Health Insurance with no income but savings?

[Alex The Great]

MAGI for ACA is outlined here
http://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf

Thank you, it is very helpful. Actually both Medicaid and ACA are considered under MAGI. But as pointed by jim584672 in above post, Medicaid income is calculated monthly and ACA income is estimated annually. This is the only difference.

 

[Alex The Great]

Well of course you are. But you, (and soon me) are examples of why it's a terrible plan. When people who could have millions but can manipulate taxable income can get a bigger subsidy than a couple who are squeaking by on say, $50K total income, you know you have a bad system.

Yes I agree, it is not fare. But what is the alternative? No subsidy for people who has some little savings in a bank? This is not fare too: those people apparently paid much higher tax, than those struggling with $50K income. The real problem is in extremely high health care cost in US compared to other developed world, and very complex system in place to deal with this cost.

 

[NameRedacted]

I'm hoping this is just a theoretical question and not your actual situation? If it is then you probably can't afford to retire or be retired and you probably ought to look for a job. How do you survive on just 5K of income anyway?

If I ever found myself in this situation and for whatever reason was unable to find any kind of reasonable paid employment I would do the following until SS/Medicare/(pension?) "saved me". Even then I think this strategy could only last 6-8 years or so.

I would try to generate enough income from my current assets to take me over the minimum threshold for the ACA using a combination of the following options:

1. Take IRA distributions.
2. Harvest capital gains on the 200K portfolio (after an 8 year bull market there ought to be something there).
3. Purchase very, very high yielding dividend stocks.
4. Make money any other way I could - odd jobs etc.

Looking at my existing portfolio I see that I own three stocks currently paying over 7%.

NLY - currently yielding 9.79%
PSEC - 12.25%
FTR - 16.72%

There are many more such stocks available. So it should be possible to get an average of 9% or 10% which should generate 18-20K on a 200K portfolio.

I understand that these are all risky stocks, the rates are this high for a reason, and that the dividend payments may be cut or eliminated but you can mitigate the risk somewhat by buying maybe 20-30 stocks and diversifying as much as you can, although there aren't many industries paying these rates so diversification is difficult.

Even so the risk is still very high but it has to be compared with the risk of not having health coverage at all. To be honest I'd rather risk my wealth than my life.

 

[zinger1457]

I'm hoping this is just a theoretical question and not your actual situation? If it is then you probably can't afford to retire or be retired and you probably ought to look for a job. How do you survive on just 5K of income anyway?

For some ER's on this forum there can be a big difference in the amount they spend annually and the amount of their taxable income. It depends where the money comes from.

 

[jim584672]

All depends on the cost basis of the shares about how much of the sale is taxable income. Or like an annuity payment where a certain percentage is considered return of your own money and not taxable.

 

[nun]

I applied for an ACA plan in MA in 2014 with $10k in income on my most recent 1040 and a prediction for $10k income on the next. My low income did not qualify me for an ACA plan so I was put on Medicaid.

 

[rdy2go]

My daughter got an ACA policy for the first time this year and the minimum income in Texas for a subsidy was $11,800. She is a working student and we estimate that she will make about $12,000, so it worked out well for her. She is too old to be on our insurance so had to go on her own. The fact that someone can make less and not get a subsidy is bizarre, but thems the rules.

 

[scrabbler1]

I am at the high end of MAGI to receive an ACA subsidy, maybe a few hundred dollars per year (not month). In 2014 and 2015, I chose to not take any of the PTC in advance, instead using it to offset my federal tax liability the following April. I used the PTC as a backhanded monthly estimated tax payment because I had no taxes withheld from my taxable investment income. I always figured this backhanded estimated tax payment into my skeleton version (spreadsheet) of my tax return to see how much more I would owe the following April.

