we retired early

Signing Up for ACA/Obamacare Health Insurance for Early Retirement

At last, it’s official: we are early retirees who have health insurance.

“At last” because it was not as easy to get that Affordable Care Act (ACA)/Obamacare insurance as we’d believed it would be, despite all my familiarity with the health care exchanges, and despite how many times I have gone through the estimation process on our state exchange site.

But I’ll get to that. And to the big surprise that we wish we’d known about — and that you should know about if you’re planning to retire early and buy an exchange plan.

Here’s how it all went down.

Signing up for Affordable Care Act / ACA / Obamacare health insurance for early retirement, as early retirees

Estimating Coverage and Costs for Health Insurance Plans

California has its own exchange, Covered California, which we used instead of Healthcare.gov, but the process is otherwise pretty similar. Whether it’s on the federal exchange or a state exchange, you can go in anytime and estimate what your health insurance would cost at certain income levels.

The Healthcare.gov form is spread out over multiple pages, so I can’t show it here. But the California form is all on one page, and asks for the same basic information:

Covered California estimation tool, for estimating cost and coverage of health insurance plans from the exchange

Covered California estimation tool

I have been plugging numbers into this tool for years, to continually assess what we’d need to save for health care in our early years of early retirement, so was more than familiar with it. And plugging in some numbers kicks out info like:

Covered California estimation tool, for estimating cost and coverage of health insurance plans from the exchange

Example of plan options

Using the federal tool, I pretended we live in Mesa, Arizona, and with the same parameters, the plans there came out on Healthcare.gov as:

Healthcare.gov health insurance comparison tool

Healthcare.gov comparison for Maricopa County, AZ

If you plug in similar income levels in different states, the costs can vary dramatically at higher incomes, but at lower incomes that are covered by the premium assistance tax credits, the net costs come out very similarly.

Picking An Estimated Income

Of course, playing around with an estimator tool and actually buying health insurance are two very different things, and the first step in getting the real deal was actually nailing down an income figure for 2018. Retirement cash flow and retirement income are two very different things, and for us in the early retirement income model we built for ourselves, given the subtraction of depreciation from our rental income, and the subtraction of cost basis from our sales of index fund shares, the only straight up income we’d have would be dividends and a small amount of interest from our personal loan repayment.

What cashflow sources actually count as income in retirement

Under that model, we could have a very low income from a tax and health insurance perspective, though it would still net us ample cash flow. And that very low income would mean extremely low cost health insurance. Based on what we’d originally estimated our income to be, we might have even been able to get super cushy insurance like this:

ACA Health Insurance option for very low income, but not quite Medicaid

In fact, there is even a chance that we could have to work to stay above Medicaid eligibility levels based purely on income, not cash flow. And in California, where MediCal (the state program name) is notoriously bad because so few doctors accept it, we did not want to be forced into the program.

In the end, though, we decided to project significantly higher for our income for 2018, for a few reasons:

  1. We have realized that we will earn some money in retirement, and anything we earn will be fully considered as income, not just some marginal part of that.
  2. Mark already has a few contracts lined up for this year, basically to pad us while we’re in this ridiculous health care limbo, and also while the markets continue to climb irrationally.
  3. I have a few paid speaking gigs lined up that will count as income.
  4. If we earn less than our projection, we can get an extra tax credit when we file our 2018 taxes. If we aimed lower and came in above that, we could have to pay back the tax credit and some cost sharing reduction (CSR) subsidy, plus potentially a penalty. We’d rather get money back than owe.
  5. Given the legal battles over the CSRs, we feel icky using them when there are others who need them far more than we do. The tax credits are a different thing, and we feel less ambivalent about them. So we feel better projecting an income that qualifies for tax credits but not CSRs.

Of course, projecting a higher income meant a pricier plan. Instead of the low premium, essentially zero deductible and low copays from the Silver 94 plan, our Silver 70 (meaning it covers approximately 70 percent of costs) now looks like this:

The Affordable Care Act / Obamacare plan we chose as early retirees

Both Healthcare.gov and CoveredCA.com (and all the state exchanges I know of) have prominent links to update your information, so if we get halfway through the year and realize that we aren’t earning extra income, then we’ll go in and revise down our projection, and reduce our premium costs more.

The Surprise and Headaches // What We Wish We’d Known

So here’s a fun fact we just learned that we hadn’t seen written about anywhere:

When you apply for coverage, they run your projected income against your past tax returns. If there’s a significant difference, you get flagged.

Obviously, for early retirees leaving higher paying jobs for zero paying non-jobs, your income is going to reduce a whole lot. Meaning we’re all going to get flagged.

In our case, getting flagged meant getting kicked into California’s Medicaid Hell Maze, which meant days of calling various offices only to be told they couldn’t help us, until we finally got a hold of the person in our county social services office who could go into the system, reassure it that we weren’t Medicaid-eligible, and then kick us back out into the regular exchange plan system.

This added days, and many, many hours of phone time — plus stress! — to what is already a fairly opaque process.

If we had it to do over again, we wouldn’t break the income out in the application form the way they asked for it (W-2 income, dividends, rental, pensions, etc.), and would have just put our whole total into the W-2 box. We still would have been flagged because the total is much lower than our last tax return shows, but it might not have been flagged for the Medicaid Hell Maze.

