For those of us who are close to early retirement, or already there, the recent Senate machinations around health care have been extremely consequential, dictating and potentially hugely increasing what we’ll all be paying for health insurance beginning as soon as January. This is something we in the ONL house care a great deal about, given our particular health care needs and the fact that we’re pulling the plug on employer-provided coverage in five months when we retire early.
This week, we all learned that the current set of proposals to reform or repeal the Affordable Care Act (ACA), also known as Obamacare, will not move forward. Full repeal would require 60 votes in the Senate, not the 50-plus-VP-tiebreaker needed to reform the ACA through the reconciliation process they’ve been pursuing, and given the current impasse on getting to even 50 votes, it’s now unlikely we’ll see much movement on the question this year. (But never say never.)
Regardless of personal politics, most early retirees or soon-to-be early retirees we’ve heard from have expressed a simple desire to know what to plan and budget for, and unfortunately, that’s still not entirely clear, at least not in the long run. So today, as a part of our continuing series on health care coverage for early retirees, we’ll take a look at where we are at this moment — what we now know, and the many things we still don’t know, about health care for those of us who are many years from qualifying for Medicare at age 65.
Other posts in the early retirement health care series:
- Staring Into the Early Retirement Health Care Abyss
- What the Election and a Trump Presidency Mean for Early Retirement
- Optimizing Our Retirement Income // ACA and Taxes Vs Actual Cashflow
- The Power of a Low Income in Early Retirement
- Planning for Health Care in Early Retirement
- Think Health Care, Not Just Taxes and Weather, When Deciding Where to Retire
- The Moral Ambiguity of Obamacare Subsidies for Early Retirees
What We Know Now About Early Retiree Health Care
For the time being, the ACA remains intact, which means a number of things for everyone, not just early retirees.
First, the requirement on covering the 10 essential health benefits remains in place. This means every health insurance plan must cover preventive care regardless of how high a plan’s deductible is, along with prescription drugs, in- and outpatient care, mental health care, pregnancy and neonatal care, pediatric care include vision and dental benefits, among other types of care.
Second, the individual mandate remains technically in place, though it’s looking unlikely that anyone will be enforcing it for the time being. From a risk perspective, the more people with insurance, the better for everyone, and a de facto lack of mandate could increase premiums across the board.
Third, most people will continue to have access to health insurance via the national or state health care exchanges. There are a few states and counties where the exchanges have been forced into collapse, but overall, analysis shows that the exchanges and markets are stabilizing.
Fourth, protections on coverage for pre-existing conditions remain in place. The most recent versions of the Senate bill would have pushed the decision on requiring this coverage to the states, but for now, no one can be denied health coverage or have specific care denied because of pre-existing conditions.
Fifth, the Medicaid expansion remains in place, which means that residents of states that expanded Medicaid, and a lesser number of people in non-expansion states, will continue to have access to public plans. And related, the idea of health insurance subsidies based on income remains technically intact for people whose income goes up to 250 percent of the federal poverty level, though this is complicated. (Keep reading.)
What We Don’t Know — And May Not Know For a Long Time — About Early Retiree Health Care
Despite a seemingly status quo outcome of the most recent legislative debates, the White House has signaled an intent to “let” the ACA fail (“let” in quotes because it actually means force it to fail by taking actions detailed below). Which throws into question a lot of what otherwise would be knowable for early retirees relying on exchange coverage.
The main unknowns revolve around two key outstanding questions:
Will insurers continue to offer plans on the exchanges in most states?
What will costs be for those purchasing exchange plans, including many early retirees?
Insurers Offering Exchange Plans
Given the recent stabilization in the insurance markets, most insurers have signaled that they intend to stay in the exchanges — so long as conditions remain favorable for them to do so. And that’s the big question. From the insurers’ standpoint, they want as many healthy people to have insurance as possible, to spread out risk, and they need the continuation of direct payments they currently receive (“cost-sharing reduction payments” or CSRs) to cover low-income people (what most people call the ACA subsidies), so that they don’t lose money. So the stability of the exchanges hinges on two questions:
- Will the individual mandate be enforced?
- Will direct CSR payments to insurance companies continue?
Along with the current administration signaling that it won’t enforce the individual mandate, meaning the IRS won’t impose tax penalties on those who don’t have insurance, there’s significant question about the payments to insurers. First, Trump has continually said he intends to discontinue subsidy payments, which he has unilateral authority to do following a lawsuit by the House of Representatives during the Obama administration about the legality of non-appropriated payments. If the payment funding ceases, which could happen as early as this week, experts predict insurance plans will flee the exchanges en masse, forcing early retirees and anyone else without employer-provided health coverage to pay full rack rate for insurance directly through the insurance companies.