In 2016, after changing insurance companies, my new one unexpectedly told me that they would apply my monthly PTC to my premium. As I figured this into my skeleton version (spreadsheet) of my tax return, it looked like my calculated subsidy would be a little larger than my actual subsidy, so it would slightly reduce my tax liability. But, at the end of 2016, I received some unexpectedly bigger cap gain distributions which lowered my calculated subsidy. This meant I had to repay about $20 of the actual premium subsidy with my tax liability.

 

[Pilot2013]

Well of course you are. But you, (and soon me) are examples of why it's a terrible plan. When people who could have millions but can manipulate taxable income can get a bigger subsidy than a couple who are squeaking by on say, $50K total income, you know you have a bad system.
Not a knock on you, cause I'll do the same when I retire in a year. It's the system that is in place and you should use it to your advantage. I'd retire now if I thought ACA would stay in place for the next 5 years when I'll be eligble for Medicare.

+1

 

[ammocrypta]

Similar conundrum here. We plan to retire in 2 years, I'll be 57, wife will be 52. We currently live in Texas, but will be retiring NW Arkansas (Medicaid expansion state). We will be living mostly off of savings until I turn 59.5. Thus, we will have minimal income for at least 2.5 years. We have a rental with some cash flow, but it will amount to < 5K/yr. Not eligible for subsidies under ACA, and to buy a plan without would kill our budget. The only other option is Medicaid. This spooks us a bit as well, but not as much as draining our savings. A third potential option is to get part-time jobs to get our income up to the point we can qualify for subsidies. But of course, that's not retirement... Finally, all of this discussion may be moot since we don't know what is coming down the pike. Would like to hear folk's thoughts.

 

[Clone]

Just be careful about slipping into the medicaid category:

https://www.medicaid.gov/medicaid/eligibility/estate-recovery/index.html

Estate Recovery and Liens

State Medicaid programs must recover certain Medicaid benefits paid on behalf of a Medicaid enrollee. For individuals age 55 or older, states are required to seek recovery of payments from the individual's estate for nursing facility services, home and community-based services, and related hospital and prescription drug services. States have the option to recover payments for all other Medicaid services provided to these individuals, except Medicare cost-sharing paid on behalf of Medicare Savings Program beneficiaries.

 

[ammocrypta]

Just be careful about slipping into the medicaid category:

https://www.medicaid.gov/medicaid/eligibility/estate-recovery/index.html

Estate Recovery and Liens

State Medicaid programs must recover certain Medicaid benefits paid on behalf of a Medicaid enrollee. For individuals age 55 or older, states are required to seek recovery of payments from the individual's estate for nursing facility services, home and community-based services, and related hospital and prescription drug services. States have the option to recover payments for all other Medicaid services provided to these individuals, except Medicare cost-sharing paid on behalf of Medicare Savings Program beneficiaries.

Thanks clone. Mostly worried about getting decent doctors and services. We are extremely healthy at present. Also don't like the stigma of Medicaid. We simply won't be able to afford a plan without the subsidies. We'll see what they come up with next.

 

[DayDreaming]

Similar conundrum here. We plan to retire in 2 years, I'll be 57, wife will be 52. We currently live in Texas, but will be retiring NW Arkansas (Medicaid expansion state). We will be living mostly off of savings until I turn 59.5. Thus, we will have minimal income for at least 2.5 years. We have a rental with some cash flow, but it will amount to < 5K/yr. Not eligible for subsidies under ACA, and to buy a plan without would kill our budget. The only other option is Medicaid. This spooks us a bit as well, but not as much as draining our savings. A third potential option is to get part-time jobs to get our income up to the point we can qualify for subsidies. But of course, that's not retirement... Finally, all of this discussion may be moot since we don't know what is coming down the pike. Would like to hear folk's thoughts.

Do you have any savings in an IRA? If so, you could do some IRA to Roth IRA conversions to boost your income.