The Benefit of a Qualifying Event

Surprising as this may be to those who know my love of planning, I waited until fairly late to apply for coverage. California’s open enrollment goes six weeks longer than national open enrollment (until January 31 instead of December 15), and I mistakenly believed that the coverage was retroactive like COBRA. (Dumb, I know.) But we had such a long to do list otherwise, plus the stress of wrapping up work, and this was one thing that seemed like it could slide — so I let it slide.

I ended up applying over the holidays, thinking that was still well before the end of open enrollment, and would make a January 1 start date for our insurance easy. I learned too late, though, that even with the longer open enrollment period, the deadline for a January 1 start date was still December 15, just like on Healthcare.gov. (D’oh!)

But here’s the good part: because we had a qualifying event (in our case loss of health insurance because of job loss), we were eligible for a January 1 start date even though we applied in late December. Of course, the Medicaid Hell Maze process took us into the first week of January, so I definitely had a few weeks of mild panic that we’d be uninsured in January. (We could trigger COBRA retroactively, but that’s well over $1000 a month for the two of us, so not a good option.) But after we escaped the maze, I went back to the Covered California folks (who are all super nice, btw) and asked if they could please backdate our start date, because Hell Maze. But also mostly because qualifying event. And they made it happen.

So that’s a big lesson worth sharing: if you’re getting exchange health insurance because you’re retiring, flaunt that qualifying event and get your coverage sooner than you might otherwise be able to. And keep asking.

Side note: Even though the ACA individual mandate was repealed in the so-called “tax reform” bill, there is still a penalty for being uninsured in 2018. Though you’re allowed a gap in coverage of up to two months without having to pay the penalty. So if we’d been uninsured for January, we wouldn’t get hit with the penalty.

The Case for Mortgage Payoff

So you know that debate in the early retirement community about whether it makes sense to pay off your mortgage or not before you retire? Here’s some hard proof of why we felt so strongly about paying ours off.

While none of us know how long the ACA will survive in its current form, as long as it does, there is an extremely large incentive to keep your income down. And if you save proportionally more to be able to keep paying off a mortgage in retirement, you push your income higher, and potentially lose a sizeable tax credit.

Let’s say you need an additional $10,000 in annual income from all sources to cover your mortgage payments. If we’d added $10,000 to our estimates this year, we would have gone from the plan above, with a $755 monthly tax credit ($9,060 per year) to this:

Our health insurance premium and costs earning $10,000 more than what we estimate in 2018.

Notice the tax credit there? Zero. So we’d earn $10,000 more but our health care costs would go up by $9,000+. Not a great outcome. We’d actually have to earn $19,000 more to net out at $10,000 more, and that’s not taking into account tax implications of that higher income.

That’s why it’s so important to know where you are in relation to the tax credit and subsidy cliffs. (<– Great post by Justin at Root of Good that I link to all the time.) At certain income levels, adding enough to cover your mortgage might be no big deal, but at others, you come out far worse.

Though we aimed pretty high this year, we take comfort in knowing that we can live happily and comfortably on a very small income, and can get that cheap health insurance if we scrap our side hustles. (Although we have no intention of doing that until it’s clear whether the ACA is actually going to survive. Whether it’s this system or another, we — and millions of other people — would just appreciate knowing what to plan for. In the meantime, we have no intention of burning bridges to paid work, even though our top priority is enjoying our retirement, not earning money.)

Keeping Up on Health Care Developments

Beyond eliminating the individual mandate for health insurance in 2019 and beyond, Congress has yet to make any meaningful changes to the Affordable Care Act, and it certainly hasn’t repealed Obamacare as promised. That’s not to say any of us can bank on this legislation being here long-term: the White House is currently taking administrative action to weaken the ACA by, among other things, loosening the rules on short-term and catastrophic plans to allow them not to comply with the 10 essential services and other ACA requirements. Some experts predict this will draw healthy people out of the market, as will the demise of the mandate, and further destabilize the exchanges.

We shall see. Whatever happens, I’ll keep writing about it here, because this stuff is a BFD for those in the early retirement camp in the U.S. (And everyone in the rest of the world, keep your gloating to yourselves!) ;-) Stay tuned!

Let’s Talk Health Care!

Anybody else have some harrowing health insurance sign-up stories you’d care to share? Have other questions I haven’t answered here? Trying to figure out the question of what your projected income will be, and want to share your logic? Let’s discuss it all in the comments!


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117 replies »

  1. Yay government. (Hopefully online sarcasm still comes through clearly.) I had a similarly bad experience with it once. Then once you get on, you realize the service isn’t anything like private insurance: website and logins inexplicably down for days, hard to even pay the bill, nigh impossible to reach anyone on a phone, and so on.

    I am beyond glad not to be dealing directly with Obamacare anymore. I highly recommend finding a broker or someone to help you through the process for anyone starting it (like Health Sherpa, which was started by the guys who made a price-comparison site over a weekend, while the government hadn’t done it yet after months). The Health Sherpa folks were far more helpful than an actual insurer. (And I get nothing for plugging them, they were simply that helpful.)

    • I’m confused by this only because I’ve also had nothing but negative experiences with private insurers! ;-) In fact, the biggest headache from all of this has come after we got handed off to Blue Shield. The Covered California folks were much nicer and more helpful by comparison. Not that any of this is fun or easy or any of that, but in this instance, my takeaway is definitely not to hate on the government.

