Obamacare - more incentive to early retire?

[Midpack]

Yup, being sure that you will still be insurable at some rational price is key.

Retiring early in the current system leaves you taking a financial risk that can't be mitigated.

Even if you are perfectly healthy now, you are never more than a year away from being uninsurable and facing more or less unlimited medical bills.

Being insurable is indeed a big deal, but we don't know enough about the price to apply the words sure and rational do we? Some people in the lower middle buying their own insurance (like early retirees) may find they can't afford it even with more people in the pool. Most Americans underestimate what HI costs since they've been highly subsidized by employers...

 

[martyp]

When I retired 1.5 yrs ago I had to start drawing my pension to remain in the health care system. If I had left and waited on my pension for 5 yrs and started benefits when I was 60 yrs old then I would have gotten a higher monthly income but I also would have had to leave the health care system and could not get back in. I don't know if the cost/benefit of only living on wife's income would have been worth it.

My next door neighbor retired from the same place and continued working for other employers. He would have benefited by being able to wait til he was older to collect.

 

[MichaelB]

Being insurable is indeed a big deal, but we don't know enough about the price to apply the words sure and rational do we? Some people in the lower middle buying their own insurance (like early retirees) may find they can't afford it even with more people in the pool. Most Americans underestimate what HI costs since they've been highly subsidized by employers...

Yes, we can say 'sure", because guaranteed issue is mandated. "Rational" is more difficult. We have subsidies as you point out, and also multi-tiered service pricing and lots of cost shifting. But I would say the sooner we get away from that the better. I'd expect to see rational prices very quickly, but also expect lots of people will be shocked when they see them for the first time.

 

[unclemick]

Hmmm - how times change. Layed off in 90's my cobra would have been over $700/mo aka more than it cost me to live(being really cheap).

Being too mean to get sick(in my mind) and discovering work was not mandatory I went 12 years with no health insurance - till it became more affordable(another state) and time in the market permited higher living expenses.

Today? Health insurance is now up there with manditory car insurance.

Heh heh heh -

 

[explanade]

I think anyone with significant health issues who is counting on the end of "preexisting conditions" exclusions needs to wait until after the November election. Once the Act is fully implemented in 2014 it is likely that it will stay with tweaks. But it is quite possible that it will be repealled in 2013 before it gets off the ground.

Yeah I don't think we can count on this yet, especially if one or more branches of govt. are hostile to this law before it's even fully implemented in 2012.

Right now, polls have more Americans with an unfavorable view of the law than a favorable one. Maybe that will change with the SCOTUS decision, since the SCOTUS generally commands more respect than the other branches of govt.

But politicians may run against this law and if they win, they will have more of an incentive to try to obstruct or sabotage the full implementation of the law.

Even if it survives political opposition/obstructionism, you have to see how the market develops. For instance, a lot of people may choose to pay the penalties instead of insuring and that may adversely affect premiums.

 

[Hiredgun]

The additional taxes which are imposed by the Health Care Act in 2013 are also an incentive for getting out of the workforce. I'm close to hitting my number and I have no desire to pay even more in taxes (especially on investment income). I'll be happy to exit early and stay under the wire (i.e. LBYM at a much, much smaller income than I'm currently taking in). Some of these taxes are summarized in a recent SmartMoney article:

What ObamaCare Means for Your Taxes - SmartMoney.com

 

[FUEGO]

If Obamacare goes into effect substantially unchanged from its current policies, then it will significantly accelerate our FIRE date. We don't plan on a large budget (somewhere around $30-40k), and now that we know our HI costs will be closer to a couple hundred a month instead of possibly $1000+, it makes budgeting for the lower amount easier. In other words we need a smaller portfolio to retire.

We will be in our 30's when we FIRE so around 30 years until we hit medicare age. It would be hard to budget such an uncertain expense as individual health insurance for a 30 year period.

 

[John Galt III]

Lots of folks here seem to be thinking that their premiums will be lower under ACA. I cannot find anything on the internet telling me what my rate would be if I were to retire early, and get covered by the exchange in my state (Pa). Lots of info about a "family of four" and being above or below the poverty level. Nothing about a single person looking for insurance. How can one assume his or her premium would be lower?

 

[MichaelB]

Lots of folks here seem to be thinking that their premiums will be lower under ACA. I cannot find anything on the internet telling me what my rate would be if I were to retire early, and get covered by the exchange in my state (Pa). Lots of info about a "family of four" and being above or below the poverty level. Nothing about a single person looking for insurance. How can one assume his or her premium would be lower?

The change in premium depends on what the current coverage is. Here is a link to the KFF subsidy calculator, which also tells what the unsubsidized premium would be KFF calculator

 

[marko]

Lots of folks here seem to be thinking that their premiums will be lower under ACA. I cannot find anything on the internet telling me what my rate would be if I were to retire early, and get covered by the exchange in my state (Pa). Lots of info about a "family of four" and being above or below the poverty level. Nothing about a single person looking for insurance. How can one assume his or her premium would be lower?

