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Old 01-21-2016, 07:56 AM   #1
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ACA Strategies...

62 year old decides to retire early and wants to minimize his healthcare cost.
1) has millions in his 401k and IRA accounts
2) has over a million in taxable accounts
3) family of 4
4) doesn't take ssi
5) does not take any withdrawals from 401k or IRAs
6) only income is dividends and interest on taxable accounts totaling $40k
7) uses taxable account to fund retirement.

The way I understand it ACA will contribute $1,400 a month towards the families silver plan.

Edit:
Is my understanding correct? In summary the retiree needs to pay attention to AGI
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Old 01-21-2016, 07:58 AM   #2
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Is there a question in there somewhere?
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Old 01-21-2016, 08:15 AM   #3
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Think MAGI, not AGI, and you're on the right track.
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Old 01-21-2016, 08:20 AM   #4
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Quote:
Originally Posted by rayinpenn View Post
62 year old decides to retire early and wants to minimize his healthcare cost.
1) has millions in his 401k and IRA accounts
2) has over a million in taxable accounts
3) family of 4
4) doesn't take ssi
5) does not take any withdrawals from 401k or IRAs
6) only income is dividends and interest on taxable accounts totaling $40k
7) uses taxable account to fund retirement.

The way I understand it ACA will contribute $1,400 a month towards the families silver plan.

Edit:
Is my understanding correct? In summary the retiree needs to pay attention to AGI
ACA subsidies vary quite a bit based on what state and county you live in. You should plug your hypothetical $40k income for a family of 4 into one of the ACA calculators to see an estimate of the subsidy.

You can find a popular ACA calculator here: Health Insurance Marketplace Calculator | The Henry J. Kaiser Family Foundation

Edit: I just plugged in a $40k MAGI for a family of 4 into the calculator. If this hypothetical family lived in my state and county, they would be eligible for a monthly subsidy of $508. That subsidy could be quite different for another part of the country.
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Old 01-21-2016, 08:21 AM   #5
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Edit... opps read it wrong...
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Old 01-21-2016, 08:27 AM   #6
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I can relate to your situation, I don't have "millions" in 401K/IRA but I also have approx. $40,000 in interest/dividend income from taxable accounts. My MAGI will be reduced by $7,650 HSA contribution as well. We are only a family of two but our 2016 ACA subsidy is approx. $1,235 per month. So, I would say your estimate of $1,400 monthly subsidy is in the ballpark.


The subsidy has everything to do with reported income from all sources, not how much money you have saved/invested.
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Old 01-21-2016, 08:32 AM   #7
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Insurance costs vary based on state and county, subsidies are a constant(based on AGI and number in household).

From my experience your estimate sounds very generous. We have an AGI of ~28k with a family of 2, wife on Medicare so she gets nothing. My monthly subsidy is ~$450. YMWV
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Old 01-21-2016, 08:32 AM   #8
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Family of 4 making 40,000/year is between 100% and 400% of Federal Poverty Level.

In all likely hood marketplace premium tax credits (PTC) will be available.

IRS instructions for form 8962 will walk you through the calculation of the refund credit that you would receive if you did not accept advanced premium tax credits (APTC) from the marketplace applied toward the insurance premiums.

Assets are not a factor in any of this. Only MAGI wrt form 8962 and the various other conditions (ie legally present etc).

-gauss
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Old 01-21-2016, 08:36 AM   #9
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Originally Posted by MRG View Post
Insurance costs vary based on state and county, subsidies are a constant(based on AGI and number in household).
I do not believe this is correct as stated. Your premium tax credit is based upon your income , number in household and the cost of insurance specifically second lowest silver plan cost (SLSPC) available to you.

Note that offers of employer insurance as well as qualifying for Medicaid will disqualify individuals from PTC (ie subsidies)

-gauss
(AARP TaxAide Counselor & designated site ACA 'expert')
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Old 01-21-2016, 08:37 AM   #10
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Expected contribution is the constant. The premiums vary by location and the subsidy is the difference between the two.
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ACA Strategies...
Old 01-21-2016, 09:17 AM   #11
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Quote:
Originally Posted by Fean View Post
You should plug your hypothetical $40k income for a family of 4 into one of the ACA calculators to see an estimate of the subsidy..
50k income...
cost silver plan: $276 subsidy was $1,283
64k income assume I take ssi ($40k dividends plus $24k ssi)
cost silver plan: $576 subsidy was around $1k

So to turn on roughly 2 grand a month in ssi cost me roughly $300 in subsidy. That Works.
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Old 01-21-2016, 09:20 AM   #12
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Originally Posted by rayinpenn View Post
I used your calculator: cost silver plan $276 subsidy was $1,283 but I upped the income to $50k
That's the way it works.
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Old 01-21-2016, 09:48 AM   #13
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RayInPenn. There are a lot of discussions about this from before the exchanges were set up, but after PPACA passed.