  2. Tanya, this is also my single biggest worry for early retirement, as we have a young daughter and need good coverage for our family. It has been hard to find reliable information that would be relevant for our situation and I appreciate SO MUCH you providing specifics and lessons learned!!

    • So glad it’s helpful! Fortunately, the parts of the ACA that require insurers to cover everyone regardless of health status and to cover care for pre-existing conditions still survive, so that’s good for everyone!

  3. Hi. I’m confused about CSRs vs tax credits. How do you know when you’re getting one vs the other when you sign up for a policy? Thanks.

  4. I agree completely with Mr. FWP. We found it very helpful to have a skilled and knowledgeable broker to help us navigate the ins and outs of the ACA. That said, in the years since the act was implemented, we’ve really learned some additional things. We need to be very careful not to make TOO much money in our side hustle business! We have had a year when we made too much, and that payback is NASTY! If you are going to have a side business in retirement and utilize the ACA, I highly recommend also having a great accountant! ~ Lynn

      • Oh, I soooo agree. I was a health care nerd as well. I found myself thinking, “How do people with a lesser understanding even BEGIN to navigate this stuff! Our broker had a really firm grasp of the benefits and drawbacks of all of the available providers and plans in our local area – so that’s where she was really helpful! ~ Lynn

        • That’s a big value for sure! If I’d thought to ask that question, I probably would have gotten the value. Instead, I manually searched for all of our docs and local facilities. So good tip for others! Talk to those navigators for local info!

  5. Healthcare is such a nightmare.

    I’ve been unemployed for over a year now since my layoff. Fortunately my wife was smart enough to investigate all the options available to us for healthcare. Ironically, we’re well off from an asset perspective, but have zero income currently since my wife is a stay at home mom.

    End result – double comma net worth, but get free health insurance via MediCal.

    The system may not be broken, but it is severely sprained.

    • 100% agree! I have no guilt taking a tax credit because I am a believer that health care is a right and we should be finding a way to make it affordable for everyone, and lower cost on the whole. (Like we have got to rein in all the unnecessary tests and procedures that are pushing costs up but not improving people’s actual health or longevity.) But I would probably go farther than you would and say it IS broken.

  6. I agree with the advice to use a broker. We live in Pennsylvania and used an independent agent. He was very good at explaining and helping us navigate the process, which was challenging even for him, as things kept changing throughout December 2017. His help cost us nothing, and saved us so much effort and angst in deciding on and enrolling in an ACA plan.

    • I’m glad you got the benefit of his help, Cindy! (Also, so appreciate you reading and commenting!) ;-) I spoke to one that our state exchange referred us to, and found that I was much more knowledgeable than he was, so just went it alone, but I know that says more about me than about him. Haha.

  7. Healthcare is the reason I can’t properly fantasise about living in the US (politics comes a close second). With a pre-existing condition I would never get treatment for anything! I pay a lot of money out of pocket for a couple of different therapies here in the UK with ‘free’ healthcare for everything else but it’s very reassuring to know I don’t have to add the fear of treatment cost to the pain and upset of being ill in the first place. I used to get really annoyed about car park fees at the local hospitals but began thinking of it as the cost of treatment and I feel much better about it if my physio costs me £3 a week for parking.
    Don’t beat yourself up about the deadline thing. Happens to the best of us.

    • I don’t blame you! Though we do still have guaranteed coverage for pre-existing conditions, at least so long as the Affordable Care Act stays in place. (That is critical for us! We are basically big, walking pre-existing conditions.) And I like the mindset shift you made about those parking fees. I know those things are annoying and add up, but seeing it as part of the cost of your affordable care makes total sense.

  8. Whether it’s this system or another, we — and millions of other people — would just appreciate knowing what to plan for

    Yeah, that. Thanks so much for detailing your experience here with screenshots and options. Even though I’m in a different state it helps to see what others are getting when diving in. The mess around healthcare is still the main reason why I’m staying part time. I’ll just have to keep watching it like a hawk.

    Good luck to you guys as you continue to navigate the mess!

    • Accidental FIRE – working part time is something I’ve been thinking about more and more, to help mitigate the risk of healthcare costs, etc. Glad to see its something other people have thought about as well. I’ve heard rumors that some companies are dropping healthcare coverage for part time workers, have you heard anything about that? I’m not sure if companies currently have a legal obligation to make medical insurance available to part time workers.

      • They don’t have to offer benefits for part time employees but every hospital I have worked for does (at higher rate) They have all kinds of non medical positions from food service to CEO and everything in between, plus you get to meet lots of people that also have off during the week and the starting pay is usually slightly above local average. I have heard trader joes and starbucks also offer part time benefits

        • It’s worth pricing out if those benefits are worth it, though. For a semi-retiree income level, the cost of an ACA plan with a tax credit reducing the premium could easily come out lower than the cost for a part-time employee plan with a company that offers it.

      • Most companies are only offering real benefits to folks who work 70% or more, so working in a very part-time capacity is probably not worth much — UNLESS your goal is just to work enough to cover the cost of premiums.

  9. This is such a great post! We are new to the FIRE community and are still trying to figure out our goals and plan to achieve FI. One big question mark that always comes up is the cost of health insurance – and how it feels impossible to know how that cost is going to change over the (hopefully) 50+ years we’ll be retired. Not knowing that makes it really hard to plan for early retirement! Do you have any advice (or posts) on how you factored this variability into your early retirement plan?

