ACA gap to Medicare help

[JohnDoe]

I am looking to retire in the next few years but his healthcare stuff is really putting a damper on thinking about it. I'll admit I don't know much about how it all works.

I know I can purchase my exact health plan for 18 months via COBRA. (at my full cost which still seems cheaper than ACA) I do have access to a family HSA that I could start direct deposits to.

The ACA plans that I reviewed (to cover spouse as well) were very expense (1,400/month) with high deductibles.

How do I know what my true cost would be if my income drops to zero? I thought I read that it's the W2 income that matters, not income from IRA w/d's but just skimming this thread, I think I am wrong about that.

I would need to gap from age 55-58 to 65.

Any advice or links to threads/posts that could help me? Are there any ACA specialists/calculators for early retirement that can help with a strategy? I am not sure where to start. I feel like this is the only blocker from ER at the moment.

Thanks.

 

[PaunchyPirate]

The income that matters is referred to as your entire household's Modified Adjusted Gross Income (MAGI). You estimate your income for the upcoming year. In other words, you guesstimate based on what you think will happen. It doesn't matter how much you have in assets. It doesn't matter what your income was last year. You can see how to estimate your MAGI here:

https://www.healthcare.gov/income-and-household-information/how-to-report/

Your MAGI would include any TAXABLE withdraws from IRAs or Roth IRA conversions (since that is a taxable event). A withdraw from a Roth IRA is not taxed, so does not add to your MAGI. Basically, look at your Federal 1040 tax return. Look for the Adjusted Gross Income and see what is included in that. Then also add in the few things mentioned in the above article -- things like tax exempt interest, for example.

Then go to either healthcare.gov or the health exchange for your state (some have their own and don't use the Federal healthcare.gov). You don't need to create an account to see what prices and ACA subsidies you qualify for. At least not on healthcare.gov and my own state's exchange.

Enter your ages, estimated MAGI for the year, your zip code and whether you smoke or not. You should be given very specific (and accurate) premium prices for all the insurance policies available to you from the ACA exchange.

You can do this by pretending you're looking for insurance to start May 1st, for example.

You may be surprised how much of a subsidy you can qualify for if your income is in a mid-level range. You may be able to cover your spending for a few years by living off of savings, which generates zero income. But be careful. If your income is too low, then you will likely be forced into your state's Medicaid coverage. You want to generate some taxable income to stay qualified for an ACA plan, generally. Although, some people are quite happy with Medicaid coverage.

 

[xlf11]

Start with Healthcare.org (depending on your state) to get an estimate based on your household income (MAGI). On that website you can also look for an ACA qualified agent for help (for free) especially for your local health plan availability. The best plans are usually for your income close to 150% FPL, but for now to 2025 you pay at most about 8.5% of income level and no 400% FPL cliff, so you have lots of options. Search this site for ACA and you can find many discussions as well. Happy learning...

 

[PaunchyPirate]

Start with Healthcare.org (depending on your state) to get an estimate based on your household income (MAGI). On that website you can also look for an ACA qualified agent for help (for free) especially for your local health plan availability. The best plans are usually for your income close to 150% FPL, but for now to 2025 you pay at most about 8.5% of income level and no 400% FPL cliff, so you have lots of options. Search this site for ACA and you can find many discussions as well. Happy learning...

Actually, that should be Healthcare.gov. Healthcare.org is not the ACA healthcare exchange site, but instead a private company website -- not affiliated with the official exchanges at all.

 

[xlf11]

Actually, that should be Healthcare.gov. Healthcare.org is not the ACA healthcare exchange site, but instead a private company website -- not affiliated with the official exchanges at all.

You are right and thanks for the correction: been on Medicare for a few years and must need more coffee...

 

[JohnDoe]

Thanks for the quick replies.

I had another thought. A few years ago, I stopped maxing my 401k to start building up an after tax account to help manage MAGI.

Should I start throwing money into my HSA to reduce my taxable income? Those w/d's are a taxable event- even when used for healthcare, right?

 

[xlf11]

Sure if you have a high deductible health plan now or even on ACA later until you are on Medicare.

 

[cathy63]

...
Should I start throwing money into my HSA to reduce my taxable income? Those w/d's are a taxable event- even when used for healthcare, right?

If you have a plan that qualifies for an HSA, then yes, it's a good idea to put money in and reduce your taxable income.

Withdrawals from an HSA are not taxable if used for qualified health expenses. Qualified expenses include COBRA, Medicare and long-term care insurance premiums, but not ACA premiums.

 

[Spock]

In my case, the 18 month COBRA was cheaper for the first 6 months (employee rate) and then 8x higher for the remaining 12 months (retiree rate). So I did 6 months of COBRA and then converted to ACA.

Depending on your state, and managing your income (interest income+roth conversions) to something like 138% of the fed poverty level you can pay next to nothing out of pocket after subsidies for a silver ACA plan.
Some things to consider: Things like severance pay, vacation pay, unemployment can booger up your income math the first year. For me last day of work was May and I started unemployment that December so that the taxable unemployment income went into the following year when my tax rate was 0.

 

[Irishgirlyc58]

Not sure how big the company you work for is but if they have an HR department check with them about health insurance after retiring. Just tell them that you are collecting information for the future- if you already haven’t.
I worked for the public sector so this information was readily available but I understand the private sector can get dicey when asking about retirement details.