All of that said, efforts to repeal and replace the ACA have grown increasingly unpopular, with a majority of Americans now saying they don’t support the current efforts. So we’ll have to wait and see if the folks in charge decide to go against public opinion, which could risk a political price.
Costs For Exchange Plan Enrollees
The questions facing insurers directly impact the costs that early retiree and other would-be exchange plan enrollees will undertake for care. If the lack of an enforced mandate and subsidy payments force insurers out of the exchanges, then we’ll all have fewer options, and our costs will increase. In addition, the question of cost-sharing subsidies and to what degree they will be funded has a massive and direct impact on many of us, given that a lot of early retirees plan for a low income in retirement, which would qualify them for sizable cost-reduction subsidies which reduce premiums and out-of-pocket limits under the current structure. Overall, 84 percent of exchange plan enrollees receive some form of advance premium tax credit or subsidy, so this is not a small-scale problem.
We’ve always had mixed feelings about having large savings but receiving premium assistance under the ACA’s income-only means testing structure, but have appreciated above all the known and reasonable out-of-pocket limits imposed by it. So while we’d be fine budgeting more for monthly premiums and copays, knowing with certainty that sudden illness or an accident wouldn’t wipe us out, because the subsidized silver plans have reasonable out-of-pocket maxes, gave us tremendous peace of mind. (And the one bit of editorializing I’ll do here is to say that we wish everyone could have that peace of mind. No one should have to carry around the fear of being wiped out by health care costs at all times. This shouldn’t be a privilege limited to those of us who can reverse engineer our income to fit within the narrow rules of the game.)
Bottom line uncertainty: While coverage for the 10 essentials and pre-existing conditions seems solid for the moment, what the costs for early retirees will be as early as January, and what options we’ll all have available in terms of insurers and plans, is still completely unclear. We know what the current law says those answers should be, but that means very little at the moment.
So the limbo continues.
What This Means For Us
Last year, when it seemed likely that the ACA would remain in place, we did a great deal of planning for our future health care, including determining some ways to keep our income low while keeping cashflow higher, which would optimize our health care costs without significantly compromising our quality of life. (You can use this basic calculator to do simple calculations at different income levels based on your situation to figure out your optimal income level for health coverage, though all of this could change any day.)
While it wasn’t the driving factor in paying off the house, the desire to keep our income low for health coverage was one of the factors. Reducing our taxable income without hurting our cashflow is another reason we haven’t practiced tax loss harvesting. If we reduced our cost basis on our shares, then when we go to sell them, the amount on which we are taxed, and the ultimate amount calculated as income, would become larger, which would directly increase our health care costs. So we’ve opted to pay a bit more in tax now by not harvesting losses, in favor of paying less for health care later (and also in favor of paying some of that forward, what we think of as prepaying for our future health care).
Of course, now it’s entirely unclear whether any of that logic will still help us. But the ACA remaining intact at least gives us clarity on one thing:
Come January, we will opt for an exchange plan rather than purchasing COBRA through my employer.
My COBRA plan is extremely costly, and even if the subsidies disappear entirely, a fully rack rate plan in which we can choose the coverage levels and limits will be cheaper than COBRA on my company’s plan. And if the exchanges collapse, then we’ll buy a private insurance plan directly from an insurer. (After we unmask ourselves, I’ll share more specifics about the rules in our state and how this impacts our decision.)
So we know where we’ll get our insurance, but we are still on pins and needles about how much it will all cost. And as I’ve said before, it’s awfully hard to budget for infinity. Which means that if Mr. ONL has the option to keep working next year in a vastly reduced capacity in exchange for health insurance (or at least the income to pay full price for it), we’ll be mighty tempted to agree to that. Stay tuned.
What’s Your Concern?
Are you following the health care developments closely? If so, what concerns do you have? Any relief or frustration you want to vent about the most recent developments? For those who are already retired and have gone with a health share ministry instead of traditional insurance, care to share your experience and whether you’d recommend that approach? I’d especially love to hear from anyone who’s had a health share AND had a major medical event, not just routine care like office visits. Let’s dig into it all in the comments.
Want to find out who we are TWO WEEKS before we share it here?! Sign up!
Subscribe to get our bimonthly newsletter with tons of top secret info we'll never share here on the blog. Plus get the big reveal two whole weeks early!