the process

The Moral Ambiguity of Obamacare Subsidies for Early Retirees

first off, you guys — a huge THANK YOU to everyone for the sweet notes of congratulations on our first blogiversary post, and double thanks to the (surprisingly!) many of you who responded to the survey link. we got a ton of great input that will guide future posts — including this one! if you still want to respond, it’s open a few more days, or you can always give input in the regular comments on posts you’d like to read. we’re very suggestible. :-)

we’ve mentioned several times over the past few months that we’ve been working on a post about obamacare/aca coverage and how the subsidy limits are affecting our retirement budget projections. but in the meantime, several folks including go curry cracker have talked more about all of that, and laid out a lot more math than we would have. then last week, root of good posted their retirement budget, including details about the health care subsidy they receive, and the post received a surprising amount of vitriol from those who take issue with high net worth but low income retirees receiving subsidies for health care. so we decided to look at that side of it: the moral ambiguity of the subsidies built into the obamacare system, especially for early retirees.

here are a few facts that are important to know if you’re going to debate this stuff:

  1. everyone in the u.s. is now required to have a certain level of health insurance, per the individual mandate of the affordable care act (aca). not having insurance or carrying only a catastrophic policy are no longer viable options. there is an increasingly large tax penalty imposed on those who don’t buy insurance.
  2. when congress wrote the aca, they could have included means testing for net worth, but they didn’t. the only bar they established was income, specifically the modified adjusted gross income (magi) reported on your federal income tax return.
  3. people who don’t receive health insurance through an employer are supposed to find an insurance plan on either the exchange or your own state’s exchange (some states have them, some don’t). to even see plans available, you have to plug in your income, and it automatically tells you what your subsidy is. the subsidy isn’t something you ask for.
  4. subsidies are designed to benefit people across a broad income spectrum, not just those in poverty. those earning very little have their coverage almost completely covered, while families earning six figures can still get a small subsidy. in our state, we could get a small subsidy in 2016 for the two of us with an income up to $63,000, or a massive subsidy with an income under $22,000.

The Moral Ambiguity of Obamacare Subsidies for Early Retirees // Our Next Life -- early retirement, financial independence, health care insurance

to be 100 percent transparent about it, we have always planned to get obamacare coverage in early retirement, and always assumed we would qualify for a subsidy. we value our health, and would pay for health coverage no matter what, but we completely appreciate that the aca at least makes health care costs a little more predictable, and saves us potentially a lot of money. planning for long-term retirement would be awfully tough without some level of predictability. and because we value our health, opting out of health insurance altogether, and just eating the tax penalty, is not something we’d ever consider. (we’re also generally law-abiding and stuff.)

we understand that all of this might rub some people the wrong way, the thought of millionaires getting taxpayer-subsidized health care coverage. (and we won’t go into all the ways that the rich have always been subsidized by taxpayers — the mortgage interest deduction on first and second homes, no taxes on premiums paid for employer-subsidized health coverage, bank bailouts, myriad forms of corporate welfare, etc. in principle, this is nothing new.) but to be perfectly honest, we feel a little icky about it, too. we’ve always believed in paying our fair share, and have never tried to max out our tax deductions. we believe in taxes. we believe in using those taxes to help the disadvantaged and to keep our country running smoothly, not to help the rich get richer. so while receiving a health care subsidy is something we’re happy to have for budgeting and planning purposes, and to keep ourselves financially solvent in retirement (which will keep us from being a drain on society in other ways!), it’s not something that we completely love from a moral perspective.

but here’s the thing: we don’t really have a choice. we are required by law to buy health insurance on the exchange, which requires us to enter income, which then tells us our subsidy. we can’t say, “oh, no thanks, we’ll pay the whole thing.” and we can’t lie about our income, because you have to reconcile all of it on your tax return and either get an extra tax credit if you overestimated your income when you applied for coverage, or pay back part of the subsidy if you underestimated. there simply isn’t room for individual morality in the equation. the law says we get x amount, and so that’s what we get. and let’s say we could opt out without breaking the law. we’d never choose to pay the crazy high premiums for the unsubsidized plans — they would eat up more than half of what we plan to live on each year in retirement. we’d figure out something else, like signing up for the catastrophic plans that were available before the aca passed, or traveling to places like thailand to be health care tourists. right now, there are no affordable options for early retirees that come without this moral gray area weirdness. (the only actual choice would be leaving the country. full-time expats are exempted from the individual mandate. but we don’t think that’s a good enough reason to uproot ourselves from a town, state and country we love.)

so what if we did have a choice? in some parallel universe where we could set the rules, we’d rather see one of three differences:

  1. when congress wrote the law, we’d rather they had included asset testing, and not just income means testing. but then again, asset-tested programs tend to lead to invasiveness and even harassment, not to mentions tons of bureaucracy and red tape. (matt taibbi has an incredibly powerful description of how this happens in his book the divide: american injustice in the age of the wealth gap). as a country, we have a history of not doing much means testing on programs meant to serve large swaths of the population: there’s no means testing whatsoever on social security benefits, and medicare only recently added an income test but still has no asset test, and even that only affects the top 5 percent of earners. so this change is unlikely ever to happen.
  2. we’d rather if congress had included a single-payer option, like a medicare expansion to those under 65 (not just the medicaid expansion that accompanied the aca, which many states have opted out of). we’d happily pay medicare premiums, even those for higher earners under medicare part b, or higher yet premiums than those given that we won’t yet be at traditional retirement age. but needless to say, this is politically unpopular among those who favor smaller government.
  3. the choice we’d most like to have would be an option for high-asset individuals to prove that we can afford to pay cash for our preventive care, and then be allowed to buy a catastrophic coverage policy so we can still avoid bankruptcy from a car accident or cancer, or other serious medical issues. that seems like the best solution for people in our financial situation. but, the whole idea with the aca is that we can lower the health care costs for everyone by getting as many people into the insurance pool, so risk is distributed more broadly. letting people opt out doesn’t serve that goal. and we want to be team players in keeping health care costs under control.

every alternate option we might prefer comes with a big “but.” so our only option after we retire is to buy insurance on the exchange and take the subsidy, regardless of how we feel about it. we can take comfort in knowing that we’ve paid plenty in our high earning years, so are paying it forward to some extent, and we don’t ever plan to take other social benefits other than medicare (and maybe social security, but we’re not banking on that). but we still don’t love the idea of being a net drain on tax funds instead of net contributors. what’s our other option, though? keep working forever, just to avoid taking a health care subsidy, something that wealthy retirees have been doing since the advent of medicare? that’s kind of ridiculous.

plus, there’s a major good side to all of this, which we can’t ignore. subsidized health care coverage is probably the single biggest reason why more of us can even afford to retire early now, compared to the system before. isn’t that sort of exactly what the american dream is all about? there are tons of ways that tax dollars support people in reaching the dream — funding public schools, paying for infrastructure that lets customers get to your business, subsidizing commodity crops so that many foods stay affordable, subsidizing transportation so that products stay cheap, etc. — so we could see this as just another version of that. and it’s clearly a good thing that the aca has resulted in many fewer uninsured people in america, which means that more people are getting preventive care that will help them live better and longer lives, and as a society we’re bearing less of a burden for the health care costs of uninsured patients who can’t afford to pay. for us, it’s pretty much priceless to know we’ll have health insurance in retirement without going broke. we can’t overstate how much that fact alone is worth to our peace of mind.

then again, who knows? we’ll have a new president in a year, and the aca rules could change, or the whole thing could go away. that fact has always been a part of our retirement planning timeline — we wanted to work through 2017 so we’d know what the health care landscape would ultimately look like, so we could plan accordingly before we quit our jobs.

it seems to be a given among those who are already retired that they get subsidized coverage through the aca. and among the aspiring early retirees who we’ve seen mention it, there seems to be a consensus that taking the subsidies is the way to go. but we’re curious: does anyone else feel some level of moral ickiness in accepting the subsidy? has anyone actually opted out of the subsidy on moral grounds, and just sucked up the high cost of an unsubsidized plan? or do you think it’s a non-issue to take the subsidy because those are the rules of the system we have right now, and there’s no other affordable option? we’d love to know what you guys think about this thorny subject. let us know in the comments!

