their processing center somewhere in Kentucky got my letter. They did, and they are satisfied with my terse explanation.

The end.

[DireWolf]

2021 is our first year on ACA. No issues signing up, just clicked the appropriate boxes and had a place to indicate our projected income for the year (way less than last year since neither of us worked).

Because our MAGI is so low, and we have a child, it did kick things to the state’s CHIP program for kiddo. Now those folks did have questions, but easy enough to clarify. Kiddo did end up on CHIP, which I wasn’t really expecting. We’ll have to see how that goes. I could always create more “income” next year if I need to.

This will also be our first year on ACA starting in April.  I haven't started the application yet, projected income is also right on the border that pushes the kids to CHIP.  I'm pretty anxious about the logistics and timing of getting everything set up, particularly with the CHIP involvement.  Any income we do bring in will probably be lumpy and I'm not yet familiar with the process to report monthly income on CHIP.  Obviously every state is different but welcome any thoughts you could offer.

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I think I was told to report any change as far as expected income goes, but afaik I don’t have any monthly reporting. We made a checkup appt for our son yesterday and double checked that his current pediatrician would take CHIP with no issue, so that was nice to find out for sure.

[Fishindude]

If you make income above +/- $65,000 in my state then you are not eligible for any discounts or subsidies on ACA.
We (spouse and myself) are always going to exceed that amount so will always be subject to paying full price.

It was much cheaper to retain my work insurance for 18 months on the COBRA plan at $800 per month.   
When COBRA ran out we went on ACA and have been doing so for 2-1/2 years now, monthly premium is approx. $1450.
Pre ACA you could buy very similar insurance on the private market for about half that price.

I suppose there are some folks that lie and cheat regarding their income to get cheaper ACA coverage.  I imagine the penalties would be severe if you got caught?

[The 585]

Ugh I didn't plan too well for this, looking to leave my job and return to the US in May and unsure what I'll do for healthcare. Didn't know that subsidies were based on calendar year income, otherwise it would be better to put off retirement until later in the year. I'll have to weigh whether it's best to go on an ACA plan or go with COBRA for the rest of the year.

[Much Fishing to Do]

As someone who has ALWAYS had private insurance, I think its important to look at plans not on the exchange.  My plan for my family of five is by no means cheap, but its significantly cheaper than many plans people Cobra and I noticed is significantly cheaper than all the similar plans offered on my exchange (without subsidy of course).  Once I pull the trigger on RE, if I'm mid-year there a decent chance I'll just stay on my private plan for the rest of the year and then switch to the exchange plans when my subsidies would kick in the following year.

[KarefulKactus15]

As someone who has ALWAYS had private insurance, I think its important to look at plans not on the exchange.  My plan for my family of five is by no means cheap, but its significantly cheaper than many plans people Cobra and I noticed is significantly cheaper than all the similar plans offered on my exchange (without subsidy of course).  Once I pull the trigger on RE, if I'm mid-year there a decent chance I'll just stay on my private plan for the rest of the year and then switch to the exchange plans when my subsidies would kick in the following year.

Is this an ACA compliant plan even though you didn't get it on the exchange?

In my state I didn't see any plans that weren't also duplicated on the aca exchange website in the private sector... Except short term plans and they seem loaded with loopholes.

[Fishindude]

As someone who has ALWAYS had private insurance, I think its important to look at plans not on the exchange.  My plan for my family of five is by no means cheap, but its significantly cheaper than many plans people Cobra and I noticed is significantly cheaper than all the similar plans offered on my exchange (without subsidy of course).  Once I pull the trigger on RE, if I'm mid-year there a decent chance I'll just stay on my private plan for the rest of the year and then switch to the exchange plans when my subsidies would kick in the following year.

Is this an ACA compliant plan even though you didn't get it on the exchange?

In my state I didn't see any plans that weren't also duplicated on the aca exchange website in the private sector... Except short term plans and they seem loaded with loopholes.