    Also, thank you for writing about how having a mortgage could increase healthcare costs in early retirement. In considering the argument of paying off a mortgage vs. investing, I never factored in health care costs. It seems like it would be a bit of a snowball – in your example you talk about how needing 10k for your mortgage, but actually needing 19k to factor in the increased cost of healthcare. But if you need 19k, does that bump you into an even higher cost healthcare bracket? For us still on our journey to FI, it’s great to have folks like you to learn from and pave the way. Thanks for the post!

    • Thanks! So glad it’s helpful. This post (https://ournextlife.com/2017/10/04/problem-isnt-4-percent-rule/) might help answer your question to some extent, but the short answer is that we think most people are undersaving given health care costs rising at levels well beyond inflation and market gains, and the answer is to oversave. I know that’s a bummer, but it’s better to be realistic about these things.

      On the mortgage question, it’s worth doing the calculations for your own situation, factoring in your own mortgage payment amount, how much more income that would equate to, what income you’d have with and without the payment, etc. Because in some cases, there won’t be that big a penalty in terms of added premium. But to look only at market gain potential and taxes is to leave out a HUGE cost factor.

      • Thanks for the link Tanja! I just discovered you guys about a month ago, so I’m still making my way through the archives!

        Did you guys play around with increasing your income now in an attempt to reduce minimum distributions later in life? I know that is a loooong way off for you still, but I’m curious if people are trying to optimize that from a tax perspective? But bumping up your income now has an affect on healthcare costs, as you’ve shown, so maybe its a wash?

        • The archives are BIIIIIIG, so no shame if you need me to point you to a post or two. ;-)

          A fun fact about us is that we are not tax optimizers, and are okay if we end up getting forced into RMDs later. That said, we will probably break our rule on not doing Roth conversions in a very small way each year to get to certain income levels for health care and tax purposes. (We won’t spend that money, though, and will just let it grow for phase 2.) The math on taxes and RMDs DOES get a lot harder with health care tax credits thrown in, so there’s no short answer there. But maybe I can work out a formula on that one of these days. ;-)

  10. Just went through this headache myself (also in CA) given that I’m now on a mini-early retirement. Thanks for digging into this Tanja, you just answered a lot of questions about some of the things that made me scratch my head!

  11. Really informative. I’ve heard from small business owners what a headache actually getting coverage can be, especially when you’re right on the border of qualifying based on income, and the complications when you have kids.

    And great point about paying off the mortgage in order to have lower expenses/income. That extra $9000 in insurance costs is huge!

    • I can only imagine the extra complications that come from trying to sign up as a business, or for employees. It was enough of a headache for just the two of us. And the mortgage math is completely dependent on your own personal factors (and whether the ACA survives, of course), but if more folks at least do the math on payoff vs. save more and continue making payments, I will have succeeded. ;-)

  12. It sounds like the high income to very low/zero income is something that will be triggered by ANY retiree, not just early ones like you two. I’ve definitely considered the mortgage payoff for the same reason, but as our 30 year will naturally fall off by 54, I haven’t gone there yet, since we will likely work at least part time until then. If things significantly change and we decide we actually want to be done in 10-15 years (40-45), then the mortgage payoff will get bumped up on the list.

  13. Hi LSF,

    You write, “I’ve heard rumors that some companies are dropping healthcare coverage for part time workers, have you heard anything about that?”

    The college I work at never provided health care for part-time employees. Even worse, though, we now give part timers fewer hours so they don’t accidentally bump up to full time so that we don’t have to give them benefits. (I believe the definition of full-time here is 30 or 35 hours.)

    I hope others chime in and answer your question about other places of employment, and that their answers are more positive.

    • I’ve heard similar things. 30 hours is 75%, which is close to the 70% threshold that seems to be the norm. There are certainly SOME companies out there that offer benefits to part-time employees, but I think it’s rare. And they might let you buy into a plan that’s every bit as expensive as an ACA exchange plan. So it’s always worth looking at all options.

  14. I just retired at 40 at the end of September and signed up for the ACA this December. I had a really hard time estimating my 2018 income, as I do not plan to have any actual W-2 income for 2018. I ended up using an average of my dividends and realized capital gains for the last 3 years to make my estimate. But, I really have no idea what it could be – I could end up with twice as much income or fall below the Medicaid threshold! I guess we’ll see!

    • Keep us posted on how it goes! My hope is that we can never get retroactively pushed down into Medicaid, so even if we had a low income year, we could just estimate more for the following and be allowed to get a regular private plan. But that part is still a mystery.

      • Can you just convert IRA $’s to a Roth in the event this is the case? (I know you don’t plan ln conversions, but hypothetically in a worst case scenario?) That allows you to control the low end of income, right?

        • For sure. And it’s definitely something we might look at! I expect we’ll have a bit of a scramble each December after we see how dividends and capital gains have netted out, to decide whether we want to convert some funds to Roth (not to spend, just for tax/health care purposes).

  15. Between your commitment to talking about this topic, my own medical bills this year (easily $2500+, despite being healthy and active 26 year old with a Gold PPO plan, and only going in-network…), and a few soundbites from friends…I’ve been more frustrated with the healthcare system than ever.

    If you haven’t, yet (I suspect you have, given how well-versed you seem on the topic) check out Bitter Pill. A great read that offers some good color on “how we got here.”

