ACA Alternatives

[CalBird]

Nice try bud. Your premise was wrong to begin with.

It is very common practice. I hope I didn’t waste time explaining it.

 

[COcheesehead]

I think he meant the premium is $34k a year for a plan that also has a $7500 per person deductible.

I could see the math on this working. Let’s say a couple has 5 years before Medicare. They need $100k a year for expenses but want to keep their income at $80k or less for subsidies. So they need an extra $20k a year for the next 5 years.

I know when I setup a HELOC before retiring, to have “just in case”, there were no closing costs, so that part can be zero. Interest, at let’s say 7% on a $20k loan would be $1,400 for a year. Or, if they borrowed the whole 5 year’s worth of $100k, it would be $7000 initially, and go down as payments are made.

Now, granted, they’d also need to make those loan payments, of principle & interest. I know my HELOC has a repayment term of 15 years. A $100k 15 year 7% loan is a monthly payment of $900. But if this strategy means avoiding your health insurance spiking an additional $25k-$30k a year, I think you come out ahead in the borrowing scenario.

I’d also assume, after the 5 years and on Medicare, you’re in the clear to sell investments to pay off the loan in full. So it’s really a strategy to provide temporary cash and avoid generating it as income.

The OP said the $34,000 included the deductible.
I appreciate you finally showing me the math.

 

[SecretlyFI]

What if you don’t have to sell anything? Most if not all on here have cash to pay for current expenses.

Wait. I don’t think this is true. If people have cash available, they wouldn’t have income exceeding the subsidy cliff causing health insurance premiums of $25000 or $34000 a year. We have a whole other thread where people have quoted what their 2026 premiums are going to be.

 

[COcheesehead]

Wait. I don’t think this is true. If people have cash available, they wouldn’t have income exceeding the subsidy cliff causing health insurance premiums of $25000 or $34000 a year. We have a whole other thread where people have quoted what their 2026 premiums are going to be.

That’s not true. I have cash and income exceeding the cliff. That’s super common.

 

[FlyingCircus]

They need $100k a year for expenses but want to keep their income at $80k or less for subsidies. So they need an extra $20k a year for the next 5 years.

I ran the numbers on that nearly exact scenario myself. At $80K or thereabouts for MFJ the subsidy is only $157 a month. Borrowing from my HELOC at 7.25% would cost $120 a month interest only. Feels like a wash.

And pulling from the IRA this year or one lump sum this year to build post-tax funding increases taxes thousands more than the offset from those subsidies.

Although I've been shoved into early retirement, at least I only have to cover myself as DW is on Medicare + a gap. The lowest premium I can find is 7200 a year for an Anthem catastrophic with a $10,500 deductible, or 8400 a year for a "bronze-ish" plan with a $7500 deductible.

FC

 

[RetiredHappy]

Wait. I don’t think this is true. If people have cash available, they wouldn’t have income exceeding the subsidy cliff causing health insurance premiums of $25000 or $34000 a year. We have a whole other thread where people have quoted what their 2026 premiums are going to be.

We have lots of cash, and exceed the cliff by 3 times.

 

[SecretlyFI]

I know there can be exceptions, but I still don’t think it’s a true statement that “most if not all on here have cash to pay for current expenses”. I think I’ve read many asset allocation discussions where many advocate keeping only a year or maybe two years worth of expenses in cash, with warnings of inflation eating away at your spending power. So I think most people fund their expenses with various withdrawal strategies that generate MAGI income.

 

[RetiredHappy]

I know there can be exceptions, but I still don’t think it’s a true statement that “most if not all on here have cash to pay for current expenses”. I think I’ve read many asset allocation discussions where many advocate keeping only a year or maybe two years worth of expenses in cash, with warnings of inflation eating away at your spending power. So I think most people fund their expenses with various withdrawal strategies that generate MAGI income.

When we said cash, we are talking about investments that generate income, but not the need to sell investments.

 

[SecretlyFI]

I ran the numbers on that nearly exact scenario myself. At $80K or thereabouts for MFJ the subsidy is only $157 a month. Borrowing from my HELOC at 7.25% would cost $120 a month interest only. Feels like a wash.

