Another ACA question

[SecondAttempt]

The date I picked to retire is about 1.5 years out but I am seriously thinking of bringing it forward about a year so information on haw to make a few decisions has become more relevant.

We will probably COBRA for 18 months because we both have employer plans that are pretty good and with premiums (employer plus employee) less than the lowest ACA plan by a bit, but not enough to have a huge impact if ACA offered the better plans. Cursory research finds they do not.

So here is what our income would look like, qualitatively:

2023 - too much to qualify for meaningful ACA subsidy as far as I can tell

2024 - almost $0, probably a few thousand in dividends and capital gains distributions but that's it. Will be living off of taxable account (non IRA) withdrawals.

2025 - probably will start making IRA withdrawals and maybe some Roth conversions but can easily manage those get maximum subsidy for ACA.

So 2023 and 2025+ are fairly easy. When I look for ACA plans for 2024 every site suggests we get Medicaid instead. Are we not eligible for ACA if eligible for Medicaid because we have no reportable income? Or can we still buy ACA? We live in Hawaii if it matters. Hawaii did the Meddicaid expansion thing.

I don't know much about Medicaid but it just seems like it would be inferior coverage and we would be taking handouts we really don't need.

Am I missing something?

 

[jim584672]

Just pay full price and avoid Medicaid if you feel its wrong to be on Medicaid. Do a Roth conversion to create income to get to the subsidy zone is another way.

ACA subsidies probably cost the government more than Medicaid.

 

[SevenUp]

Do a Roth conversion to create income to get to the subsidy zone is another way.

+1

S.A., in addition to the ACA effect, why not do a Roth conversion at a very low marginal tax rate in 2024 anyway?

 

[SecondAttempt]

+1

S.A., in addition to the ACA effect, why not do a Roth conversion at a very low marginal tax rate in 2024 anyway?

Thanks. I probably will. I was trying to get the health insurance stuff sorted out then move on to other stuff.

 

[jim584672]

The new numbers for 2023 just came out. Multiply these FPL numbers by 1.38 to see the Medicaid numbers for 2023.

https://www.federalregister.gov/doc...5/annual-update-of-the-hhs-poverty-guidelines

 

[Aerides]

Are we not eligible for ACA if eligible for Medicaid because we have no reportable income? Or can we still buy ACA? We live in Hawaii if it matters. Hawaii did the Meddicaid expansion thing.

The ACA works off your estimated income for the upcoming coverage years. If you estimate above the FPL limits enough to qualify for the ACA you're in.

Presumably you'll have some taxable income? Interest? Cap gains? Even if you still come out lower than your estimates, low enough to have qualified for Medicaid, it's fine. You don't get a reverse penalty. (Not sure how many years you can do it that way, let's say for 5 years you have truly zero income, but at some point you have to make a withdrawal to live on so you'll have something?)

 

[FLSUnFIRE]

For 2024, realize capital gains up to the 0% threshold that will be taxable income realized and taxed at a 0% rate so you'd still qualify for ACA subsidies. You can immediately reinvest if you do not need the money and now it is at a stepped up basis. Since you don't need the cashflow you can adjust your MAGI just high enough to qualify for full subsidy.

 

[sengsational]

I agree with the suggestions to Roth convert to fill the low tax brackets and avoid getting swept into Medicaid when buying an ACA policy. You can hit your income target very simply by adding up your income year-to-date in December, then doing a Roth conversion to get you up to your estimate. But it really doesn't matter if you hit the estimate exactly; if you make more, they just nibble away at the health insurance premiums they paid in advance.

 

[USGrant1962]

Just pay full price and avoid Medicaid if you feel its wrong to be on Medicaid. Do a Roth conversion to create income to get to the subsidy zone is another way.

ACA subsidies probably cost the government more than Medicaid.

Hardly. Medicaid is a monster program at a half-trillion a year - six times the cost of ACA subsidies. There are just not that many people on ACA compared to Medicare/Medicaid. The quote below does not include Medicare, which is another $800+ billion.

