health insurance options and opinions

[mikes425]

Hi, at age 62 this year, I've been fortunate to accumulate just over 2M in investment assets with a moderate-conservative portfolio.. I'm single, in good health... exercise/run regularly, have no debt, and own my home -valued in the realm of 160k. I live in a relatively low COLA market.

I've been a freelance performer & sole proprietor for about 40 years and have begun scaling back on work so I guess am seeing myself as semi-retired and able to work when/if I feel like it, going forward. My annual spending is pretty conservative with a not very extravagant lifestyle and I've always been pretty frugal. I'd guesstimate average annual spending in the $40k ballpark.

This year I've been forced to a COBRA health plan, as I lost eligibility for a union sponsored Anthem BCBS PPO plan, which is pretty good and has kind of been a gift for the last 5 or so years, low deductible and ridiculously cheap by most standards. The premium shifted from about 150/month to 720/month effective in October, and its slated to be raised to 760/month in 2021. I've shopped a bit and found there is not much out there that's significantly cheaper in the ACA marketplace in a high deductible plan, which is what I'd prefer. Ideally I'd be good with something like a catastrophic plan but no such thing exists AFAIK for my age bracket...

Due to dividend income that will probably exceed 50k/year, I do not qualify for any ACA subsidy...unless there's some angle i'm unaware of. It's frustrating having to move to such a high premium, especially given that I'd prefer something that would be good for 'major medical' expenses and could get by with out of pocket for any routine office visits, specialists et.al. As I say, no major health issues and I'm a big believer in preventative care, healthy habits and lifestyle, diet, exercise et.al.

So all this is to say I'd welcome any thoughts on whether there's something i'm missing with regard to finding lower cost health care .... I know there are HSA plans but the premiums are still high (to me anyway) - 600-700 / month in most cases. If I were alot younger I'd probably consider just going without insurance and paying out -of pocket, since on average I'm not spending anything remotely close to 750 a month in healthcare costs - and the value of insurance would be mainly for catastrophic/major 'event' protection.

One sidenote..I've worked with an hourly FA whom I like, for many years and decided in mid 2020 that i'd just switch to his conventional 'AUM' fee structure - which in this case is .60%. In hindsight I am reconsidering this, especially given the fact that if I weren't paying out 6/10 of a percent to him those $$ would more than offset the cost of maintaining this COBRA plan or something comparable in the marketplace... I am inclined to revert to our previous arrangement wherein we were meeting a few times a year at a $300 per hour rate. As such, even if I met with him for a total of 15 hours a year, it's still far cheaper than an AUM/percentage of assets FA relationship.

Sorry for the long-winded post but I appreciate the wisdom of the forum and I know the more background details the better when asking for any advice. I'm interested in any general or specific thoughts about options I may not be thinking of to minimize my health insurance costs...including whether there are tax advantages/angles I might not be aware of, to that end. Thanks much, and

Happy Thanksgiving to All !

Mike

 

[mrfeh]

First thought that comes to mind is: what funds do you have in your taxable accounts? Can you reduce that $50K?

 

[Aerides]

Well the good news is you only have to worry about the HI costs for a few years till MC.

Can you shift some of your taxable equities to be less dividend-heavy? I'd look to reducing your income below the cliff, which is $51040 for 2021 for a single person. An HSA plan will also allow you to help manage income since the annual contribution comes off your MAGI. So shaving another $3600 of the difference.

Yes I would get out of the AUM agreement and back to an annual meeting where you go from there. As fast as possible.

 

[finnski1]

Get out of the AUM yesterday!
As far as hourly FA visits go, why do you need so many(you mentioned 15) per year?
It seems you have done a great job accumulating wealth so must have a pretty good handle on the situation.
I think you could probably simplify and get an asset allocation plan that only requires a few visits per year or at most once a quarter.
Everybody says they are healthy until they are not especially as we get into our 60's and beyond.
Pay the $720/month, it's only for 3 years and the savings from the AUM fee structure alone would pay for it each year and you only need to cover 3 years.
.6% of 2 million is $12000/year. Your health premiums would be less than $9000 leaving you $3000 or enough for 10 annual $300/hour visits.
That is what I would do

 

[pb4uski]

My first thought was to invest taxable account money in 4 year MYGAs where the income is tax deferred as a way to manage your income to qualify for subsidies, but I'm guessing that with $50k of dividends that most of your $2M stash is in taxable accounts and probably highly appreciated equities that reconfiguring would result in signficant LTCG.