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121 replies »

  1. I LOVE talking about healthcare. Like for real. So interesting.

    First off, let me say that I also feel weird about my current healthcare status. Because I’m unemployed, I’m on MassHealth (i.e., the Massachusetts version of Obamacare, which has been around longer than the federal mandate). And because I typed in “$0” as my income, I do not have to pay a monthly premium. This feels super crazy weird to me because while yes, my income is technically $0, I also have a PhD and some savings and generally feel like I have too many resources to be allowed to benefit from public assistance. I’m more than happy to pay taxes so other people can have free healthcare, but it just feels odd to be getting it myself. That being said, I’m on it.

    Right, so regarding your situation (or possible future situation, assuming Obamacare endures)…Wow. What an interesting ethical question. Just to check, is it definitely not possible to opt out and purchase a plan outside the exchange? I’m sure this could differ by state, but I *think* here in MA you can choose to purchase a plan privately if you want. But in any case I totally hear you — those are crazy expensive and would probably force you to recalculate your entire retirement plan.

    I personally think it’s fine to just take the subsidy. Especially if you really don’t have a choice. If you’re feeling really bad about it, one additional thing you could do would be to figure out how much you think you “should” be paying each year and donate the difference to a charitable organization that is connected to healthcare in some way.

    On a sort of semi-related note: did you listen to the most recent episode of This American Life? It’s so good. There’s one segment about a radio talk show where Trump supporters are calling in, which was so fascinating.

    • It’s funny — I see no issue whatsoever with you getting free health insurance. That seems like exactly what it should be there for — people trying to work who are between jobs, but have no income coming in. And we definitely aren’t thinking of opting out — the price difference is beyond belief, and we did not get on the path to early retirement by wasting money! :-) As I’ve written to a few other people now, if they just said we qualify for a discount, we’d have no qualms whatsoever. But they call it a subsidy, which we equate with handout, and that feels uncomfortable to us — but not SO uncomfortable that we’re going to turn it down. We’re just going to have to accept some ambivalence.

      Haven’t heard the latest TAL — I tend to hoard them on my phone, and then we binge on them during road trips. But I need to check that one out!

      • Do you still think it’s okay if I tell you I’m getting a free eye exam and a free dental cleaning this month? I have never in my life had either vision or dental, and I admit this seemed like a good opportunity to catch up on appointments I’d been putting off for a looooong time. I honestly feel like this is ethically questionable. (But apparently that isn’t stopping me.)

      • But aren’t those things why you have the coverage to begin with?? I have zero issue. Far better to get preventive care than to need, say, a root canal, or glaucoma intervention. :-)

      • Agree with Our Next Life on this one. I used to work for an eye doc, and your “free” eye exam sounds fine to me. The doctor I worked for actually never even billed vision plans, so I think it’s a little known fact that many plans let you get eye exams without one. I’ve never had a vision plan, but my health insurance has always covered the parts of that exam that are a concern for me. Sure, I can’t use my insurance to buy glasses, but I can use it (with a $20 co-pay) to have an optometrist make sure my prescription hasn’t changed and check my eyes for signs of glaucoma. Works for me. I’d much rather pay tax dollars that help folks get these kind of services than see lots of people dealing with advanced diabetic retinopathy/glaucoma ($$$ so expensive!!) that could have been caught much earlier during a screening.

      • I’d much rather, as a tax payer, pay for people’s preventive care than pay much more later for expensive problems that could have been caught early!

      • Thanks, venturefeminist! :) I feel the same way: now that I have a job, I’m happy to pay some of my dollars into a communal healthcare pot so that everyone can get the care they deserve. And I’m happy the free insurance was there when I needed it!

      • It’s so interesting how you believe others should have it, but you struggled to be OK with having free health insurance when it was you. I completely get it, but it’s interesting the double standards we apply to ourselves!

  2. I will admit that healthcare is still very much one of the areas that are a little unknown for us, but we have investigated it a bit on the Healthcare website to get a feel for what we might be paying for insurance. In my view, we need not feel bad about getting subsidized healthcare in this country because, right or wrong, that’s the cost of doing business in the U.S.

    Just like with our incredibly complex tax laws, if subsidies or deductions exist, it is only natural for people to find them and take them. If they are there, take them. Besides, I reject the idea that ACA subsidies were designed for “low-income earners” in the first place, but that is probably a subject for another time. :)

    Honestly – even if there was a way for my wife and me to bypass subsidies and pay the full price, we still wouldn’t do it “out of principle”. We want the best price for our medical care, plain a simple – just like most of us. You said it best, Ms. ONL, when you described ACA as a healthcare requirement. The federal government is *forcing* people to get health insurance, and along with that, also provides taxpayer-funded subsidies to go along with it to mitigate backlash. I don’t like the requirement any more than anyone else, but as long as it’s here, and as long as subsidies exist that we qualify for, you bet I will take advantage of them to the fullest extent allowed by law.

    Means testing, while sounding good in concept, opens up an incredibly expensive, incredibly bureaucratic mess that is completely ripe for fraud and abuse – and is probably more trouble than what it’s worth. And you can bet that if our government ever does put into place a plan to test people OUT of subsidized coverage, that/those politician(s) will most likely be out of a job, and we the people will just find more clever ways to hide our income. In other words, things will only get more messy IMHO. Especially when the government is involved, simple is better.

    Making things more complicated, as means testing would certainly do, is one of the reasons why our income tax laws are as insane as they are. Why? Because it never really stops. One law begets another and another. One exception begets another. One test begets another…so on and so on and so on.

    In the end, you hit the nail squarely on the head in #3 from your post – broad distribution of risk is our government’s way of hedging its bets with this whole thing. The more people in, the more likely the program will remain solvent – at least in their eyes. To them, subsidies help more than they hurt by keeping participation as high as possible while minimizing backlash.

    I don’t believe that we early retirees need to explain why we are taking subsidies, even if we have a high level of net assets. We aren’t doing anything wrong, after all. We are participating in a system that we are FORCED under penalty to participate in and paying whatever subsidized or non-subsidized price that happens to be attached. It is okay to not support the subsidy, but the person taking the subsidy is doing very much what is most natural to absolutely all of us.

    I will be doing the exact same thing here in a year or so. If we qualify for subsidies, you bet we’ll take every one of them. :)

    • This is one of those subjects that gets everyone fired up one way or another. :-) And you better believe we’re going to accept the subsidy, though we wish they’d just call it a discount instead — haha! Like you said, we shop based on price and value for everything we buy, and we’d just never pay what the unsubsidized plans cost. And we’re even going to do a few things to make our MAGI extra low in retirement so that we qualify for a bigger subsidy. But despite all that, we’ll always feel a little bad using tax dollars because, philosophically, we just aren’t into mooching, and there is some element of all of this that feels like mooching, despite all of the great and true points you made about this being the system, we’re playing by the rules, etc. But we’d rather feel a smidge icky and save money than take some moral stand and spend a ton of money we can’t afford to spend in early retirement!

  3. I’m not pursuing early retirement (let’s what until after this round of parent-teacher conferences before opening that can of worms…KIDDING!), but I do think this is really a complex issue. I don’t perceive this as you (or any early retiree) taking advantage of the system. You seem to be following it to the letter. My take on the Root of Good blog vitriol was the willingness to scoop up that subsidy compared to the line item for charitable giving. Thanks for always bringing up such fascinating issues!

    • That’s a good point that the ROG hatemail may have been in relation to the lack of charitable giving. But yeah, this one is complex. We think it’s one of those moments when we just have to agree to be a bit uncomfortable, because we’re obviously going to take the subsidy (the dollar difference is too huge not to!), at least until the system changes.

  4. I believe that Obamacare is based on MAGI (modified adjusted gross income) and you may be able to “opt out” by choosing a bronze plan as only the silver plans are subject to subsidy…Depending on whether or not you are under 250% FPL. If you’re between 250 and 400% you may still qualify for a tax credit regardless of the type of plan. At least according to this link, but I think GCC covers this as well.