    • It IS frustrating! I feel your pain on high health care expenses despite being young and healthy, too. (We’re less young that we used to be, but I have always been someone who needed a lot of health care.) Bitter Pill has been on my list for a while, but life has been too busy for books. Hoping to get to it soon, now that we have more time. Thanks for the rec!

  16. Tanja

    Very informative post. I think the one thing you could do to help everyone as you continue to discuss this topic is to discuss the impact of having to plan the income (or cash resources) necessary to cover your deductible co-pays and other out of pocket costs. Because what may look like a $80 dollar a month premium with a $750 subsidy could really be a $1,000 a month cost when all those are factored in. If you use healthcare for anything more than wellness events under most plan types, you are paying a lot more than most people ever experienced paying if they were covered by a typical big employer plan. For instance my employer plan for our family of 4 has an annual premium of $24,000 (of which I pay $850 a month for) and has very low individual and family deductibles.

    It’s a hidden cost early retirees must plan for, especially if you”re retirement income has to rise to account for it and by doing so cause you to lose your subsidy.



    • Hi Phil — What you’re talking about is hard to cover well because it’s SO dependent on individual circumstances. Many companies have scaled back on health benefits or shifted more of the cost burden to employees, so not many folks still have a cushy insurance setup like you do. And given that a lot of early retirees become “low income” after retiring, they actually might end up with far better, cheaper coverage than they had through work. I’ll continue to push the message of saving more than what others recommend, though. ;-)

  17. Wow that sounds really stressful. I’m glad you got through that whole ordeal unscathed. Dealing with the government and its bureaucracy can be a big headache. These are all great takeaways early retirees need to take note of.

    Congrats on the early retirement! :)

    • Mostly unscathed, I’d say. ;-) And for the record, the government stuff was annoying, but the far bigger headaches came from dealing with our private insurer. So I know everyone loves to hate on government health care, but given how negative all of my interactions with private insurers have always been, I’m utterly befuddled by assertions that the private sector somehow does a better job. ;-) (You didn’t say any of that — just ranting a little. Hahaha.)

      And thanks for the congrats! :-D

  18. I’ve been waiting for the post for so long. Health care is a BFD to us as well. Do you have any thoughts about various markets that only have one potential health insurer that is a captive to a specific network? Mrs. Shirts has a pre-existing condition and there are only a few hospitals in the country that deal with it, so I hear horror stories about people inside a Kaiser or other captive local healthcare plan not getting access in the same way they would if they had insurance with one of the big four providers. We thought about domiciling an address as one of our parents house while we travel, but that captive network is terrible, and not affordable, and the only option.

    I’m glad to see California’s costs are still relatively low ($1100 pre-credit/mo for two people), there are other states I’ve run that are closer to $1800/mo. The cost of health insurance is quickly becoming the largest expense and most important geographical factor. Politically, I blame both administrations for not enforcing the individual mandate, the prior one for allowing all these exemptions and a minor penalty (no insurance, just don’t issue a tax refund until paid), and the current one for continuing to gut this.

    • This is a subject where I get really angry with Congress, because it would be very simple for them to stabilize the insurance marketplaces and get more insurers back in, so there wouldn’t be all these places with only one or two options. But they put politics over people’s wellbeing in a way that’s really shameful. But that’s not what you asked… ;-)

      A big learning for us in all of this has been that, though we are with a “big” network, the provider network attached to our actual plan is much smaller than the full BCBS network. So we can’t see most of our doctors without going out of network, which kinda blows. But we also got a pretty affordable PPO, so going out of network isn’t the end of the world. But, honestly, I’d sign us up for Kaiser in a heartbeat if that was available in Tahoe. Re: costs by state, that is what this post was all about: https://ournextlife.com/2017/05/31/rank-state-health-care/. Though virtually nothing in CA is affordable, our health care premiums do trend lower because we’re a healthier state than most, and because the state government has made it clear to the insurers that they’ll step in if the feds bail. States that give insurers no such assurances have higher premiums as insurers gird themselves for the loss of CSRs or tax credits.

  19. Yup, I went through this same experience with our CoveredCalifornia application, but I had a few more weeks to try and figure it out. Proof of income has been problematic, since I retired mid-2017 and neither my 2016 tax returns nor my up and coming 2017 returns will reflect my estimated income for 2018. We stayed on COBRA last year just so we didn’t have to deal with one more change and to give me more time to figure out the finances.

    For our 2018 estimated income, basically I subtracted out all my W-2 income and put in a fudge factor for capital gains and other taxable income, including Roth IRA conversions. What I ended up submitting as proof of income was my 2016 returns and a letter from my former employer stating that I retired and was no longer receiving income. Hope that works. It will be tricky to stay in that “sweet spot” of adjusted gross income where we don’t dip too much into cash savings and still qualify for the premium assistance subsidies.

  20. Thank you once again for tackling a tough, yet critical topic.

    I’m in Virginia — I met you and Mark in DC last month :) — and for the past three years I’ve had health insurance through the ACA. There’ve been some bumps and frustrations, but mostly I’ve been pleased with my experience and my choices for coverage with Anthem. Of course, there were fewer choices this year, and I do wonder what’s ahead. There’s so much uncertainty.

    Each year I’ve chosen a high deductible bronze plan with an HSA, and I’m curious if you considered going the HSA route?