I'd frame it this way. You concede that the $150 that you currently pay is ridiculously inexpensive but let's use that anyway. Your choice is to work for 3 more years and only have to pay $150/month for health insurance or retire and be free to do whatever you want and pay $760/month for health insurance. The difference over 3 years is $21,960 or $7,320/year... and is part of the cost of freedom from workingand you can easily afford the $22k for 3 years of freedom.

If it makes you feel better to reverse the AUM and use those savings to help fund it by all means go for it... I think your original deal was better anyway.

 

[Scratchy]

You should take the COBRA policy.

At your age, the COBRA policy cost is being subsidized by the risk pool including on average people younger than you. In contrast, an ACA individual policy will be rated to your age. If the ACA policy is cheaper, it is because of reduced coverage.

 

[GTFan]

Can you shift some of your taxable equities to be less dividend-heavy? I'd look to reducing your income below the cliff, which is $51040 for 2021 for a single person. An HSA plan will also allow you to help manage income since the annual contribution comes off your MAGI. So shaving another $3600 of the difference.

Agreed, all you have to do is get your income below ACA max and you will see a nice reduction in premium. Should be good enough to get you through another couple of years until you get Medicare. In my area a Bronze plan with $50k income is about $200/mo for a 62 year old man.

 

[mikes425]

Get out of the AUM yesterday! As far as hourly FA visits go, why do you need so many(you mentioned 15) per year? It seems you have done a great job accumulating wealth so must have a pretty good handle on the situation.

I think you could probably simplify and get an asset allocation plan that only requires a few visits per year or at most once a quarter. Everybody says they are healthy until they are not especially as we get into our 60's and beyond.

Pay the $720/month, it's only for 3 years and the savings from the AUM fee structure alone would pay for it each year and you only need to cover 3 years. .6% of 2 million is $12000/year. Your health premiums would be less than $9000 leaving you $3000 or enough for 10 annual $300/hour visits.
That is what I would do

Thanks for all replies on this. I think your summation here is pretty logical.
The decision to try the AUM arrangement was an impulsive thing as I was feeling a lot of uncertainty about what seemed some extraordinary financial market challenges this year and thought I might need more of a hands on active oversight, but frankly it hasn't really changed anything

The consultations with the advisor were as few as 5-6 times a year as well as occasional email questions - I was just saying that even at up to 15 times a year, the billable time is far less than paying the AUM amount. I think I'll ask him if we can revert to the hourly model in the next quarter once we get through whatever year end rebalancing and tax loss harvesting is needed.

Rather than mess with dividend income funds to get the subsidy, it does seem to make more sense to keep the COBRA plan, figuring eligibility for medicare coverage kicks in within a few years. I'm not sure if an HSA could be used to pay COBRA expenses but am guessing that is not an option.

 

[pb4uski]

Actually, COBRA premiums are a qualified medical expenses.

If an employee elects COBRA, can HSA funds be used to pay for COBRA premiums? A. Yes. The premiums for health care continuation coverage under COBRA are considered an eligible medical expense, and payment of the premiums can be made using HSA funds.

 

[EastWest Gal]

A couple of other things to remember:
If you have HSA eligible insurance, through COBRA or the ACA, you can reduce your MAGI by putting money into an HSA.
If you have self employment income, ACA premiums are fully deducted off of your income, up to the limit of your self employment income. COBRA premiums are not. Line 16 of the 1040.

If you are near the cliff, that can make the difference.

 

[MichaelB]

Thread moved to the health care forum

 

[NoiseBoy]

I thought COBRA coverage had a time limit on it? For instance, you can only use COBRA to extend your job's group plan coverage for 6 - 12 months. I seem to recall that from my new employee orientation sessions years ago, did ACA remove that?

I really like pb4uski's analysis on the 3 year total cost. I know that I pay way more attention to monthly bills and don't always think long term, but in your case, taking the "3 year view" seems like a good approach. Especially since you can try to work some angles with your portfolio to reduce your income below the ACA cliff or reduce your advisor fees.

 

[audreyh1]

Actually, COBRA premiums are a qualified medical expenses.

Ouch! COBRA premiums qualified. Regular medical insurance premiums not until Medicare. Stinks!

 

[GTFan]

Rather than mess with dividend income funds to get the subsidy, it does seem to make more sense to keep the COBRA plan, figuring eligibility for medicare coverage kicks in within a few years. I'm not sure if an HSA could be used to pay COBRA expenses but am guessing that is not an option.