I think most folks here are using the Kaiser website Health Reform Subsidy Calculator - Kaiser Health Reform which does limit the review to a 'family of four'.

Using that site, I'm extrapolating (ballparking) my 'family of two' needs and find that if I keep my taxable income under $60K (<400% of the FPL) that the ACA plan will subsidize my HC by about 75%, dropping my 'family of four' premium from ~$26K to ~$6K.

A quick look at the 'single user' shows a similar break until about $46K of taxable income.

 

[MichaelB]

The KFF tool also calculates the premium for a single adult. A family of two adults would simply be the single rate for each.

 

[Brett_Cameron]

When I retired 1.5 yrs ago I had to start drawing my pension to remain in the health care system. If I had left and waited on my pension for 5 yrs and started benefits when I was 60 yrs old then I would have gotten a higher monthly income but I also would have had to leave the health care system and could not get back in. I don't know if the cost/benefit of only living on wife's income would have been worth it.

My next door neighbor retired from the same place and continued working for other employers. He would have benefited by being able to wait til he was older to collect.

similar to my experience

 

[plex]

If Obamacare goes into effect substantially unchanged from its current policies, then it will significantly accelerate our FIRE date. We don't plan on a large budget (somewhere around $30-40k), and now that we know our HI costs will be closer to a couple hundred a month instead of possibly $1000+, it makes budgeting for the lower amount easier. In other words we need a smaller portfolio to retire.

We will be in our 30's when we FIRE so around 30 years until we hit medicare age. It would be hard to budget such an uncertain expense as individual health insurance for a 30 year period.

Same. Except I'm single, but the $'s/person is about exactly the same. I was going to have to definitely work an extra year without the current act, and I would have had to get a very high deductible health plan.

The income amount is right on the border between Medicaid and full subsidies on the health exchange, so I'll be researching which is better. I suspect the platinum type plans on the health exchanges are going to be a lot better than Medicaid, in nearly all ways.

 

[Hamlet]

I have a pretty wide definition of rational

$20k/year may be rational. $200k/year is not. Once you've been diagnosed with an expensive illness in the current individual system, you are screwed. There is nothing preventing you from being dropped at the next policy renewal.

Term life insurance is sold as guarrenteed renewable for this reason. You wouldn't want your insurer to be able to cancel your policy the year after you were diagnosed with cancer, but that is how medical insurance is sold.

I don't think the ACA will change average health care costs much. They will continue their upward trend. But it should allow individuals to effectively buy medical insurance. They aren't really able to do that now.

Being insurable is indeed a big deal, but we don't know enough about the price to apply the words sure and rational do we? Some people in the lower middle buying their own insurance (like early retirees) may find they can't afford it even with more people in the pool. Most Americans underestimate what HI costs since they've been highly subsidized by employers...

 

[John Galt III]

MichaelB, thanks for the KFF website. I did find the premium estimate for a single person there. According to KFF, I would be eligible for medicaid (meaning my premium would be zero?) if I quit my job, since my only income would be from my pension, which is only $8,000 per year, and about $1,000 in CD interest. I am assuming pensions are considered income for this. KFF says there are varying costs I will incur under medicaid, but that they are minimal. Other websites are saying that there will be no asset test involved. I now have more incentive to retire early. I can get cobra for $385 a month for a no deductible policy, which I think is reasonable, for 18 months after I quit. I'm 58 now. After cobra runs out, I could go on the ACA, or, if the rules have been changed for the worse by then, I could always get another j*b for health ins. Too afraid to do anything right now, though, so I will continue w*rking and stuffing 50 percent of my pay into my 401K.

 

[Mulligan]

I have a pretty wide definition of rational

$20k/year may be rational. $200k/year is not. Once you've been diagnosed with an expensive illness in the current individual system, you are screwed. There is nothing preventing you from being dropped at the next policy renewal.

Term life insurance is sold as guarrenteed renewable for this reason. You wouldn't want your insurer to be able to cancel your policy the year after you were diagnosed with cancer, but that is how medical insurance is sold.

I don't think the ACA will change average health care costs much. They will continue their upward trend. But it should allow individuals to effectively buy medical insurance. They aren't really able to do that now.

As far as I am aware of health insurance company cannot drop you upon policy renewal just because you have an illness they do not want to pay for. From what I understand company can only drop you if you misrepresented your health status upon application, or they drop that policy from your state. Meaning everyone in your individual "group" are also dropped. Your premium increase also has to be the same as everyone else in your "group" also. Does this mean I trust them 100%? No, but according to the law anyways......

 

[easysurfer]

As far as I am aware of health insurance company cannot drop you upon policy renewal just because you have an illness they do not want to pay for. From what I understand company can only drop you if you misrepresented your health status upon application, or they drop that policy from your state. Meaning everyone in your individual "group" are also dropped. Your premium increase also has to be the same as everyone else in your "group" also. Does this mean I trust them 100%? No, but according to the law anyways......