    • Good catch, Dave. Thanks! I made the change to MAGI. We’re not looking to opt out because the price difference is so huge as to be preposterous. But good to know that that’s an option, if anyone out there is curious.

    • Did you confuse reduction with assistance? All metal tiers qualify for same cost assistance subsidies. Just Silver eligible for cost sharing reduction.

      I choose HDHP Bronze for HSA and highest MAGI while minimizing premium to drain pretax accounts prior to RMDs. Have no qualms receiving assistance after paying sky high taxes as single with few deductions. Or other help (like unemployment) in a time of need. ACA assistance not so different than subsidies employees get from untaxed fringe benefits like health insurance.

      • After today’s announcement that the House GOP is going to push a new plan with tax credits (but not for affluent people), it may all be irrelevant anyway!

      • We are early retirees who are getting an ACA subsidy. We live in Maricopa county in Arizona. All but one insurer pulled out of the exchange for 2017. A bronze plan for 2 people now costs $2000/month.
        Something to watch out for though, this happened to us- 2 of our long held stocks did inversions. This is when the company merges with a foreign company and moves its headquarters out of the US. The shareholder must then pay capital gains taxes on the stock as if it was sold. This extra “income” will be on our tax return and we will probably have to pay back our entire subsidy for 2016. So even careful planning to stay within one’s estimated income may not be enough to insure the subsidy.

      • Thank you for sharing this cautionary tale! I wonder how often inversions like that happen?! But ugh, what a bummer for you guys to have to pay back the subsidy over unplanned dividend income.

  5. What a great post! You brought up more angles than we have previously considered. The fate of the ACA is so key to our ability to retire early and at times, as the political climate intensifies, its future feels fragile.

    The point you made that really made me pause : “there are tons of ways that tax dollars support people in reaching the dream — funding public schools…”

    I mean obviously public schools are fabulous and benefit everyone by creating more educated members of society. But what I hadn’t previously considered was that, as a childfree couple (and I’m pretty sure you are too), my husband and I will spend our entire lives paying taxes for schools despite never having children who enroll in them. Maybe, just maybe, remembering this fact makes it feel slightly more ok to use ACA subsidies in retirement. We paid lots of money into that one area (schools) that our family didn’t directly use, and now later we’ll get more money out (via ACA subsidies) than folks who don’t retire early.

    Now of course schools benefit everyone and I wouldn’t opt out of a schools tax even if it was an option. But I think it’s probably fair to say that people with kids benefit MORE from public schools than childfree couples do.

    • We definitely think we get lots of value paying for schools as a child-free couple — lower crime because young people can get jobs, better employees to work with us, etc. But I think it’s a good point — that there are lots of examples of people paying for services through our tax dollars that we don’t directly “use,” but which we all agree are in the collective good. A great reminder!

  6. We don’t qualify for a subsidy, basically because our primary income sources are two pensions and social security, and we live in a low income area. Even if we did qualify, I wouldn’t want coverage of less than 80% (Gold), because the out of pocket costs would be way too high on a monthly basis to budget around. In addition, many physicians do not accept the ACA coverage (they don’t have to). We pay $945.12 per month for my medical coverage alone, and we’ll continue to do so for the next six years, until I turn 65 or something else changes. We also pay three premiums for Mr. AR: Medicare parts A, B and D. These four medical insurance premiums represent the bulk of our monthly spending, and that’s before anyone sees a doctor for anything, and we have no dental or optical coverage. It’s a huge financial burden for a couple living on a fixed income, and something we could not have anticipated would result in so much additional monthly out of pocket expense due to the unique billing methods the medical profession employs. A single office visit results in at least three additional charges: the visit, the procedure and the facility. Our premiums went up this year by over $145 per month, but our coverage went down ($5 more for everything: copays, lab, X-ray, etc.). The only reason I was able to retire early at all is because of the ACA, if it were not in place I would have had no coverage after Mr. AR went on Medicare, so I am not complaining, but when I say we’re embracing frugality I sincerely mean it. I don’t hang clothes on the line to dry and avoid restaurants and forgo fancy vacations to exotic places because I want to, I do it because I have to in order to cover the medical costs associated with my own early retirement without jeopardizing any more of our nest egg. If a subsidy was offered and it meant less coverage, more out of pocket every visit and choosing different doctors, I wouldn’t take it anyway. I’ll continue making the financial sacrifices I’m making and hoping the program becomes more affordable or Medicare gets extended to people younger than 65. What else can we do? It’s far better than no coverage at all, and it’s far better than trading my time to line someone else’s pockets.

    • We were thinking about you guys when we wrote this, especially the “predictable expense” part, based on what you’ve shared in the past, and some of the skyrocketing rates you’ve witnessed. Given how much you’re having to scrimp to make things work, have you ever considered moving? I know that’s not a fun option, but I wonder if there might be another place with a combo of lower taxes and better benefits that might afford you a better quality of life. But regardless, like you say, it’s worth it to sacrifice a bit not to spend your time working to make someone else richer!

      • We may move someday, when the house gets to be too much of a hassle or we don’t want to pay someone else to deal with the maintenance, but it’s definitely not in our short term plans. We love the house and we’re familiar with the area, it’s only a few hours from the kids and grandkids, and we could never replace it for what we paid for it. We also have no mortgage, and property taxes are low up here for California. Homeowners insurance is expensive, but property taxes and insurance alone are a drop in the bucket compared to medical expenses! We could absolutely drop mine down to the lowest level of coverage, but all we’d be doing is transferring a known expense (premiums), to an unknown expense (out of pocket), causing a lot of monthly motion sickness with the budget! It’s a ways to Medicare for me, and in the meantime premiums continue to rise annually for both of us. We’ve decided to stay the course for now, cut back where we can, maintain a healthy lifestyle and accept the reality of the situation. If there was a subsidy available I would jump on it without hesitation (and I hope you take advantage of every single opportunity you can to do the same), but we have Covered California here (not the federal ACA plan), and even without a dime of dividends and interest we are beyond the income threshold for any assistance. All in all, not the worst problem to have! Our medical insurance premiums for 2015 were over $17,000 and I expect that number to increase annually over the next several years, but we are fortunate to have “affordable” coverage at all (I am a cancer survivor and doubt I’d be eligible for insurance at all without the ACA). I guess the real question is this: after working and saving all your lives, trying to do as much as you possibly could to be self sufficient, is it reasonable to expect to have to scrimp and save in retirement just to afford medical coverage? The system is clearly flawed when the reward you get for a lifetime of hard word is facing the very real potential of a medical expense induced bankruptcy filing.

      • Seems like you have a lot of good reasons to stay put, so makes sense. But just so you know, the ACA made it illegal for insurance companies to deny coverage based on pre-existing conditions (like your past cancer), so you could for sure shop around. Though supposedly the plans on the exchange are the best deals, whether they’re on the federal exchange or your state’s exchange (they’re all just private plans that opt to be on one exchange or another — there’s no real difference otherwise!). But like you, we sure hope they can make the system more fair!

  7. I have lots of thoughts on ACA, but I will keep it limited here. Mostly – I think the government has no right to know my net worth. I feel like they know every cent that comes in to me – and that is what I am taxed on (salary, dividends). I have paid my taxes on all the money that comes into me, and spent my entire adult life as a saver to some extent. Because I worked hard to save and get a good education to lead to a good job, I don’t think I should be penalized over other people if I decide to live a slower paced life with less income coming in just because I am a saver. When we are FI, I will spend lots of time volunteering and doing my part in society to make it a better place. But, I don’t feel like just because I worked hard and saved and was responsible and have a high net worth that I should be further taxed.

    • I think that view makes total sense. But just so I understand — when you say you shouldn’t be further taxed, do you mean in the form of having to buy unsubsidized health insurance? Want to be sure I follow. :-)

  8. I saw some of those comments on ROG’s blog post – sheesh. I have a post coming up that kind of pokes fun at some of the tax deductions people are allowed to take. These are subsidies that aren’t designed to help the poor – HELLO mortgage interest deduction.