If there’s one thing I’ve learned in these recent ACA threads, it’s how vastly different the numbers are in different states and localities.

For 2026, at $74k income for MFJ, our subsidy is $1822 a month.

 

[bada bing]

You keep avoiding the math.

All right. Suppose you are single, retire at age 60 and need health insurance through the ACA for 5 years until Medicare (Arizona). You have a paid for house $750K, $1.5M in tIRA and eventually a SS claim with a $3200 PIA. A desired spending budget of $90K/year.

To evaluate just two of many choices available for the 5 year gap until Medicare:
You withdraw $90K per year from your IRA. You have:
ACA subsidy of $89/month.
$90K taxable income
IRA has an investment return of 7% APR. Your IRA balance continues to grow about $15K/year in spite of the withdrawals.

or

You take out a mortgage on your house for $250K @ 6%APR and $2500 closing costs. You invest the money in a brokerage with the same 7% return. You spend the same $90K/year, getting $50K from your brokerage account and $40K from your IRA.
You now have:
$15K in mortgage interest
$17.5K in investment returns on brokerage (first year) $8750/yr average over 5 year
Your IRA balance is growing now by $65K/year
You are taxed on $40K of income
You get $572/month in ACA premium.

Admittedly, this a rough approximation but is directionally valid. and If anything it understates the advantages for the mortgage scenario in this situation. The ACA subsidies are fromKFF.org

Its okay if my scenarios don't apply to you. They don't apply to me either. But they do apply to some people. Using debt to manage taxable income is a well vetted tactic and it shouldn't really need proving as a concept.

 

[SecondCor521]

^ I don't have a dog in the fight in terms of the options being discussed.

But I don't see where the additional cash flow to repay the $250K mortgage is reflected in the second option. I understand you're talking about a rough approximation, but in a rough approximation I'd certainly want to account for repaying a quarter million dollars at 6% interest.

AFAICT, you're not using the IRA to pay for it, because the $105K in growth is listed as $40K spending and $65K retained growth. You aren't using the taxable account to pay for it, because you're using that as $50K spending for 5 years.

ETA: Assuming 30 year fixed at 6% on $250K, that's a payment of just about $1500 per month.

You could use the average $8750 per year in investment returns, but (a) those aren't guaranteed because there's nothing paying 7% guaranteed, and (b) the monthly mortgage payments are larger - $18K per year, and although the interest portion of those payments declines over time, the payment doesn't. And the $18K payment is larger every year than the average investment returns by a factor of 2.

ETA2: There's also the practical matter of getting a mortgage on a paid off house in retirement. Possible, but a hassle.

 

[bada bing]

I put this forward as a way to qualify for greater subsidies over a 5 year gap for a specific situation. At the end of 5 years, once on Medicare, it would need to be reevaluated. Having an ongoing mortgage and investing the proceeds is a legitimate arbitrage that can work very well in some situations, but that would depend on the situation at the end of the gap. I can say one of the best financial moves I ever made was to take out a mortgage I didn't need 14 years ago now and invest the proceeds. But the markets have been kind over the last 14 years and my mortgage is 2.75% fixed. And this is a thread about qualifying for increased subsidies, not mortgage arbitrage.

In my example, the money represented by the remaining mortgage principle accrues in the IRA. That's where the difference between the $15K per year and $65K per year increase in IRA balance comes from. If it was desired to cash out the mortgage at the end of the plan, it would have to be done over a few years to avoid an IRA withdrawal tax bomb..

Just a seat of the pants approximation, the cash flow for mortgage payments would be made from a combination of investment returns on the brokerage, the reduction in budget spending from an additional $6K in subsidies and the reduction in budget from showing lower taxable income, taxes of $14715-$2816=$11899 (deferring taxes, not a net benefit).

Admittedly a bit complicated but the net benefit is just qualifying for an additional $6K per year in ACA subsidies. Everything else is pretty much a wash if you go to the effort to track down cash and tax flows. Admittedly, I fudged a bit by attributing a 7% ROI, but not too much. It certainly could underperform that, but it could do better. 7% is a reasonable middle case. If you don't like the uncertainty, go with a corporate bond fund or higher return MYGA at 5.5%.