It makes more sense to lose ~$6k a year for 3 years when all you have to do to get subsidized ACA is reduce income just a little (going by your OP estimate of ~$50k in div income)? And you can also deduct the ACA premium cost for SE income, which is going to be $2-3k a year and will help get you below the ACA max.

Not following the logic here. If you were way over the cap sure, but you seem to be close enough to make it work. I'd much rather pay around $200/mo. for HI than $760 if I can.

 

[cathy63]

I thought COBRA coverage had a time limit on it? For instance, you can only use COBRA to extend your job's group plan coverage for 6 - 12 months. I seem to recall that from my new employee orientation sessions years ago, did ACA remove that?

The minimum time that an employer must offer for COBRA is 18 months. I don't believe ACA changed that.

 

[mikes425]

Ouch! COBRA premiums qualified. Regular medical insurance premiums not until Medicare. Stinks!

Well, actually not an 'ouch' for me if I'm forced into COBRA which I am. I'll take any advantage I can to reduce the massive hit I'm taking in going from 150 a month to 750 a month for this Anthem PPO plan : )

 

[mikes425]

It makes more sense to lose ~$6k a year for 3 years when all you have to do to get subsidized ACA is reduce income just a little (going by your OP estimate of ~$50k in div income)? And you can also deduct the ACA premium cost for SE income, which is going to be $2-3k a year and will help get you below the ACA max.

Not following the logic here. If you were way over the cap sure, but you seem to be close enough to make it work. I'd much rather pay around $200/mo. for HI than $760 if I can.

Well I can't be exactly certain what the precise dividend income is going to be... Or whether I might have freelance income that would push the amount even higher. I mean, it could be closer to 60k in 2020. To me it sounds kind of tedious to have to try to regulate income in order to make it come out 'just right' to qualify for the ACA subsidy. OTOH just dumping the AUM manager cost provides a more simplistic way to cover the higher insurance expense (and justify making that change to the Advisor for that matter..as a "value oriented' investor, he should appreciate the logic; )

 

[mikes425]

The minimum time that an employer must offer for COBRA is 18 months. I don't believe ACA changed that.

Actually my COBRA is 18 months and it doesn't really correlate with anything relating to the ACA...it's just the standard COBRA term.

 

[mikes425]

A couple of other things to remember:
If you have HSA eligible insurance, through COBRA or the ACA, you can reduce your MAGI by putting money into an HSA.
If you have self employment income, ACA premiums are fully deducted off of your income, up to the limit of your self employment income. COBRA premiums are not. Line 16 of the 1040.

If you are near the cliff, that can make the difference.

Thanks, but I'm somewhat confused on a couple things.

I am on COBRA now. I do not have an HSA. Can I open an HSA account, and then set it up to pay the monthly COBRA Premium for this plan, or does the insurance plan itself, have to be 'qualified' to be eligible for an HSA? There is no HSA-specific option with this insurance, it's just the same Plan I was on, only now I'm paying the full freight with no employer subsidy.

As for taxes, if I understand correctly you're basically saying I can't deduct COBRA premiums. But, if I qualified for an ACA plan with a subsidy or not, I can deduct the full amount of the premiums. When you say up to the limit of my self employment income, you mean I can claim the same dollar amount in premium cost as whatever I would earn in self-employment income? Apologies, I am very tax illerate and don't even understand my accountant most of the time. The intentionally proprietary complexity of that world is effectively a foreign language to me.

 

[Mr._Graybeard]

If you select a bronze ACA plan with HSA eligibility, you can put $8000 into an HSA to deduct from your modified adjusted gross income. That could put you into subsidy-land.

 

[RunningBum]

You cannot contribute to an HSA without having an HSA eligible health insurance plan. Period.

I don't know the tax details on self-employment and health insurance medical deductions. When I can't figure out things like this, I model them in a tax program. As long as things don't change for the 2021 tax year you could use a 2020 or maybe even a 2019 program.

What people are suggesting is that you should take a look at getting an ACA plan for 2021 instead of your COBRA plan. If you get an HSA eligible plan, you could make an [-]$8000 [/-] (correction) $4600 HSA contribution which might be enough of an income reduction to get you a subsidy. Compare the subsidized ACA policy to your COBRA plan--both premiums, and likely expenses wrt to deductibles, co-pays, out of pocket max, etc. But then you have to watch your income carefully and make sure you don't go over the subsidy cliff, or else you'll have to pay back the subsidy at tax time.