    I’m not going to be FIRE for another almost 10 years most likely, so I don’t really spend too much time thinking about healthcare yet, as it will most likely change in the US a couple times by then.But for someone in your position, I can see how stressful it can be. As for taking “subsidies”, I don’t think you’re doing anything morally wrong. You’re following the laws/rules enforced on you in the US. You’re not lying about your income to get the subsidies!

    People get very bent out of shape talking about any welfare or subsidy programs, as it seems the views are either black or white. I try not to get too political as a blogger of personal finance though… Arguing politics and morality isn’t my cup of tea.

    • Don’t get me started on tax benefits and loopholes for the rich. :-) People get so worked up about tax rules that benefit the poor (who, you know, need help to SURVIVE) but don’t seem to care about the ones that help the rich get richer. But no more politics. :-) I think you’re right that things will change before you retire, so it’s most urgent for those of us who are close. And as for whether the question is a moral one or not — it’s not going to stop us from taking the subsidy! As I just wrote back to Mr. SSC, I wish they’d just call it a “discount”! Then it wouldn’t feel so icky to take the handout. :-)

  9. Goodness – yes, to your thought provoking posts. Contemplating healthcare in early retirement isn’t quite on my radar yet, so I am not sure I can contribute much here. As for feeling morally uncomfortable to take the subsidies – I think that is normal because you have both methodically planned how to accomplish early retirement through efforts of saving, living below your means, investing, etc. To take the subsidies would potentially feel like a ‘handout’ (for lack of a better term), but this is something that all citizens of the U.S. must abide by – it’s not just a choice you are taking advantage of. I’d be curious to learn if anyone has opted out of taking the subsidies, but I feel as if that would be few and far between.

    • Yeah, the difference in price between a medium-subsidy plan and an unsubsidized plan is huge. Like vomit-inducing huge. :-) It would definitely annihilate our budget. So we are definitely NOT going to forgo the subsidy! But like you said, we still don’t love the idea of the handout. Oh well!

  10. This is interesting, and it’s a thought I hadn’t considered. It seems to me the right way to structure things, social justice wise, is to just have single-payer insurance while also increasing the tax on capital gains (which would soften the “subsidy” given to FIRE types during the ‘early’ retirement period when you’re living on your taxable accounts.) However, that is obviously not happening on your early retirement timeline :) It seems that you must take the subsidy, but I do understand the moral ickiness factor. Perhaps you could increase your charitable giving by the same amount as the subsidy. To make it really interesting, you could look into funding things like the hospital programs that pay for indigent care, or maybe dental/vision care for the poor (dental especially is a HUGE problem.)

    • In a new, fun WordPress twist, your comment shows up here, but didn’t show up in the comments I get notifications for! (I only found your comment because I couldn’t figure out why the post had an odd number of comments.) But to respond — don’t get me wrong: we’re taking the subsidy, ickiness or no. The finances just don’t pencil out any other way. (We’re talking about the difference per month of about $200 for both of us and $1000+ for both. Crazy.) We’re definitely big on the charitable side, and will do what we can to offset some of what we’re “costing.” But several others have made the good point that we’re paying for schools even though we’re not “using” them (no kids), but do so because it’s in the common good. It’s certainly in the common good for us not to go bankrupt from health care expenses and end up getting all the safety net program benefits. But yeah, the social justice question is a good one. Single payer makes so much sense, but all of the health care programs designed for the poor are horrible. Medicare, the only program that works, works because it’s for rich and poor alike, and therefore is administered a lot more smartly (although still has so many ridiculous, Congressionally-mandated restrictions, like how the government can’t negotiate drug prices). We sure hope it all changes in ways that get more fair to people on the lower end of the socioeconomic spectrum!

  11. So last month, I posted a very stirring “Thoughts on early retirement?” on Facebook (my personal page). One of the trolls (who happens to be a cousin) posted something like “With all the stuff Obama will give you for free, you might as well retire and live off the system.” (Gotta love the relatives). I think you covered this topic delicately and whole-heartedly. And it definitely is a tough one to navigate. As I’ve said before, I’m waiting to figure out anything to do with health insurance because I’ve got time and it’s too overwhelming! :)

    • Ah, relatives. :-) We all have some of those. In case it wasn’t clear in the post: We’re going to take the subsidies! There’s no question of that. It’s just the whole idea of handouts that isn’t completely comfortable, but we’re just going to have to get over that! :-)

  12. Consider this scenario:

    Two people with identical lifetime earnings. At age 55, Person A has no pension but has saved $1 million and plans to draw $40,000 per year. Person B has spent every dime he earned but has a defined benefit pension with a $40,000 annual benefit and cost of living adjustments (yes, they do exist). Both will qualify for a subsidy. Why is it immoral for Person A to take a subsidy but not Person B?

    • Good point. But from a strictly math perspective the person with $1m drawing $40k a year would most likely have more subsidy since their reported income would actually be lower than $40k.

    • We’re totally with you, and almost wrote something like this into the post. :-) We don’t think there’s anything moral or immoral about the subsidy, per se, and we plan to take it. We just never saw ourselves accepting “handouts,” and that’s the part that’s less comfortable.

  13. In short – Nope, I don’t feel bad at all taking subsidies, and I’m agreeing that Mrs. SSC summed up my position fairly succinctly above. :)
    I can empathize with your dilemma, but thankfully, I don’t have that same dilemma.

    Naomi, makes a great point above as well. I have to say, it was/is SO frustrating to bust my butt putting myself thru school, getting a nice paying job, and then getting the bejesus taxed out of my income. I expected that sure, but then to be told, “You can’t claim that, you make too much. Or that. Or that. Definitely not that… You can’t use that retirement vehicle, either. Or that one. Or that one…” Should I get taxed even more once I hit FI because now my assets are high, but my income is low just because I saved and invested that $$? Nope, not in my eyes. I’m more worried about ending up in accidental retirees healthcare coverage situation.

    Like others have said, this could all be a moot point and we could all go back to private health insurance in a few years. Then our whole FI timeline and life strategy would have to change, and we might just have to get all “Go Curry Cracker” on our plans and live abroad. I hear Christchurch is really nice. :)

    Hope that wasn’t too “ranty”, lol. Great thought provoking post though!

    • We tend to be a bit more accepting of taxes, and think it’s fine that there are income limits on certain deductions and various IRAs. Our issue comes with the fact that super rich people can still claim all kinds of crazy exemptions that regular people can’t, and when I hear that, let’s say, Donald Trump pays a lower tax rate than we do, we get crazy mad. But I digress… :-)

      Ultimately, this isn’t a “real” dilemma for us because we’re still going to take the subsidy! Ha. Why can’t they just call it a discount instead, so it wouldn’t feel like a handout? ;-) But yeah, the prices on unsubsidized plans (all private, by the way) are unjustifiable for youngish, healthy nonsmokers, so there’s no way in heck we’re taking one of those! But yeah… maybe we’ll be living abroad one day to dodge high premiums as we get older!

  14. I am going to go ahead and disagree about their being any form of “moral ickiness” with one being observant enough to optimize the same system that is available to everyone. We are all playing by the same rules here, it just so happens that FI/RE types tend to be less consumeristic in nature which allows them to consider hamster wheel exits sooner than the majority of folks think possible. This is not rocket science though, this is entirely behavioral, and it’s not as if we are keeping the easy-to-understand methods to ourselves at the expense of others ignorance. I think we do our part of spreading the word by blogging, commenting on blogs, sharing blog posts, participating in forums, etc.

    I feel like the expansion of health insurance availability through the ACA and the act of early retiring opens up several good jobs for people who need those jobs more than us. So I view that as a morally very positive thing. The more people we have working solely for access to health insurance prevents others from advancing in their careers or exiting unemployment. And for this reason, I think the subsidies might have a shot of staying long term, but I do think anyone planning to rely on subsidies should have a bunch of contingencies just because things can and most likely will change.

    I also would suspect that if you live in a state that taxes income, dividends and earned income are taxed the same, so you’ll still be paying plenty of state income taxes and presumably property taxes in early retirement. I don’t think it’s fair to compare health care subsidies, to say, food stamps.