    • Hi Tracey! Nice to “see” you here. ;-) Have you found that your provider network through Anthem is comparable to what it would be on non-ACA plans? Anthem is what we’ve had for years, it was our other exchange option, but we found that the ACA silver plan had a much skimpier network than the non-ACA option, and we weren’t willing to pay triple just to see our current docs. So we went with the Blue Shield PPO so we’d have the out of network option, and because it had a few more docs on it (but still not the full network).

      We didn’t got the HSA route because those plans would have worked out worse for us. Our biggest expense is a crazy pricey drug Mark is on (even the generic is like $1000 a month without insurance), and so factoring in drug coverage, the silver 70 PPO without HSA was by far our cheapest total option. But this is totally a YMMV moment, and everyone should do the math on their own circumstances.

  21. Another highly educational post and with a lot of good info in the comments, too. I used the Health Sherpa website Mr. FWP mentioned to run some hypotheticals on health care costs in some of our “short list” retirement locales and wow, they’re all over the place. Many not in the way I would have guessed.

    It’s weird to think that as much as I worry about possibly hanging on to a part-time job to cover health care costs post-FI, that could potentially hurt us overall if we fall off the subsidy cliff. And of course that’s assuming any of this is still around in 4-5 years. Argh! Frustrating for us planners not to be able to plan things… I just have to wait until we’re much, much closer to our target numbers before we can start running scenarios that will tell us if they really are, in fact, our target numbers after all.

    Happy New Year!

    • Glad it was informative! ;-) And yeah, the subsidy cliff must be a very real consideration in all of this, because every household has a dollar figure where you lose the entire tax credit. We have no desire to do that! And yeah, totally with you on the planning frustration! If we could somehow magically take health care off the table of concerns, I would feel a LOT different about the next 50 years!

      Happy new year to you, too! I hope 2018 has been good to you thus far. :-D

  22. Two years into FIRE, the ACA documentation is getting easier. Finally, our prior year tax return looks like our projected income for the next year.

    In the first two years, I submitted a brokerage report showing projected dividends for the coming year, and realized capital gains from the prior year. I also submitted a copy of my termination letter for the first year.

    I don’t know how it works on other exchanges, but Covered CA has a screen part way through the process that tells you what programs you may qualify for. If that screen shows Medicaid (MediCal), you can back up and project a higher income.

    One thing that caught me by surprise was that in year two of retirement, i had an income bump from my tax refund from my last year of employment.

    This may not apply in other states, but in California, if they don’t approve your income documentation within a few days, it will just sit there. Best thing is to call a few days in and the person on the phone can review your documents with you and approve you on the spot.

    In 2016, I nailed the estimate. For 2017, I got fooled by a spike in dividends last December, and will end up having to repay a small amount of my premium tax credit. It’s tricky to manage the dividend flow to maximize your ACA subsidy. For 2018 I will need to have fewer dividends hitting my taxable account. Luckily I can accomplish this by shifting the investment mix in taxable vs tax deferred accounts.

    Wouldn’t it be fun if we didn’t have to adjust investment and tax strategy to avoid health care costs?

    • Thanks for sharing your experience! It’s helpful to know what’s in store for us. We didn’t get the Medicaid screen, or I for sure would have backed up. It just went through the whole process, and then kicked us into the Medicaid hell maze. I even tried to go in and bump up our income at that point, but it didn’t matter. And it’s a good point about tax refunds coming back to bite you — you’re making me feel happy that we always end up owing! ;-)

      And yeah, let’s not get started on how ridiculous it is that we all feel we have to try to game this system. ;-)

    • Good to know about the income documentation approval… I’m going to call them today since it’s been sitting there for a while now. Thanks!

  23. As soon as ACA existed, I bought coverage on the exchange. No subsidies. Just something for peace of mind for a, luckily, healthy woman. Then I moved jurisdictions. I mailed in notice to cancel my coverage because I had crossed state lines. They would not let me. No explanation. Just a recurring bill. I contacted them and the staff said I could not cancel coverage. But I had coverage in my new state. Nope, they would not allow me to cancel coverage. Eventually after many nasty letters, they tell me that I can only cancel coverage over the phone but that the phone staff are not allowed to tell me that.

    I was livid. It was so drawn out and silly. Thankfully, the state I moved to does everything much better and I can actually get to the doctor without taking a day off of work. In my new state, I switched to a different carrier so that I could avoid that nonsense.

    I lived in Massachusetts when Romneycare happened, and was then eligible for subsidies. It was a very smooth process and encouraged me to get new glasses. It was too difficult to find a doctor for a physical since I lived in a smaller town and did not have a car, but I don’t know what that area of Mass is like now.

    All in all, cities continue to be my favorite. I can access care, and hospitals if necessary. The sign-up systems have run more smoothly. And my city is liberal so the rates have not skyrocketed because conservative politicians don’t have the ability to mess it up out of spite they way they can in some small liberal areas in conservative states.

    • Ugh — how frustrating! I heard similar nonsense from our new insurer just this week, and finally had to stop talking to them or I was going to explode in rage. ;-) (I put a smiley face there, but really… RAGE.) And I’m glad you have a good system now, but it is so infuriating that health care became so politicized. It was not always this way, and the polarization of it has been one of our biggest steps back as a society. (Even Reagan said we should take care of the poor, but that is not the prevailing sentiment these days.)

      • It saves so much money to take care of folks, too! Homeless advocates in cities where they’ve switched to a housing first model have seen lives transformed and ALL city services save more.