Federal Subsidies. In CBO and JCT’s projections, net federal subsidies (that is, the cost of all the subsidies minus the relevant taxes and penalties) in 2022 for insured people under age 65 are $997 billion, or 4.0 percent of gross domestic product (GDP). In 2032, that annual amount is projected to reach $1.6 trillion, or 4.3 percent of GDP. Over the 2022–2032 period, subsidies are projected to total $13.4 trillion.

• Medicaid and the Children’s Health Insurance Program (CHIP) account for about 42 percent of the federal subsidies annually during the period;
• Subsidies for employment-based coverage, about 37 percent;
• Payments for Medicare enrollees under age 65, about 14 percent; and
• Subsidies for coverage obtained through the marketplaces established by the Affordable Care Act or through the Basic Health Program, about 7 percent.

From: https://www.cbo.gov/publication/57962

 

[jim584672]

On a per person basis it is cheaper. Just a lot of people are on it due to the COVID freeze, that is unwinding in 2023.

Monthly capitation costs are lower than subsidy costs for most in the upper age ranges (40-64).

 

[djsander]

We went through something similar. Retired in 2021 and due to the large severance package was cheaper to Cobra through the end of the year.for 2022 we signed up for ACA and there were some glitches. We recorded mine and wifes income, but they still tried to make her Medicaid eligible. I asked numerous times why and they said her income was low. When asked don’t you go off household income for married couples they said yep it must be a computer error and talk to the state Medicaid people. Went round and round and sort of had it straight then had to get her on to Medicare. That’s another story, but got it straight and my discussions with the higher ups at our state exchange they changed some of their help pages to make it understandable. Now, I’m on ACA plan and the renewal was easy as they used my last years estimate. I’ll do Roth conversions to keep me above medicaid and in a decent policy. Hopefully it will go good the next couple years until Medicare. Good luck!

 

[retire48in2018]

Couple items - we had some similar items

Remember next 3 years, ACA has extended enhanced premium (no “cliff “), and it costs 8.5% of income - along with capital gains taxed at 0% -

Therefore, if you have capital gains - take it out - to at least the 0% limit ($108k MFJ), and net taxes is just the ACA at 8.5%

I don’t think taxes will ever be that low again

 

[retire48in2018]

If you don’t need the cash, just reinvest / you’re changing your cost basis.

 

[niven]

The new numbers for 2023 just came out. Multiply these FPL numbers by 1.38 to see the Medicaid numbers for 2023.

https://www.federalregister.gov/doc...5/annual-update-of-the-hhs-poverty-guidelines

ACA and Medicaid for 2023 used the 2022 FPL. I think you mean this new 2023 FPL will be used for 2024 ACA and Medicaid.

 

[jim584672]

ACA and Medicaid for 2023 used the 2022 FPL. I think you mean this new 2023 FPL will be used for 2024 ACA and Medicaid.

Medicaid uses the new number right away, ACA is a year back.

 

[niven]

Medicaid uses the new number right away, ACA is a year back.

Huh, healthcare.gov still points you to Medicaid based on the 2022 FPL. Thanks for the info.

 

[jim584672]

Huh, healthcare.gov still points you to Medicaid based on the 2022 FPL. Thanks for the info.

It just came out, it should update shortly. I have seen this over many years, ACA subsidies for 2023 are based on 2022, $13,590. Medicaid will be $14,580 * 1.38 = $20,120 in the 48 contiguous states in short order.

 

[EastWest Gal]

You said you will be living off of taxable investments. This may mean dividends, or selling assets for living expenses. Note that even if you don’t pay federal income tax on the dividends and capital gains, they are income for purposes of calculating your MAGI. In order to have an income of zero, one has to have no realized gains, no interest, and no dividends, thus living only on cash.

We’ve been doing that for almost four years. Our income hasn’t been close to zero.