    • I think this is a complicated enough issue that we can both be ok with receiving subsidies and feel icky about it, and that’s where we are. It’s the law of the land, and lots of people wealthier than us get the subsidy, so we’re good on that level. But it’s also a form of handout, which we don’t like. But that’s not going to stop us from taking the subsidy if the current system is still in place when we retire! :-) And totally agree with leaving our jobs open for others who need them — we’ve written about that before. And yes, we will absolutely still pay property tax, sales tax, and as little as possible of the other taxes since we’re working to reduce our retirement income! So we don’t be total mooches. :-)

      • Fair enough! As long as your feeling of ickiness doesn’t prevent you from taking advantage of the opportunities that might help you transition to the life you’d rather be living than the current one, then I guess the icky feelings are perfectly okay.

    • I don’t see a moral dilemma with any government benefit, including food stamps, if one meets the requirements. Do you think that corporate compliance folks decide not to take a gimme from the government because of some moral concern? Do you think Donald Trump pondered the ethics of welching out in his 4 bankruptcies? Heck no!

      The name of the game is to take as much as you can that the system allows. If you have a problem with that, then change the system. As for myself, I say just implement some level of guaranteed income – which would get rid of a HUGE number of expensive, intrusive bureaucrats – which would eliminate the high level of implicit tax rates that deter folks from working. OK, so a few “able-bodied” childless folks would get a benefit; heck, by them staying childless, they have already saved society vis-a-vis the welfare-receiving single mother.

  15. My husband and I live in Canada as we are covered. However American health care costs an average of tens times what Canadians pay. If we are in the US, we have to buy top up insurance to cover the difference between what Americans pay and what the Canadian government will pay. Our top up insurance costs $600/month and the main use for it is to fly sick people back to Canada as quickly as possible. We would like to move to the USA but we can’t even though my husband is an American citizen because he would have to work for five more years in the USA to get health insurance. I would have no coverage.

  16. Since we’re a few years away from realizing our option to retire early, we haven’t done a ton of investigating our healthcare options. However, I can tell you with certainty, we will not feel bad about accepting a subsidy for many reasons. One reason being, those are the rules. Another reason being, we have paid hefty taxes over the years to help the people of our country and we see nothing wrong with accepting a little help ourselves. If this wasn’t the case, we would need to work even longer to create more passive income to cover an unsubsidized plan. You have sacrificed many things to get you the this point. Don’t feel bad.

    • It’s funny — we don’t feel *bad* per se, because like you said, these are the rules of the game, and we’d only be following them. We just don’t like the idea of taking a handout. But we’re quickly getting over that when we see that other options are So Much More Expensive That It Makes Me Want to Throw Up. :-)

      For folks like you who are still a few years away, I think it’s still a good idea to look at the current options to get a sense of things, but yeah — a lot could still change in the next few years.

  17. Thank you for this post. We feel exactly the same way. We’d planned to buy catastrophic coverage, but that’s no longer an option. We’re still not sure what we’re going to do – and so have tabled the retirement discussion, probably for another year or so to see how everything shakes out politically.

    You are not alone.

    • Thanks for that! :-) We’re definitely going to buy the insurance and take the subsidy — today’s thoughtful comments are helping us get over the ickiness we feel at the thought of taking a handout!

  18. Great overview of the ACA and the ins and outs of the fairness debate surrounding the ACA.

    I agree with your conclusions mostly. As far as means testing goes, if they decide to do it, implement it through a similar method as the means testing for the Earned Income Credit. Basically if you have $3,000+ in pension, IRA, or dividends/interest, they know the deal – you’re “rich” and don’t qualify.

    Maybe set the bar a little higher so as to no dissuade folks from growing their wealth. The thought there being that subsidized healthcare should be more broadly available than the EIC (which is 2016’s version of welfare for the lower income folks). Heck, we’d be getting $5-6k in EIC each year if they didn’t means test it (and we certainly don’t need welfare!).

    And +1 on the single payer. I tend to vote conservative fiscally, but we need to either get the government out of the health care marketplace (end employer provided HI tax exemptions and make all employer provided HI taxable as income to the employee, among other fixes), or get an actual plan in place that lowers costs across the board and makes acceptable health care broadly available to all. Add another tax (or bump up the current %’s a bit) to cover it if you have to. I imagine it would (1) reduce costs, (2) be simpler to implement and (3) be more fair to everyone without introducing as much distortion in the marketplace.

    • I really don’t think we want means testing — talk about a crazy quagmire. Unless, as you said, it’s EITC level, and then — fine. We for sure don’t need THAT level of help paying for our health coverage, and would be fine losing some part of the subsidy to save that for those truly in need. But yeah, it’s so bizarre to us that health insurance is even linked to employers in the first place. Whether it’s single payer or a fixed private system (because, seriously — all of our interactions with private insurers have been terrible — we can’t figure out why people defend them so staunchly), we need to do something major. The current ACA has some hugely beneficial improvements, but it’s still an odd mish-mosh of good and bad, not a real overhaul. And we are slightly terrified to think of what our health care costs will be in our 50s and early 60s, before we qualify for Medicare, if we don’t figure out how to get costs under control. Thanks for stopping by, Justin!

  19. Great posting as usual ONL. I look forward to ACA as well and don’t feel bad about it one bit. I pay a ton of taxes every year for schools in my town, even though we have no kids. Thanks for writing this.

    • Thanks, you guys! That’s a great example of a worthy use of tax dollars that benefits people whether they “need” it or not (that is, some people can afford private school, and don’t strictly “need” public school, but they get the option anyway), and which everyone pays for, whether they have kids or not.

  20. Thank you for your thought-provoking post! I learn much more about this sort of thing–health care, retirement, finances, etc.–by reading about how real people are dealing with real situations, and that’s what your blog gives me.

  21. I don’t really understand the issue that people have with high net worth/low income households taking the subsidies. If anyone truly feels that they shouldn’t be receiving the subsidies by all means find out what your subsidy is, gross it up to pre-tax dollars and donate the money to a charity. Also I’m pretty sure you can decline to take the personal exemptions and standard/itemized deductions on your taxes so you could also go about it that way if you still have a moral issue with accepting the subsidy.

    Just to be a troublemaker, I don’t think it’s in your ER plan but do you have similar issues with people that maxed out their 401ks and plan to do Roth conversion ladders in ER even though they’ll be doing the conversion at lower tax rates than when the income was earned?

    Morality issues are extremely hard to navigate and when you try to apply them to financial matters things get even more murkier. As long as it’s not blatantly wrong, murder for financial gain, grifting old people of their money, lying to gain something you shouldn’t have access to or something along those lines I don’t really have a problem with getting what I’m entitled to as the law is currently written.

    • Don’t worry — we’re not turning down any subsidies! As we’ve written back to a few people here, if they called the darn things “discounts” instead of “subsidies,” I think we’d have zero issue whatsoever. It’s that the whole thing feels just a *little* like a handout that has us feeling icky, but not so icky that we won’t take it. :-)

      And, to answer your Q, we’re not planning to rely on the Roth laddering, and the tax rate question doesn’t bug me, mostly because the laddering limits are small — we’re not talking major tax shelter opportunity here or anything. :-)

    • You can’t decline the personal exemption or deduction. Technically you would be breaking the law to do so. There is however an IRS form that allows folks to donate to the national debt. Anyone who feels a moral quandary can do this, even specifying in his will to do this with part or all of his estate.

  22. Great post and conversation here. Working in a health care field I found one of your statements very interesting.

    “We value our health, and would pay for health coverage no matter what…”

    I agree with both statements, but don’t find them very correlated.

    As for our health, we are currently transforming and experimenting with our diets, we are very active physically, focus on limiting stress and getting good sleep. We also are looking at cultivating our emotional and spiritual well being. That all has everything to do with valuing our health, but none of that has anything to do with health insurance.

    Health insurance is really medical insurance. It almost always caters to taking care of those who are already sick and providing care which can be very expensive. You need it as a financial decision because you never know if you will contract a rare disease or have a major injury that could wipe out anyone but the most extremely wealthy with just a month or two of medical bills.