        I want humans to live. And not die from lack of care. Or unduly burdensome loopholes that make access to care nearly impossible for some folks.

  24. I noticed the plans mentioned only have two stars for quality. Is that a concern? I’ve looked at Kaiser which had a bad name in the early 2000s but now has a good name.

    It is interesting that some people still go with PPOs which give more choices. Traditional Medicare is much like a PPO, but the Medicare HMO patients have been found in studies to get higher quality care and live longer.

    • You bet it’s a concern! But we didn’t have any higher rated options, unfortunately. And we’d LOVE to have Kaiser, but we’re too far outside of a service area to qualify. :-( Re: going with a PPO, it was really because we saw that the available provider networks on the options we had were drastically scaled back from the usual Blue Cross and Blue Shield networks. The EPO (HMO without referral requirements) had no out of network coverage and covered almost no doctors in our town, and no docs we already see. The PPO we chose worked out better mathematically anyway, but also covered a few more providers. But yeah, everything you see in our choices is a case of choosing under less than ideal circumstances.

  25. Glad to see I could get HSA if I wanted to. Most likely since I work in healthcare I will just work part time for insurance but I looked into in case I want to travel full time. Even with the mortgage my spending still will qualify, guess one perk of being lower/ mid income used to living on lower amount.

    • You can definitely get HSA plans on the exchanges! In our case, the math on it didn’t make sense, but you have to look at your own circumstances. The HSA options had abysmal drug coverage, and that’s our biggest recurring health care expense, at least for now. And yeah, the mortgage payoff doesn’t make sense for every circumstance by any means! But it’s at least worth doing your own math.

  26. I’m glad to hear that, you were able to sign up the Obamacare. The process is not very straightforward. 2018 is my 4th year using Obamacare. My Bronze plan premium is $442/month, and deductible and out of pocket is $7,350. I’m not eligible for the subsidy. The plan is not that great. But I’m happy. Having coverage is better than none. As an early retiree, health care is the biggest challenge I face. I just accept the reality, and enjoy my retirement life.

    • Yeah, it sure seemed like none of the bronze plans offered especially good coverage. But as you said, something is better than nothing! Glad you have at least that coverage backstop. Now let’s hope the costs don’t continue to skyrocket!

  27. I haven’t gone down the health care road yet as I am not retired (yet). You mentioned the tax reform act and from the way you phrased it, I take it you don’t care for it. I enjoy your writing and would be interested in an article that hits the high points of the new plan and your thoughts on them. Sorry to go off topic. Didn’t know where else to make the request for an article.
    Keep enjoying your early retirement!

  28. Thank you so much for this great information. I struggle in trying to figure this out, but we still have a few years to go at work. I have budgeted a high amount for healthcare in our retirement plan, but am still trying to figure out the AGI, so your chart was helpful, as was the link to Justin’s post. Now that this step is over, I hope you are getting out to ski!

    • You’re so welcome! I’m of course glad to know that you’re budgeting a lot for retirement health care. That’s super smart considering how fast those costs are rising and how unpredictable the system is. If you haven’t already, run some calculations for your area based on different income levels to get a feel for your current options. (Of course, knowing they could all change.) ;-)

  29. to me this party illustrates the tremendous value of a large after tax war chest you can use for living expenses. you can always convert from pretax dollars to roth dollars to sort of customize your taxable income to the sweet spot above medicaid and below the subsidy cliff. i think you can further customize your 1099 income with a SEP ira.

  30. Thanks for the writeup, Tanja! Is it wiser to quit the W2 job mid-year (with higher income than a clean FIRE year, but gradually reduced ~50% compared to pre-FIRE income) or start fresh like you guys did? Pros would be that we only need to take care of healthcare for 6 months on this higher income, and we can be better prepared for 2019, Cons would be that we would have to pay higher premiums for healthcare due to the higher income.

    • I honestly don’t think it makes a difference. You can get enrolled at a lower income projection and might just have a few more admin tasks to do because of it. But I’d almost wonder if quitting midyear would mean that you get an income flag twice instead of just once? Overall, I’d say quit when you’re confident you have more than enough and feel ready. :-)

        • It’s great you recognize that. Definitely work on the mental part before pulling the plug. I’ve heard from enough folks to know that’s a critical piece in having a successful and fulfilling early retirement.

  31. Wow, that’s very useful info! Thanks for the details. Just to confirm my understanding: If you knew about this trigger, you could have provided your 2017 income as the 2018 estimate, gotten no subsidy, paid the full premium, and then claimed the subsidy as a refund next April, right?

    • You for sure COULD do that. I don’t know that we would have, but we might have entered our income differently to at least avoid the Medicaid-specific trigger. But most of all we just would have allowed more time! ;-)

  32. Thanks for all the great information, Tanja! We’ll looking at FIREing in June and using the qualifying event of leaving our jobs to enroll in an ACA plan. This plan will mean that we’ll need to carefully control our income so as to not go over the upper income limit (subsidy cliff). In addition to trying to push some sources of income into next year (LLC distribution), and contributing to an HSA, are there other common/obvious MAGI-minimizing tools that I should be using? I thought I’d be able to use our IRA contributions, but this thread showed me that I can’t! I suppose I could always just quit earlier – tempting… Thanks again for all the great information – you two have been quite an inspiration for us.