 

[pb4uski]

Well of course you are. But you, (and soon me) are examples of why it's a terrible plan. When people who could have millions but can manipulate taxable income can get a bigger subsidy than a couple who are squeaking by on say, $50K total income, you know you have a bad system.
Not a knock on you, cause I'll do the same when I retire in a year. It's the system that is in place and you should use it to your advantage. I'd retire now if I thought ACA would stay in place for the next 5 years when I'll be eligble for Medicare.

The number of people who can actually pull this off is tiny, though I'd agree it is not the intention of the law.

+1 I suspect that the added complexity and administration of designing the system to prevent those who are wealthy but can manage their income for ACA subsidies might exceed the cost of ACA subsidies for those who utilize that "loophole".

I don't think that necessarily makes it a "terrible" plan.... there are no government benefits that are means tested based on wealth, in part due to the complexity of doing so. You might deem that someone who has little wealth but a big, fat COLAed pension is eligible and that someone who has the same economic amount in a tIRA is to wealthy to be eligible, amongst other pitfalls.

It was a dilemma that I thought we would face but as it turned out because our state does not allow age-rating, the benefit of subsidies in our case was minor compared to the benefit of doing low tax cost Roth conversions so we opted against subsidies.

 

[ammocrypta]

Do you have any savings in an IRA? If so, you could do some IRA to Roth IRA conversions to boost your income.

Bingo! Much thanks, that is the ticket...

 

[Spock]

Just moved from COBRA to ACA last month (involuntary early retirement May 31 2016).
Will be doing 401K withdrawals (the Bush pre-59.5 loophole) to meet the MAGI minimums for max ACA subsidies.

Without the ACA subsidies, health insurance would be 2x what my mortgage was.

As far as gaming the system, the ACA and Medicaid expansion were not about healthcare, they are about health insurance... nothing to reform the cost of care, only about getting somebody else to pay it. So whether you're on ACA with subsides or Medicaid, you are "insured" as far as TPTB are concerned.
If you're forced to live within a "system" (ex. tax laws, ACA subsidies, etc) your job becomes to use that system to your advantage.

 

[Alex The Great]

Just be careful about slipping into the medicaid category:

https://www.medicaid.gov/medicaid/eligibility/estate-recovery/index.html

Estate Recovery and Liens

State Medicaid programs must recover certain Medicaid benefits paid on behalf of a Medicaid enrollee. For individuals age 55 or older, states are required to seek recovery of payments from the individual's estate for nursing facility services, home and community-based services, and related hospital and prescription drug services. States have the option to recover payments for all other Medicaid services provided to these individuals, except Medicare cost-sharing paid on behalf of Medicare Savings Program beneficiaries.

This is a great info. But it actually depends on the state where you live. For example: "AARP’s Moorhead says so far two states (Washington and Oregon) have changed their rules to limit estate recovery to Medicaid costs related to long-term care, as required by the 1993 federal law."
https://www.medicaid.gov/medicaid/eligibility/estate-recovery/index.html

 

[Clone]

This is a great info. But it actually depends on the state where you live. For example: "AARP’s Moorhead says so far two states (Washington and Oregon) have changed their rules to limit estate recovery to Medicaid costs related to long-term care, as required by the 1993 federal law."
https://www.medicaid.gov/medicaid/eligibility/estate-recovery/index.html

A friend of mine was trying to navigate the ACA marketplace, and was ending up in the medicaid column each time. They had sold their business, and were living out of their savings account, showing minimal adjusted income.

When I suggested that they pull some money from their IRA accounts, which would create a taxable event, then the lightbulb went on. They had a path to generate enough income to qualify for the ACA plans.

I view going on medicaid when you have significant assets as playing roulette with the recovery policies. Maybe the legislatures will exempt recovery of the medicaid expenses. But if they decide that recovering assets makes sense, and that the recovery law is valid, then people with assets could be on the hook for all of the expenses.

If your MAGI is below the 138% poverty level, then drawing out some IRA money or 401K money will not create much (if any) tax burden. Many posts on this forum talk about Roth conversions. This situation could be an ideal place to use Roth conversions.