    However, the real reason health care is so expensive is that we spend an insane amount of money on treating chronic diseases (think obesity, diabetes, hypertension, arthritis, etc) that are preventable and reversible with healthy lifestyle. Even if I was diagnosed with one of these conditions or found myself on the way to one, I would not utilize my medical insurance unless it was a last resort because I do value my health and so would look at what I could do to address the root cause of the problem.

    I am a big fan of catastrophic, high deductible plans b/c they make people more responsible for their health and it makes people pay attention to what these often ridiculously overpriced healthcare services cost rather than passing them off to a third party insurer. However, as that is not an option, I’ll gladly take my subsidy (tax break, handout or anything else anyone wants to call it) because our system is what it is and I have to work within it.

    • We could not agree with you more! We have written before about valuing our health, and therefore not buying the cheapest groceries, and making sure we prioritize physical activity, sleep, etc. But having *medical* care at our disposal is part of that. The tests that diagnosed my celiac were totally routine, and yet would have cost us thousands of dollars without insurance. We don’t take any medications, but want to know that if we need to, they’re covered, too. We both have autoimmune diseases in the family, and while we’d do our very, very best to address anything we were diagnosed with using lifestyle and diet, we’d want to know that we at least had the option to take an expensive medication. Or — for what you do — we have *really* benefitted from PT in the past after sports injuries, and we’d want to know we have access to that level of medical care, too! That’s a long way of agreeing with you. :-)

  23. I have always been very fiscally conservative and I did not/do not support the ACA.

    Having said that, I have no qualms with the “subsidies”. While I do not agree with the system, this is the system we live in and I feel no more guilt over it then I do using tax advantaged retirement accounts or accepting the standard deduction on taxes. The alternative to working inside the system is to be outside it. I believe they call it anarchy. ;)

    Having said that, I believe the phrase subsidy was used/decided upon during the time period when the president was insisting that the law was not a tax (before the supreme court decided it must be a tax or therefore illegal). Under other circumstances I believe it would have been noted as a tax credit, and much simpler to boot. And I don’t see a reason to turn down a tax credit.

    What might be slightly more interesting in this conversation is this: I don’t have health insurance. I faithfully pay the penalty every year (roughly 1150 for 2015 and 1400 for 2016 once it rolls around). I have not had health insurance in nearly 20 years.

    • We’re about as uninterested in anarchy as any two people can be. :-) And yeah, if it was called a tax credit, we wouldn’t have any issue! Isn’t it funny how much the word choice affects how we feel about it all? And wow — no health insurance. I don’t think I could sleep well at night without being insured, but if it works for you, great. :-)

      • For me, as a numbers cruncher, it’s all about probability. I don’t even have to work them out myself. The insurance company will do it for me. It notes that if it receives X amount from me each month, that I am statistically likely to pay them more than I spend (and this assumes a whole range of treatment they are required to cover that I am not, such as birth control). I’d rather self insure. ;)

        My partner and I have been married almost 15 years and I have detailed records for all of that time so I can use that as my example. If we had bought the very cheapest possible insurance available now at 400 per month, 15 years ago, the cost would be 72,000 to date. I have spent right about …. 80 dollars. The average emergency room visit before insurance is just 1233. So we would have to pay for 58 average visits out of pocket just to break even. and that’s assuming that we left it all under our bed for safe keeping. No interest or dividends or gains.

        My husbands work is required to provide insurance because of ACT. They chose one that is so high that no one can afford to buy in. Our cost per year for a single person would be nearly 10,000 dollars with a 6,000 dollar deductible. So it would cost us 16,000 dollars to provide any type of insurance for one person… nearly one emergency room visit per month BEFORE receiving any type of benefit.

        We have nearly 4,500 each month that is flexible spending and are confident that we can cover most costs out of pocket.

        What about the biggies? Cancer or ? President Obama’s numbers state that 62 percent of bankruptcies are medical debt. Now, that figure is debatable but I’m willing to accept it at face value for this moment. Nobody knows right now what percentage of those are currently insured but as far as I can tell? A substantial portion. There are a number of news stories out there about medical bankruptcies not subsiding as it was believed they would over the past few years. I assume that if something that cannot be covered by my savings, etc occurred that I would either a) die (treated or untreated) or b) bef forced to declare bankruptcy. Which of course is true in any situation, health or otherwise.

        My personal take on it is that we try to “insure” that everything will always be at least as good as it is now. We want to insure our houses, our cars, our debt, and our health. It seems very bizarre. In a few years my husband is going to drop down to part time. That will mean he is no longer eligible for his extremely expensive work coverage and then will be able to use the exchange. At that point we will have health insurance.

        Last thing (can you tell I think about this too much?). He’ll be dropping hours at his work in a few years (when the house is paid off) so that he is no longer eligible for his employers health insurance, which will allow him to get insurance through the exchange. I’ve done the math on the ‘tax credit’ that he will receive by dropping below the income line and it’s significant. I believe it was nearly 13% for our situation. It’s one of the highest taxes currently on the books. Certainly higher than my state income tax! And higher than my actual federal tax!

      • You have clearly thought about it a ton and done the math — bravo! Our hope is that we’ll get subsidized coverage that works out to far less than the amount you’re assuming per month, so that it *will* be a much better value equation, but yeah, I think if we weren’t going to get a substantial subsidy, we would be awfully tempted to do the math like you have and figure out at what point we should just self-insure. Though I think we’d be more likely to become expats to a country where health care is cheaper before we’d roll the dice with the crazy expensive health care in the U.S.

  24. Although I have major issues with the design of virtually every tax law in our great nation, I can’t blame you for following the law. It’s not as if you’re practicing tax evasion or something.

    We’re trying to decide what we’ll do in 2017 as well. I feel like crap accepting subsidies knowing that we could afford the full amount (and the fact that if we do ACA, and I accidentally decide to work too much we will pay a lot), or we could get coverage through my husband’s school, but we’re definitely moving to Thailand for cheap healthcare.

    Honestly, I love democracy, but it does lead to grossly inefficient shit like ACA and the entire tax code.

    • Good to know that you also have some icky feelings about accepting subsidies even though they are — as you said — the law. The consensus on comments here seems to be that we should let go of feeling crappy about getting subsidized coverage and just take it. We were always going to take it, but enough folks have made great points about things like schools, that we pay for even as childless folks who don’t “use” the schools (but still benefit from them), that we’re recognizing that it’s okay to do the converse sometimes, too. But yeah, maybe we’ll join you in Thailand. :-)

  25. I’m not there yet with healthcare/obamacare, but when I did a little research a year ago or so I just assumed we would get the high deductible plan and pay in the $300-$400 month neighborhood, do our best to rely on being healthy and in emergency use our H.S.A. account if needed. I’m certainly oversimplifying things, but we don’t have kids, young and healthy, and currently have a similar plan at work. Am I way off, did I just ruin my FI plans?

    • It’s worth it to do the actual math (or the actual hypothetical math, based on current rates, but knowing they will change). The subsidy amounts vary pretty hugely, and it helped us think through our budgets in ER to make sure that we don’t give up a sizeable subsidy over a couple of bucks. I don’t think you ruined your plans, but take a look at what you could possibly get and play around with different budget scenarios. :-)

  26. If I were you, I’d happily take the subsidy (just as I’m now taking a “subsidy” for my kids’ free public schooling, even though I previous was used to paying for private preschool)– social insurance works best when we’re all in it together. Just as my current involvement in public schools has some positive externalities for the school as a whole (we’re in the position to donate extra to the PTA, to volunteer, etc), so will your participation in the ACA subsidies have positive externalities: I guarantee that the people who run the program will run it better when people with your level of resource/privilege are participants (and if they don’t, complain!).

    If you do have money to donate in retirement, you could always direct some portion of what you otherwise would have paid in health care costs toward things like safety net clinics who serve people not covered by the ACA (e.g., undocumented immigrants), or toward organizations that advocate for Medicare for all type policy changes.

    • Oh we’re taking the subsidy — not to worry! :-) And totally agree with you: there are plenty of things (schools are a good example) that we all pay for with our tax dollars whether we directly use them or not because we all agree they are in everyone’s best interests. And it’s definitely better for society if we have health insurance. And it’s a good suggestion about allocating some of our donations in retirement (and maybe now) to support medical care for those without insurance. Thanks!