 

[rodi]

One more thought... The tax credit/subsidy thing is based on your best guess of the calendar year's MAGI. So if you retire mid year you still have mid-years worth of salary. For that reason it may make sense to do COBRA to end out the year. That's what we did... I retired in June and with PTO and bonuses I still had higher income for the whole year than would qualify our family for subsidy tax credits. So we did COBRA through December of that year, and in October or so signed up for ACA (coveredCA in our case) coverage to start in the January following my retirement.

Like you the COBRA was actually a much better deal than unsubsidized ACA coverage. But didn't compare to subsidized premiums.

 

[Trailwalker]

Thanks for the quick replies.

I had another thought. A few years ago, I stopped maxing my 401k to start building up an after tax account to help manage MAGI.

Should I start throwing money into my HSA to reduce my taxable income? Those w/d's are a taxable event- even when used for healthcare, right?

Good idea to build up the after tax account. Now that we are retired, we are on an ACA HSA plan that helps take the sting out of dividends and capital gains towards managing income. If you are in good health, it works out great. If you aren't, and end up paying the high deductible, then not so good.

 

[Aerides]

If you are in good health... <snip>

..and even if you are, flukes happen, and do so more often after 50. The idea of picking health insurance based on "i'm in good shape!" does not hold a lot of water as you get older. Sure, you might not have chronic stuff, but always be prepared for a high deductible event - on ER trip might do it.

We've had at least 2 years where one of us exceeded the deductible in our first 6 years on the ACA, and we're not yet 55. This year might be another one, or close, as I'm looking at surgery for a rotator cuff and all the follow ups that will come along with that.

 

[Northforker]

Back gets thrown out requiring surgery
Knee replacement
Hip Replacement
Hernia surgery

All the joys of getting older, high deductible insurance because "we are in great shape"

 

[SJhawkins]

JohnDoe,

Think we are in the same boat, heath insurance/care is one of the bigger issues to wrap our arms around.

 

[MC Rider]

............ But be careful. If your income is too low, then you will likely be forced into your state's Medicaid coverage. You want to generate some taxable income to stay qualified for an ACA plan, generally. Although, some people are quite happy with Medicaid coverage.

This is us. We ended up with Medi-Cal, which our insurance agent said uses all the same doctors around here as any insurance plan. Said she would be on Medi-Cal if she could. Zero co pay for my scrips. We are "in good shape", so far so good, and the price is right.

 

[JohnDoe]

Taking a look at these today. Things seems reasonable with an estimate 45,000 MAGI.

You really need to figure out which way to go: higher prem/lower ded or lower prem/higher ded.

Which brings me to my next question. Can each spouse have their own plan that better suits them? Does anyone do that?

I like that there are plans that cover dental and vision all together.

 

[Sue J]

Which brings me to my next question. Can each spouse have their own plan that better suits them? Does anyone do that?

Yes, each spouse can choose their own plan. Your subsidy will be based on household income but you can use half of the total subsidy for each spouse and pick individual plans.

We've been on Medicare for a while but used to do individual plans while using Healthcare.gov ACA plans.

After you complete the application and get your subsidy letter you go to the part where you pick your plans. That's where you can designate GROUPS. Make a group for each spouse and you will see half the subsidy being available for each of you. When you get to the part where you pick a plan it's an individual plan with half the subsidy used to adjust the premium price shown.

 

[Aerides]

Taking a look at these today. Things seems reasonable with an estimate 45,000 MAGI.

Yes that's the sweet spot, you'll get decent premium subsidies, and depending on your state, a good number of options.

We go with a HD/HSA plan, as we have earned income to allow us to contribute, and those contributions shave more off our MAGI helping out even more. Just have to be aware of the higher deductible.

 

[qwerty3656]

Yes that's the sweet spot, you'll get decent premium subsidies, and depending on your state, a good number of options.

We go with a HD/HSA plan, as we have earned income to allow us to contribute

I'm pretty sure you don't need earned income

 

[jim584672]

You could check out the subsidy calculator.

https://www.kff.org/interactive/subsidy-calculator/

Note that in 2026 the 4X FPL cliff returns and the less generous subsidy formula if nothing is done.

 

[Aerides]

I'm pretty sure you don't need earned income

You're right, I might be thinking of my IRA, which also helps on that MAGI/cap!

 

[sengsational]

Taking a look at these today. Things seems reasonable with an estimate 45,000 MAGI.

You really need to figure out which way to go: higher prem/lower ded or lower prem/higher ded.

Which brings me to my next question. Can each spouse have their own plan that better suits them? Does anyone do that?

I like that there are plans that cover dental and vision all together.

What I found is that if you are a low utilizer of health care services, or a high utilizer of health care services, the cheapest premium is what's most economical. If you rarely use services, getting lower deductible doesn't help, because you won't hit even the low deductible. And so what if you've got a low copay for your one or two visits because it's nothing compared to the monthly premium difference. Or say you're going to have a study that will hit your deductible for sure (high utilizer). In that case, everything else is free. You are basically buying the max out of pocket. In the middle utilization, there's a case to be made for the silver plan, but I've never looked at our situation and figured we'd be in that zone. But if you have conditions that have consistent treatment needs, tuning income with tIRA/401k withdrawals and/or Roth conversions to FPL <230% might work.

 

[JohnDoe]

So in my taxable account, when I retire, I should hold the most tax efficient investments as not to have too much taxable income as that counts against my MAGI, right? And that includes capital gains not offset by losses, right?

edit: Oh I see tax exempt interest is also included in MAGI.

 

[sengsational]

^If you have enough after tax to generate 2x FPL, then you have to think about it. Many of us did the savings in 401k, so weren't looking at a $1M taxable balance to "worry" about.