I think you've said a couple times that you've been forced onto your COBRA policy. No you aren't. You just lost your good rate through the union. You have the option to pursue other plans, such as one through the ACA.

 

[cathy63]

If you select a bronze ACA plan with HSA eligibility, you can put $8000 into an HSA to deduct from your modified adjusted gross income. That could put you into subsidy-land.

OP is single, so his max HSA contribution for 2021 would be $3600 plus a $1000 catch-up contribution.

 

[cathy63]

Thanks, but I'm somewhat confused on a couple things.

I am on COBRA now. I do not have an HSA. Can I open an HSA account, and then set it up to pay the monthly COBRA Premium for this plan, or does the insurance plan itself, have to be 'qualified' to be eligible for an HSA? There is no HSA-specific option with this insurance, it's just the same Plan I was on, only now I'm paying the full freight with no employer subsidy.

As for taxes, if I understand correctly you're basically saying I can't deduct COBRA premiums. But, if I qualified for an ACA plan with a subsidy or not, I can deduct the full amount of the premiums. When you say up to the limit of my self employment income, you mean I can claim the same dollar amount in premium cost as whatever I would earn in self-employment income? Apologies, I am very tax illerate and don't even understand my accountant most of the time. The intentionally proprietary complexity of that world is effectively a foreign language to me.

Your COBRA plan would have to be HSA qualified in order for you to open an HSA. It sounds like it's not, so if you stay on COBRA, you can't open an HSA. If you switch to an ACA plan that allows HSAs, you could open one then.

For tax purposes, you can deduct either your COBRA or ACA premiums. They're paid with after-tax dollars, so they're deductible. If you file Schedule SE, then you can deduct them as a self-employment expense. I believe the deduction can be up to the full amount that you earn as self-employment income, but it can't be used to offset your dividend income.

 

[Mr._Graybeard]

OP is single, so his max HSA contribution for 2021 would be $3600 plus a $1000 catch-up contribution.

Oops.

 

[mikes425]

You cannot contribute to an HSA without having an HSA eligible health insurance plan.

What people are suggesting is that you should take a look at getting an ACA plan for 2021 instead of your COBRA plan. If you get an HSA eligible plan, you could make an [-]$8000 [/-] (correction) $4600 HSA contribution which might be enough of an income reduction to get you a subsidy. Compare the subsidized ACA policy to your COBRA plan--both premiums, and likely expenses wrt to deductibles, co-pays, out of pocket max, etc. But then you have to watch your income carefully and make sure you don't go over the subsidy cliff, or else you'll have to pay back the subsidy at tax time.

I think you've said a couple times that you've been forced onto your COBRA policy. No you aren't. You just lost your good rate through the union. You have the option to pursue other plans, such as one through the ACA.

Hi and thanks. Yes, this COBRA plan I'm on is not "HSA Eligible" so the HSA idea is off the table unless I decide to drop COBRA first, then go the marketplace. Poor choice of word when I say "forced" to COBRA. That's just my take on the SAG-AFTRA union decision, during a pandemic no less, to drastically increase the earnings-based eligibility requirement for its health plan in order to blow off all but the highest-wage earners in its membership, but neither here nor there relative to this discussion. I know I have a choice to pursue any other options and in this case comparable coverage plans on the marketplace land right about at the same price as this COBRA plan.

An important revision to my dividend income calculation. Per my brokerages's calculation, I had abt. 73k in div. income in 2019, and the estimate for 2020 is about 58k. The "next 12 months" projection gives me a figure of roughly $65k. Now I assume that the 50k income target for subsidy eligibility is based on income 'before' any deductions. So it seems I would be far enough over that target that trying to manipulate things to show earnings of less than 50k is kind of moot, unless I'm missing something.

Obviously there's some work to be done to decide the pros/cons of an HSA/ACA plan vs cost of the COBRA - and factoring in the self-employment variables relative to taxes, what is/isn't deductible, and the unpredictable variables of potential work and div. income. I am definitely inclined to drop the AUM FA fee model, probably in the first quarter of 2021, so that'll theoretically put about 11k back into my pocket to go toward insurance or whatever. That said, I still want to minimize the health coverage cost any way I can.

I greatly appreciate all the enlightening perspectives here!