  27. I completely agree that the government should be looking at more than just income. If a millionaire gets laid off, but has 10 million dollars in savings, do they get free healthcare? After my husband and I got married, I was unemployed for a few months and I had to get private insurance (to avoid paying a fine). It was $250/month and I couldn’t afford it, but I didn’t qualify for assistance because of my husband’s income. Because they look solely at income, our $117,000 of student loan debt was not factored into the equation.

    • Jen, I wouldn’t put a lot of energy into worrying about the multimillionaires and free health care. If you put 10,000,000 dollars in savings an interest rate of less than 1% would still place them well above the line for subsidies. Beyond that, you don’t become a multi multi multi millionaire sitting around waiting to insure themselves with basic levels of insurance.

      On friend was very excited this year to be subsidies, paying only 100 a month for insurance… when she did her taxes she found out that in fact she ended up making too much and had to pay 1200 dollars back into the pool. She went very rapidly from appreciating the new laws to loathing them. It turns out she was okay with it when she was receiving it… but not paying it.

      FWIW, you are able to have a few months coverage gap without penalty. Other options may have included Cobra, state coverage or your husbands insurance.

    • Yeah, it’s a tough one. The programs that do have net worth means testing are borderline abusive of recipients, so I don’t think we want that either. And yeah, it’s so frustrating the way that student debt counts against people!

  28. I realize I’m quite late to this debate, but I’m catching up on some reading and really appreciate your coverage of this topic. I agree that even if it feels weird to accept the subsidy/discount, you are completely following the rules of the system, and it is a system you’ve paid into all along. Also, our health care and insurance system has become very complicated and expensive for any number of reasons, but there isn’t really a viable option to following the rules of the system, as you outlined. Paying exorbitantly more for no real reason isn’t a realistic option in my view. We plan to do the same as you.

    • Thanks for weighing in, Neil! Yeah, it has a high ickiness factor, but we’re with you — we’re taking those subsidies! Because in real life, we’d never pay tons more for something when a cheaper price was available for the same thing!

      • The problem with all entitlment programs is that they start out with good intentions, but then are eventually abused by intended or not intended loopholes. It is natural human nature to take anything for free, even if its not needed. Its just too tempting. People will rationalize it to ease their conscious, but make no mistake, this is still a form of a govt handout.
        Any monies that are paid out by the govt based on income is by definition Welfare. There used to be a time in our country, thou long time ago, that people being given money or goods because of their circumstances, would actually feel a sense of shame from it. Their prides would motivate them to try to rise above the need for assistance if possible. Thou, not all could. That is where a social net was and is still needed.
        We must all realize that nothing in this world is “free”. To pay for anything, the government must raise money thru taxes, go into more debt, and or print more money. One day when interest rates rise globally, and payments on the nations debt explodes, only then will everyone realize the consequences of these bad policies and the effect of our country’s movement more and more movement toward Socialism.
        But by then it will be too late. We will have either become Greece economically, or very close to it.

        The problem with socialism is that you eventually run out of other people’s money.”
        ― Margaret Thatcher

      • I don’t particularly care for much of the entitlement/socialist/etc vibe in the world today but the issue at hand here is not one of an entitlement program. For the types of programs you are thinking of, one must APPLY. You have to declare your need. You have to ask.

        In this case, there is no declaration of need, it is simply the way the tax system works. For instance, every year I start with the same standard deduction as everyone else in the country. Is taking that deduction an entitlement program? No. I have no choice but to take part in the system, it is mandatory, so it cannot be an entitlement issue.

        It could be a SOCIALIST issue, in the sense that people are attempting to take money from X to give to Y. However, ONL is hardly being socialist. They are noting that by working less hours they will cease being X and become Y. They do not have any control over declaring themselves either position.

        Of course, each new tax law has some unintended consequences but the laws are designed to shepherd our choices to choices that we support as a people (heavy taxes on sin items, tax breaks to those with children, etc) and thus is going to have consequences.

        My husband works 60 hours a week right now, and we pay/don’t pay for our own health insurance, instead paying the penalty tax. Now that our home is paid off, he will be dropping down in hours to just 25 – 28 hrs a week… to low for health coverage through his employer, but will now qualify for a 50% subsidy through the health exchange. The net effective of this is that by working 50% less hours, he only makes 20% less pay. The idea that he should continue to work 60 hrs a week in order to avoid a socialist subsidy is absurd.

        I would happily play another game, as this one is clearly rigged, but it’s the only game in town.

      • I see this whole blog post, especially the summary rhetoric in the beginning, as nothing more than a long rationalization of why its morally ok to accept ACA subsidies.

        There is the usual laundry list of why these subsidies morally pass the smell test. But in general, what it was in summation was this; others get their perks, why not me?

        “we understand that all of this might rub some people the wrong way, the thought of millionaires getting taxpayer-subsidized health care coverage. (and we won’t go into all the ways that the rich have always been subsidized by taxpayers — the mortgage interest deduction on first and second homes, no taxes on premiums paid for employer-subsidized health coverage, bank bailouts, myriad forms of corporate welfare, etc. in principle, this is nothing new.) ”

        Especially loved the comment of not going into all the ways the rich have been subsidized as the writer is actually writing them 😉.

        Well first off, as a Libertarian and free market proponent, I am just as against any corporate subsidies as I am individual ones. I would be in favor of eliminating all tax loopholes for businesess, thou I would make corporate taxes much lower to spur more investment. Busineses, especially small, are the lifeblood of our economy and society.

        But, using the argument that two wrongs make a right does not hold moral high ground

        First off, there is a misconception that one must get required health insurance thru the Obamacare Exchanges.

        “but here’s the thing: we don’t really have a choice. we are required by law to buy health insurance on the exchange, which requires us to enter income, which then tells us our subsidy. we can’t say, “oh, no thanks, we’ll pay the whole thing.”

        This is simply not true.

        Yes, it will cost more, no doubt. But there are many people who still are going into the marketplace and purchasing health plans without subsidies for many reasons explained in that linked website.

        But here is the kicker. The non subsidized plans are more money because the subsidized ACA plans distort the marketplace. The insurers, who are losing money in the price regulated exchanges, will obviously look to make up some of those loses in the non subsidized markets.

        The ACA is being crushed by its own weight. With insurers leaving, or planning to leave within the next year or so, fiscally it is failing. So, now the government is scrammbling to find a way to keep the insuers solvent and have a chance to profit thru, you guessed it, MORE CORPORATE GOVT SUBSIDY! ACA is a non viable program as many predicted it would be.

        But, in the meantime, while it is still here, we must all ask ourselves, will we continue to rationalize reasons why we are entitled to the subsidies? We can always do that very easily, using such invalid reasons as ” i paid for it thru my tax dollars”, “now I can not work as many hours”, “I have no choice, I cant opt out”, or the most common, “the rich gets theirs!”.

        These are just convenient rationales for a a uncomfortable moral decision to be made by us all, and a more important decision of the socioeconomic path of our nation in the coming years.

      • Mike,

        I clearly do not perceive this the way you do. For instance, those having children are provided a tax break for the first three of them, regardless of income. One might easily suggest that it is morally inappropriate to take the deduction if you have a child but also have sufficient income to support one but I see it as playing the hand we are dealt by the government. The government is attempting to encourage the enrollment of people into health insurance programs so they are providing tax breaks for doing so. Why would they then be confused as to why people would use them?

        Part of the purpose of taxation is to manipulate behaviors, such as with a ‘sin’ tax. Altering the tax code will have unintended consequences and part of the unintended consequences for the ACA is that it proves the point that eventually, people are willing to earn less rather than subsidize others further. I’m not speaking metaphorically. My husband has worked 55 – 60 hrs a week for nearly 10 years at his currently employer with no benefits such as sick days, retirement accounts, health care, etc. At the end of the upcoming year, he will be dropping to less than the 30 hrs a week that will allow us to purchase health care on the exchange (without penalizing his employer), giving us health insurance for the first time in our lives. I am not uncertain of my moral stance in doing this. This situation is not of my creation, nor is it in my control. Your stance may be that he should continue to work 60 hrs a week lest he fail to subsidize someone else’s health insurance but it is not mine.