Yes. I believe that's how it is. The difficulties are if you have an illness, and you wish to switch to another policy (perhaps because of premium increases, or coverage options) but you feel locked in from fear of failing another underwriting with the new illness as a pre-existing condition.

 

[samclem]

Too afraid to do anything right now, though, so I will continue w*rking and stuffing 50 percent of my pay into my 401K.

While you are waiting, maybe use the time to investigate the quality and availability of the services available in your location under Medicaid. We don't know exactly how things will change in the near future, but the number of people eligible fro Medicaid is about to expand significantly, and there's little reason to believe the number of healthcare providers accepting it will increase soon. Same number of docs, increased number of patients: I think you know what that means.

 

[easysurfer]

To add a little drama and storytelling...

For me, the way I picture my sitution is that w*rking, the office is the shark infested water. Currently, I'm on my life raft called a HSA, paddling towards the land called Medicare. In 2014, I see this other raft called ACA. Do I jump on that ACA raft, or stick to HSA? Only time will tell...

 

[John Galt III]

While you are waiting, maybe use the time to investigate the quality and availability of the services available in your location under Medicaid. We don't know exactly how things will change in the near future, but the number of people eligible fro Medicaid is about to expand significantly, and there's little reason to believe the number of healthcare providers accepting it will increase soon. Same number of docs, increased number of patients: I think you know what that means.

Right. And from what I've read so far, I think if I earn enough in addition to my pension and CD interest, say from a part time job which does not offer health ins, to put my income over 133 (?) percent of poverty level, I can then buy into the health insurance exchange, for a possibly better insurance than medicaid.

 

[Mulligan]

Yes. I believe that's how it is. The difficulties are if you have an illness, and you wish to switch to another policy (perhaps because of premium increases, or coverage options) but you feel locked in from fear of failing another underwriting with the new illness as a pre-existing condition.

That is why when I took out my policy. I took it to the limit on what I could afford out of pocket and still stay under the HSA rules. I think another potential problem in the current individual market is if you wanted to move out of state and have developed a condition since you purchased your premium. You could be trapped in that state as you would probably have to undergo underwriting again, also.

 

[kz]

According to the calculator we'd save around $8000 a yr. That would be nice.

 

[Bankerwithabrain]

The increased taxes due to Obamacare (coming in as early as 2013) is also going to but a wrench in the whole ER planning

What ObamaCare Means for Your Taxes - SmartMoney.com

"Right now, the maximum federal income tax rate on long-term capital gains and dividends is only 15%. Starting in 2013, the maximum rate on long-term gains is scheduled to go up to 20% and the maximum rate on dividends is scheduled to increase to 39.6% as the so-called Bush tax cuts expire.

But that's not all. Also starting in 2013, all or part of the net investment income, including long-term capital gains and dividends, collected by higher-income folks can get socked with an additional 3.8% "Medicare contribution tax." Therefore, the maximum federal rate on long-term gains for 2013 and beyond will actually be 23.8% (versus the current 15%) and the maximum rate on dividends will be a whopping 43.4% (versus the current 15%). Yikes!"

Going to be much harder to accumulate wealth under these new taxes...

 

[donheff]

The increased taxes due to Obamacare (coming in as early as 2013) is also going to but a wrench in the whole ER planning

What ObamaCare Means for Your Taxes - SmartMoney.com

"Right now, the maximum federal income tax rate on long-term capital gains and dividends is only 15%. Starting in 2013, the maximum rate on long-term gains is scheduled to go up to 20% and the maximum rate on dividends is scheduled to increase to 39.6% as the so-called Bush tax cuts expire.

But that's not all. Also starting in 2013, all or part of the net investment income, including long-term capital gains and dividends, collected by higher-income folks can get socked with an additional 3.8% "Medicare contribution tax." Therefore, the maximum federal rate on long-term gains for 2013 and beyond will actually be 23.8% (versus the current 15%) and the maximum rate on dividends will be a whopping 43.4% (versus the current 15%). Yikes!"

Going to be much harder to accumulate wealth under these new taxes...

The article is very misleading since it mixes in expiration of the large Bush Tax cuts (which is unlikely to occur, in any event) with the small changes effected by Obamacare leaving the impression (for some, including you I assume based on your quote) that Obamacare itself will throw a major wrench in the tax works.

To be sure, the ACA does make some tax changes which we should be aware of. But they effect high wage earners more than most ERers and it is downright dishonest for people (like the author of the linked piece in my opinion) to conflate them with the expiration of the Bush tax cuts.

 

[Animorph]

ACA just adds the 3.8% tax to investment income that is over the $250k limit. No question high-income families will get hit, but most will not see this tax. Just don't sell everything at once.