My example is for a single person. Same effort for a bigger family gets you bigger subsidy. Additionally, I used a mortgage, but a better form of debt would be a margin loan because of tax consequences. But having $250K or more in margin available is a less likely and more complicated scenario.

The final thing I'd put out is this isn't my strategy or idea. Using debt to structure realized income is a well vetted strategy useful in certain situations. Certainly not an idea I came up with.

 

[Aerides]

What if you don’t have to sell anything? Most if not all on here have cash to pay for current expenses.
I don’t see how incurring additional expenses to avoid losing a subsidy puts anyone ahead.
What about SORR? Sinking assets blow this scenario up.

Mostly correct, but after several years retired I've been behind on keeping up our cash reserves. So recently we sold some low hanging fruit to cover us for the next 2 years...ish, and we have some CD's maturing over the next couple. With no hard cliff in 2025, we have a bit of flexibility this year. Still, we have 9 more years till Medicare, and our expenses are now a little over the cliff that is restored for 2026, so it will be an issue every few years.

We have very little dividend income, but quite a bit of interest - when you have cash you are getting interest unless you are putting it in silly banks. And I have a small business, but that's gotten smaller lately, income wise. So if we needed to keep up withdrawals each year I can see the cap being an issue going forward.

 

[zinger1457]

I ran the numbers on that nearly exact scenario myself. At $80K or thereabouts for MFJ the subsidy is only $157 a month. Borrowing from my HELOC at 7.25% would cost $120 a month interest only. Feels like a wash.

Those numbers are age dependent and yours must be for a married couple that are still relatively young (~40's), they would be way different for a married couple that are older, say just prior to Medicare. The insurance premiums for that older couple would be much higher and so would the subsidy, probably closer to $1k/month.

 

[TripleLindy]

I was afraid this thread might go off the rails. It wasn’t intended to be a discussion about the subsidies or the various ways to adjust income in order to qualify. There are a few other threads covering those topics.

I’m just curious to know if anyone has found a viable alternative to the ACA for healthcare coverage, because I haven’t been able to. TIA for any recommendations!

 

[Aerides]

I was afraid this thread might go off the rails. It wasn’t intended to be a discussion about the subsidies or the various ways to adjust income in order to qualify. There are a few other threads covering those topics.

I’m just curious to know if anyone has found a viable alternative to the ACA for healthcare coverage, because I haven’t been able to. TIA for any recommendations!

That's the thing. There isn't really anything other than non-ACA compliant policies. As we all know, the ACA meant things like not getting refused coverage, no pre-existings, no caps, covering preventative care, etc. "non"-aca plans mean that isn't the case. What used to be known as private (non-employer) insurance morphed into ACA plans or died because it wasn't good coverage with the new laws.

You've pretty much nailed it on your choices. Short term catastrophic with exclusions, or health shares. Neither one are comprehensive coverage.

Or go back to full time employment coverage.

 

[TripleLindy]

Or go back to full time employment coverage.

Well that’s not happening!

 

[Fermion]

There *are* other ways than the heloc for generating needed income without increasing MAGI. A big one is pulling from Roth contributions (not earnings) before age 60. Instead of taking a heloc for the extra $20k you need each year, you could pull $20k from a Roth if you have one with that level of contribution. Conversions count as well after a 5 year period.

I don't think there is any help for someone who is 3x over the cliff though. You are just going to have to face the sad fact you are rich.

 

[pjigar]

There are many situations where income for a couple is way north of $80K before Medicare:
- Started SS (younger spouse starts at 62).
- One spouse (already on Medicare) is older and already on SS and taking RMD.
- Dividend income
- Not thinking of consequence, turned IRA into annuities that started at 60 yo.

For us, it will be business/rental income AND differed comp plan distributions which may put us over the AGI cliff.

I already reduced deferred income to only 6% (to get company match) annually starting this year. This will reduce the eventual cashflow from the differed income. We may have to sell rental/business to reduce income further (which will hit us with 15-20% capital gains tax and/or depreciation recapture but that the price we pay for ACA). I will do the math when I actually stop working. Until then, I am not sure what I can do NOW to reduce the future income. We do not have any pensions. DW will have very minimal SS when she files at 62. All our brokerage investments are already in BRK-B so no income from brokerage.