        Awkwardly, even those who had no health insurance before, but have it now still effectively have no health insurance. A plan, subsidized by the government, that has a yearly deductible of 6,000 dollars has no value to an individual with no money to cover the deductible. A free doctors visit each year is of little worth when you cannot pay for the required follow ups. However, these people are doing exactly as the government required; They are either paying into the system in order to sustain it for those who are able to afford to use it or the government is doing so. Either is mildly horrifying.

        One thing I agree with you regarding, is that the ACA is a nonviable program long term. Setting aside positives/negatives of the program, the reality is that there is no end in sight to rising health care costs and not enough funds available to cover them. This was predictable from the beginning though, and changes nothing.

      • That’s a great point that the subsidy is essentially an incentive payment to encourage behaviors, in this case enrolling in health insurance to lessen the burden on all of us to pay for the health costs of the uninsured. Whether the law works in practice is well beyond the scope of this post! :-)

      • Our goal with this post was not to try to stick up for an obviously flawed law, nor to claim the moral high ground for ourselves. It was just to say that there’s no great or comfortable answer, hence “ambiguity” in the title.

      • Thanks for chiming in and clarifying our situation! :-) Couldn’t agree more that the idea that we should keep working jobs that are taking a toll on our health and well-being (you know, in ways that RAISE health care costs for all of us) just to avoid a subsidy is absurd.

      • “the idea that we should keep working jobs that are taking a toll on our health and well-being”

        That is the definition of Socialism.

        But when does somebody’s needs supercede anothers rights?

        Yes, I guess we will have to agree to disagree.

        Good luck to everyone, but I doubt many will get a chance to use the subsidies because the ACA will probably be failing in the not too distant future.
        What replaces it, who knows.

      • We totally get that not everyone is a fan of the ACA, and it seems like you’re in that boat. That’s cool, though we’re not interested in debating the merits of the policy or any political topics here. :-)

      • The purpose of this thread was to discuss the moral ambiguity of taking subsidies for the ACA. So then, if it is accepted that taking subsidies has a moral ambiguity, (if not, then why the need for a discussion thread) then why not the law itself? It is difficult for me to separate the law from the subsidies because the subsidies was a very integral part of the ACA from conception. So, if we can agree that in many cases the subsidy can be considered a grey area in the matter of our moral conscious, then how can we easily detach the two issues?

        In regards to the rationale that the subsidies could be construed as a great incentive for purchasing health care, lets keep in mind that the ACA is not a voluntary program. Everyone who is not insured must get a policy or be fined. So if something is mandatory, there is no reason for incentives to come into play. They dont need to motivate you. They already have the fear of the law, and the government, which has the power to use force, to enforce it.

        So, sorry to say, but everything I keep reading is not truly debating the moral ambiguity of the subsidies, but just a continuence of rationalizing it to ease the collective consciouses.

        To put it more simpky, this is a “lets make everybody feel good about the subsidies” thread.

        Nothing ambiguous about that.

  29. What are your costs estimates for Obamacare? Any backup ideas is that gets nixed? I plan on it too for now but it is one of our questions as well as dental with 3 kids, good luck with your plan.
    The Dreamers

    • There are so many factors that go into the calculations, and it seems to change a ton every year. We’re budgeting $5000/year, which should cover even much higher premiums than we anticipate as well as the full out-of-pocket max for two of us on a silver or super silver plan. But no idea what that all looks like for a family with 3 kids! We do know we’re going to look into dental discount plans rather than insurance, and will consider dental tourism when we travel out of country. If the ACA gets nixed, we’ll go with a catastrophic plan like used to exist before and pay cash for our preventive visits, and explore medical tourism for any costly but elective stuff. But it’s very much a moving target!

  30. I just wanted to correct your statement about there being no means test for SS benefits. The government has a back door means test in that up to 85% of the benefit is taxable, based on income level. Yes, we paid into it as a tax, and then it is taxed again when we receive the benefit. What’s worse is that instead of an upfront means test that reduces benefits, we get the full benefit and our taxes on it go into the general fund, not back into SS to keep the fund financially sound. This needs to be changed.

    • You are 100% correct that there is an INCOME means test on taxability of SS. There is no asset test, and also no point at which the benefit phases out for those who don’t need it. And as for where the taxes on SS benefits go, I think your suggestion makes a lot of sense! Though I’d personally rather if they just reduced payout based on income but then made it all tax-free.

  31. Not feeling icky here. ACA subsidy not so much different than untaxed fringe benefits that workers get. Or low taxation of unearned income. Or business deductions. That is the system and you work with it. I see guaranteed issue and comprehensive coverage at least as valuable as the subsidies, because so many folks were shut out under the former system.

    Does this mean that other countries with universal free health care are wrong? Wrong like universal free education? Some societies have decided certain things should be provided regardless of circumstances. Making the subsidies visible here gives the appearance of an impropriety that doesn’t happen where they are hidden.

    • There’s a really deliberate but unfortunate use of nomenclature here that muddies everything. We are taught that “subsidies” are bad, and the law uses that terminology here to make people feel icky about taking them, when the other benefits you mentioned aren’t called subsidies and therefore don’t raise moral flags. I wrote about this much more recently here:

  32. we were able to retire 10 years early and structure our investment income and other income sources such that we pay very little for health insurance. after paying overly high progressive income taxes over the last 30 years, it’s nice to finally get our “fair share” of free “stuff”. obama was a horrible president, but we thank him for two things: wall street/bank mortgage bailouts (driving stocks up) and now free health care for the wealthy. nice.

    • I’m with you here. Time for daddy gov to pay back those 150k yearly federal taxes I’ve been paying.

  33. Not sure what state you live in. (This is the first post of yours I’ve read. Wandered over here from Mr. Mustache.) In our state, you can buy individual health insurance plans off the exchange; you can also shop for a plan on the state-run exchange and opt not to enter your income. That means you pay full price, no subsidy.

    Dave above is wrong that only the silver plans involve subsidies. Only silver plans involve Cost-Sharing Reductions, which are income-related and lower deductibles, co-pays and coinsurance. All plans on the exchange are subject to tax credits.

    The government won’t call it a “discount” because it’s not a discount. It would be a discount if Blue Cross said, Ah, you’re low-income, we’ve allowed for that with our underwriting, here’s your discount. It’s money the government gives the health insurance cos on behalf of people who get the plans.

    My understanding is that the ACA was based on healthcare plans in Germany and France. The government requires every person to have health insurance, regulates the plans that can be sold to ensure adequate coverage, and provides subsidies for lower-income people. I love #1 and 2, and I think everyone will agree that #3 comes with the territory. I think asset-testing would be okay but I don’t see a feasible way to do it. Also, it would penalize honest people.

    I don’t know what the answer for health insurance is. I’ve certainly heard people talking up universal healthcare in other countries when they don’t have a good understanding of what those systems involve. (Example: really affecting essay written by a British woman who held her savable baby as he (she?) died because the baby was two days short of the NHS “save the preemie” line. She wasn’t angry, either–she understood that this was part of the deal.)

    For the record, I think it is totally fine that you and your man are on the ACA plans. I also think you are brave to address this in public. I haven’t done much FI/RE reading, and I wondered how ER people dealt with health insurance & what their view of the ACA was.

    Best wishes.

  34. The ACA is about covering people who have less income and need a subsidy to re-balance the cost of healthcare. My investments are my income and the choice I’ve made to save is none of the governments business. I’ve paid my fair share of taxes and saved the remaining money to have choices later in life and that should not be taken into equation. It’s the fruits of my labor I’ve chosen to save to generate an income for myself. If they take into context saving (good choices) they should take into context behavior (bad choices) which people have made in life as well. Wealthy from income savings, no benefit for you. Had 5 kids by the time you were 23, no benefit for you. Dropped out of high school, no benefit for you. Get fired from your job, no benefit for you. This needs to be a two-way street of “fair”. We need to stop penalizing good behavior and promoting bad behavior as a society.