Same here, no other private plans available in my state.
There are some quasi-religious cost sharing CO-OP insurance plans you can use, but they require you subscribe to their religious beliefs, etc.

[Much Fishing to Do]

As someone who has ALWAYS had private insurance, I think its important to look at plans not on the exchange.  My plan for my family of five is by no means cheap, but its significantly cheaper than many plans people Cobra and I noticed is significantly cheaper than all the similar plans offered on my exchange (without subsidy of course).  Once I pull the trigger on RE, if I'm mid-year there a decent chance I'll just stay on my private plan for the rest of the year and then switch to the exchange plans when my subsidies would kick in the following year.

Is this an ACA compliant plan even though you didn't get it on the exchange?

In my state I didn't see any plans that weren't also duplicated on the aca exchange website in the private sector... Except short term plans and they seem loaded with loopholes.

Same here, no other private plans available in my state.
There are some quasi-religious cost sharing CO-OP insurance plans you can use, but they require you subscribe to their religious beliefs, etc.

I admit I don't really know.  Mine seems slightly different in the deductible/co-pay options on the exchange by the same Ins Co..  Or maybe one of them is significantly similar enough but I just get a much better price than the exchange offers me for some reason, I guess I could call the insurance company to try to find out, but given I'm getting a better price I'll probably wait until I RE to do this (I made the mistake of upping some State Farm coverage the other day and when they did they found out they weren't charging me enough for my current policy, so that turned out to be a costly request I made....)

[reeshau]

Ugh I didn't plan too well for this, looking to leave my job and return to the US in May and unsure what I'll do for healthcare. Didn't know that subsidies were based on calendar year income, otherwise it would be better to put off retirement until later in the year. I'll have to weigh whether it's best to go on an ACA plan or go with COBRA for the rest of the year.

I had a similar issue, coming back to the US mid-year.  One other consideration:  since most US plans are high-deductible, you also only get that half a year to meet the deductible.  We do have a number of health conditions in the family, but also wanted to make sure we established all our health care providers as part of re-settling in the US.  So we chose a zero deductible plan for that first year.  It was marginally more, but then it actually provided some value.  If you consider this, you do need to plan the trade-off, but it was more palatable for us than throwing away full freight premiums for 6 months.

[KarefulKactus15]

Ugh I didn't plan too well for this, looking to leave my job and return to the US in May and unsure what I'll do for healthcare. Didn't know that subsidies were based on calendar year income, otherwise it would be better to put off retirement until later in the year. I'll have to weigh whether it's best to go on an ACA plan or go with COBRA for the rest of the year.

I had a similar issue, coming back to the US mid-year.  One other consideration:  since most US plans are high-deductible, you also only get that half a year to meet the deductible.  We do have a number of health conditions in the family, but also wanted to make sure we established all our health care providers as part of re-settling in the US.  So we chose a zero deductible plan for that first year.  It was marginally more, but then it actually provided some value.  If you consider this, you do need to plan the trade-off, but it was more palatable for us than throwing away full freight premiums for 6 months.

I would have never considered the half year thing before.  Very good observation.   

[Abe Froman]

Grateful for the responses here. You have all given me a direction and have played a big part in lowering my blood pressure. healthcare pun intended.

[terran]

As others have said as long as you can provide documentation "proving" you'll be eligible for subsidies (usually a letter explaining your changed circumstances) you should be able to get the subsidy advance. On the other hand, here's a counterpoint with some reasons why you might be better off just paying the full price and getting the subsidies back when you file taxes. Basically, you avoid the justification hassle, get credit card rewards when you pay the higher premiums, and can pay less in estimated taxes to make up for the subsidy that will reduce your tax liability.

As I understand it, subsidies at low income ranges come with reduced deductibles and maybe some other benefits, so if this applies then it's probably worth jumping through the hoops, but if you're planning to have be in the higher income but still subsidy eligible range then it might make the most sense to skip the advance payment and just claim the subsidies later.