    • Thanks so much for that, Scott! That’s amazing to hear. :-D Unfortunately, MAGI is pretty hard to minimize, unlike taxable income. So it’s your choice if you want to quit sooner and get cheaper health insurance, or work a bit longer and just find a way to manage the higher costs through the end of the year. (Or, not that I’d recommend this, but work til end of year, and then buy your ACA plan starting in 2019.) Let me know what you guys decide!

  33. First, thanks much for the terrific resources/guidance made available through your site. We are approaching a planned early retirement, or at least semi-retirement as we run a husband/wife owned law practice that allows us to scale back substantially without shutting down. With two still dependent children finishing up college, we have been paying ridiculous family plan premiums that increase 10+%/year (now well in excess of $2K/month) and figured we might try to work just enough to cover that and office expenses. We had no idea that health insurance subsidies would be possible for us, and while it would be a huge financial benefit to take advantage of the system by manipulating our income while living well off our savings, after some consideration and reflection, we have decided we are very uncomfortable doing so. Maybe it is our northeastern liberal bias, but although we have been big supporters of first Massachusetts Romneycare and then Obamacare as well-meaning (though not without significant flaws) efforts to reform a broken system that left many behind, we find it shocking that subsidies are based only on income without consideration of assets. In our view, subsidies were intended for the poor and not so that successful and fortunate high net worth people can retire early without dipping into savings to pay for health insurance until Medicare benefits kick in. I’m troubled by the current administration’s zeal to destroy Obamacare without a better solution, but would have no problem with modifying subsidy qualification to include consideration of assets. No idea if that has been considered, but it does seem to be a pretty easy target.

    • I’m with you on the concerns you’re feeling. We were also supporters of Obamacare and other efforts to get healthcare coverage for the poor. Unfortunately, it seems that one of the outcomes of the Affordable Care Act is that it’s made health insurance increasingly unaffordable for people in the individual markets. My wife and I both work and we’ve purchased insurance in the individual market for the last several years because our employers didn’t offer insurance. We’ve been happy with the care, but not the costs. BCBS proposed premium for 2018 for our family of four was $2000 / month for a bronze policy with a $13,300 deductible. In my opinion, this is not affordable healthcare! So, like any good business that organizes itself to take advantage of tax breaks or other incentives, we decided to explore adjusting our income to obtain the Obamacare tax credits. While I agree it’s not ideal, I also think that my shareholders (my family) expect me to save money where I can. I’d be happy to pursue other routes to affordable healthcare when/if they become available. We should all have access to affordable care.

  34. This year is my family’s first year on an ACA subsidized plan too.

    I’m in SC where BCBS is the only insurer on the exchange.

    The main scary thing for us is that there is zero coverage for out of network, and the in network is only in the state of SC. If someone gets injured while on a trip out of state, costs could mount up very quickly.

    But we’re saving $600/mo in premiums, so we’re taking the gamble.

  35. Great post, very much appreciate this level of detail! In full disclosure I was “Don” in Justin’s “Don’t Fall off the Cliff” post at Root of Good. Name was changed to protect the innocent! It was a great post. While I did end up quitting my job at a consulting firm I’ve continued working as an independent consultant and do not qualify for a subsidy. After a couple years with elevating health insurance premiums my wife and I (with 3 kids) decided to join Liberty Healthshare this year. We are documenting our experience with Liberty at http://www.mylibertyexperience.com. I don’t know how valuable it will be right now since we just started but after a year of experience I expect it to be valuable to others who are making the same decision we did. Thanks again for the great information!

  36. Great post. We met a few months back at the ONL meet-up in DC. At that time I was also in the throes of getting my plan selected by the 12/15 deadline on the ACA website. Our 2017 plan which we also got on the exchange would be going up from $1795 a month to $3400 a month for a family of four in Virginia! I’m 56 and have been financially independent for seven years. One thing I’ve noticed, once you turn 55 premiums begin to skyrocket. For 2018 we decided to switch to a high deductible plan from Cigna that comes in at $1603 per month. Our plan is to stay under the 98K subsidy cliff by maxing out an HSA and a SE 401K through an S-Corp I put most of my self-employed income through. ( just saying that is a mouthful) If I can do that, the premium would drop all the way down to $237 per month, and I can apply any paid premiums along with HSA expenses against my income. I was able to do something similar in 2015 but last year went over the cliff. I find it fascinating how complex all of this is, so it really helps to read about it and write about it! Thanks for a great article and the extremely helpful link to the Root of Good Post.

  37. Tanja, thanks so much for this great information! I’m not surprised that there was at least one gotcha with signing up. My state doesn’t have an exchange, so I’ll be going straight through healthcare.gov when I get to that point. My megacorp employer switched us to a high deductible plan with an HSA a few years ago. I’ve been fully funding the HSA and just letting it grow as an investment fund. I’m leaning towards doing COBRA which would give me two more years of funding the HSA, but it’s a trade off with the premiums being higher than what I can get through the ACA. Doing COBRA also might help me avoid that income trigger since I’d have 18 months at a lower income. Sure would be nice to know what Congress is going to do with healthcare once and for all, so I could finalize my plans!

  38. Thanks for the insight. This is one of the reasons why pulling the trigger on early retirement just might not work for us. Not the insurance premiums per se, but the fact that it only covers 70% of the costs and the health insurance isn’t that great. I wonder if there is a post out there for early retirees who has a spouse/partner with health issues that experience this and have written about it? Anyway, keep up the great work. Love reading about your adventures as always.

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