I know for myself - I budget for paying the full premium with no tax credits BUT I gladly collect the tax credits that are legal under the law. Just the same way I collected the mortgage interest credits when I had a mortgage. Just the same way I collect the child tax credits for my two boys.

I'm forced to forgo the tax credits up front in the form of premium tax credits due to a quirk of the covered california website. (Healthcare.gov does not have this quirk). CoveredCA.com does not allow premium tax credit up front unless all family members are on the same insurance. DH chose to go on a different plan than the boys and I.... So... I'll get a nice tax refund and I'll use the money to fund mine and DH's HSAs for the year... lowering my MAGI for next year's filing.
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Old 01-21-2016, 11:57 AM   #14
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I suggest you play enough with MAGI relative to ACA and silver plans where the out of pocket total in the plan is significantly reduced through cost sharing. When I do this I get a good silver plan but my total OOP is only $1400 instead of $5k. YMMV, void where prohibited.
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Old 01-21-2016, 01:43 PM   #15
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Yes, exactly. Managing MAGI to stay below 200% FPL is the sweet spot to get a good cost-shared Silver plan. In our case for 2016 MAGI should be below 150% for family of two (<$24k) so we have a Humana plan with a $500 deductible/$750 max OOP per person for $160 a month after subsidies (with very low copays for docs and drugs too). But we live frugally so don't need to spend a lot and get pushed into higher FPL brackets.

Other folks choose to max out Roth conversions in the 15% bracket to avoid the 401k/IRA tax torpedo down the road, forfeiting the subsidies. It's all about how healthy you are and whether you want to take money upfront (with ACA and no taxes) or pay less down the road (with little or no tax-deferred accounts left). For us even a basic Bronze plan is $7-800 a month now, but we're getting almost $900/mo. subsidy from Uncle for WAY better health insurance.
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Old 01-21-2016, 02:14 PM   #16
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Yes, exactly. Managing MAGI to stay below 200% FPL is the sweet spot to get a good cost-shared Silver plan.
The OP doesn't have this problem since he's teetering on 400%, but folks should know that, depending on what state you're in, this strategy can backfire and land you in a no man's land between ACA and Medicare.
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Old 01-21-2016, 02:40 PM   #17
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depending on what state you're in, this strategy can backfire and land you in a no man's land between ACA and Medicare.
I think you mean Medicaid.
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Old 01-21-2016, 03:42 PM   #18
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Yes, exactly. Managing MAGI to stay below 200% FPL is the sweet spot to get a good cost-shared Silver plan. In our case for 2016 MAGI should be below 150% for family of two (<$24k) so we have a Humana plan with a $500 deductible/$750 max OOP per person for $160 a month after subsidies (with very low copays for docs and drugs too). But we live frugally so don't need to spend a lot and get pushed into higher FPL brackets.
I believe the MAGI level that triggers the reduced cost sharing features of ACA is is 250% FPL -- when coupled with a Silver Plan.)

-gauss
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Old 01-21-2016, 03:51 PM   #19
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Yes, exactly. Managing MAGI to stay below 200% FPL is the sweet spot to get a good cost-shared Silver plan. In our case for 2016 MAGI should be below 150% for family of two (<$24k) so we have a Humana plan with a $500 deductible/$750 max OOP per person for $160 a month after subsidies (with very low copays for docs and drugs too). But we live frugally so don't need to spend a lot and get pushed into higher FPL brackets.
Quote:
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I believe the MAGI level that triggers the reduced cost sharing features of ACA is is 250% FPL -- when coupled with a Silver Plan.)

-gauss
You're both right Cost sharing kicks in at 250% of the FPL but is more generous at 200%.
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Old 01-21-2016, 05:00 PM   #20
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Thanks Michael!

Do you know offhand if it continues to get more generous, cost sharing reductions, as you go down from 200% towards 100%?

-gauss
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