PS: One last resort is to delay distributions from differed comp plan past 65.

 

[momoney]

There *are* other ways than the heloc for generating needed income without increasing MAGI. A big one is pulling from Roth contributions (not earnings) before age 60. Instead of taking a heloc for the extra $20k you need each year, you could pull $20k from a Roth if you have one with that level of contribution. Conversions count as well after a 5 year period.

I don't think there is any help for someone who is 3x over the cliff though. You are just going to have to face the sad fact you are rich.

Is making sure the ROTH is "Full" the simplest strategy for long term ACA income management?

 

[imjustawarrior]

I know there can be exceptions, but I still don’t think it’s a true statement that “most if not all on here have cash to pay for current expenses”. I think I’ve read many asset allocation discussions where many advocate keeping only a year or maybe two years worth of expenses in cash, with warnings of inflation eating away at your spending power. So I think most people fund their expenses with various withdrawal strategies that generate MAGI income.

I keep 1-2 months worth of cash. I have been retired almost 3 years. I have yet to generate taxable income from selling VTI/VXUS from our taxable account. We still have some carry over losses. This doesn't work forever, but it can for multiple years.

 

[imjustawarrior]

That's the thing. There isn't really anything other than non-ACA compliant policies. As we all know, the ACA meant things like not getting refused coverage, no pre-existings, no caps, covering preventative care, etc. "non"-aca plans mean that isn't the case. What used to be known as private (non-employer) insurance morphed into ACA plans or died because it wasn't good coverage with the new laws.

You've pretty much nailed it on your choices. Short term catastrophic with exclusions, or health shares. Neither one are comprehensive coverage.

Or go back to full time employment coverage.

Good summary of options. There is also the option of going to a different country.

 

[NCMom]

We found an option and are considering doing it again. Husband went back to school and got his Masters. Colleges here in North Carolina require you to have health insurance and provide a student option which is significantly cheaper than ACA because of course the insurance is mostly covering young people. It only covers the student. I believe that his student blue insurance was around $3000 for the year with a $500 deductible. Even paying tuition and fees, we came out ahead. Even better, my husband was a research assistant and got paid enough to cover tuition, fees and insurance. I don't believe community college offers the health insurance, just 4 year institutions and you have to go in person not online.

Our health insurance has increased from $24k to $36k with a $8,500 deductible each. So seriously considering sending one of us back to college.

 

[TripleLindy]

We found an option and are considering doing it again. Husband went back to school and got his Masters. Colleges here in North Carolina require you to have health insurance and provide a student option which is significantly cheaper than ACA because of course the insurance is mostly covering young people. It only covers the student. I believe that his student blue insurance was around $3000 for the year with a $500 deductible. Even paying tuition and fees, we came out ahead. Even better, my husband was a research assistant and got paid enough to cover tuition, fees and insurance. I don't believe community college offers the health insurance, just 4 year institutions and you have to go in person not online.

Our health insurance has increased from $24k to $36k with a $8,500 deductible each. So seriously considering sending one of us back to college.

Now that’s a creative alternative! Thanks for sharing.

 

[TripleLindy]

We found an option and are considering doing it again. Husband went back to school and got his Masters. Colleges here in North Carolina require you to have health insurance and provide a student option which is significantly cheaper than ACA because of course the insurance is mostly covering young people. It only covers the student. I believe that his student blue insurance was around $3000 for the year with a $500 deductible. Even paying tuition and fees, we came out ahead. Even better, my husband was a research assistant and got paid enough to cover tuition, fees and insurance. I don't believe community college offers the health insurance, just 4 year institutions and you have to go in person not online.

Our health insurance has increased from $24k to $36k with a $8,500 deductible each. So seriously considering sending one of us back to college.

I checked into this at the nearest 4 year school. Premium cost would be $5200 to cover me and my wife. Tuition cost could be as low as $300, if taking the minimum number of hours. Our doctors and health system are in-network and there is coverage even if going out of network. And coverage is better than what we currently have with our ACA Bronze Plan - by a mile!

While this would be pretty disruptive to my lifestyle, it definitely has my attention. I could save a ton of money and might even enjoy going back to school for a couple of years.

Genius idea!