I am not in a position where we will use the ACA marketplace (we have healthcare benefits in retirement from megacorp), so I am not well versed in all of the intricacies and exact dollar amounts required to bring the MAGI up to the 138% federal poverty level. My experience is related to helping my friend determine that they can pull money from an IRA to generate enough income to then qualify for an ACA plan. They were able to move from purchasing a plan privately to an ACA plan, and ended up with a much better plan at a very low cost.

 

[Alex The Great]

Well, Medicaid is still very helpful. To be precise, its expansion. In situation when someone gets laid off let's say at the beginning of calendar year, there are two options available: (1) buy insurance at the full price, because due to the severance pay and a few months on a payroll that person does not qualify for any ACA tax credits (2) apply for Medicaid, which is not possible because of some savings. In this situation, #1 may be really bad as premiums for the rest of calendar year may draw savings quite a bit, or draw them completely if something serious happens. Then, the only reasonable choice is Medicaid expansion for those months in a year when there was no or very little income. For the next and following years, ACA credits accessed through 401K or IRA conversions would work fine.

 

[Rianne]

Where do we go from here? It's all up in the air.

 

[Fermion]

We are doing the ACA MAGI thing with long term capital gains, dividends and IRA to Roth conversions.

I shoot for $23,000 exactly. Just above the threshold and allows us a really cheap silver plan with cheese.

Medicaid might be better/cheaper than our $100 a month premium plus $550 a year max out of pocket but I just had this stigma about Medicaid.

Should I get over it and just jump on the Medicaid bandwagon? The dental stuff is worrying me. I signed us up just this month for dental insurance at $76 a month but it only pays max $1000 a year so that is not really insurance.

I don't even know in our area if our insurance plan is any better than Medicaid. For all I know in this small town it might be the exact same doctors and hospitals. We are in Washington state where I do not think there is any clawback for Medicaid. I do not know if Medicaid here covers something for dental or vision.

edit: Oh it looks like Medicaid (AppleCare) in Washington as of 2014 does cover dental, to some extent. Cleaning, cavities, dentures but not crowns or implants. They do cover some root canals. Essentially the same or better coverage than what we are paying $76 a month for since $1000 is not going to go far toward crowns or implants.

http://www.aihc-wa.com/files/2013/10/Adult-Dental-Coverage.pdf

So are we complete suckers for paying $176 a month when we could be paying zero just by not selling some stock that we don't need to sell?

 

[Alex The Great]

Medicaid might be better/cheaper than our $100 a month premium plus $550 a year max out of pocket but I just had this stigma about Medicaid.

Well, Medicaid is not just about a stigma. Many doctors actually do not accept Medicaid, because their payments are too low. BTW ACA may have this problem too. Especially in the remote areas. I think there were topics about it before.

 

[Rianne]

We, spouse and me created a LLC that consults out of our house. It is true consulting as spouse has Phd and I have an MBA. We connect with companies and universities and get our income to the lowest needed for ACA. Yes, we are paid for phone calls. I do not feel guilty for the subsidies from ACA. Corporations get subsidies for insuring their employees, homeowners get subsidies for claiming interest. We skimped and saved to retire early, why can't the little guy get subsidies for health insurance? Think of all the "write offs" or subsidies out there masked for the super rich. I don't consider us rich, we have to budget.

 

[GTFan]

So are we complete suckers for paying $176 a month when we could be paying zero just by not selling some stock that we don't need to sell?

You're suckers for paying $76/mo. for crappy dental, sure - you realize you're paying $912 a year for max $1k coverage, right? We have a dentist that takes Aetna's Dental Access discount card which only costs $100 a year and in return saves us about 25-30% on everything. It pays for itself with the savings on twice a year cleanings.

The other $100 is a bargain compared to Medicaid's limitations (in my state at least, YMMV).

 

[jim584672]

The dental discount cards are good. I have a Carington 500 card.

Medicaid doesn't cover much with dental, no root canals, and minimal for anything else.