Hey everybody! There’s been a lot of talk lately about the Affordable Care Act (ACA), more commonly referred to as ObamaCare. Let me start by saying that I was in favor of health care reform and don’t want to use this as a forum for heated political discussions. What I’d like to do is discuss the impact the law is going to have for my plan to financial independence (FI). For those of you new to this blog, here is a quick summary of my FI goal: I plan to save as much of my income as possible over the next 7-10 years with the goal of being able to “retire” early. Once I feel comfortable money-wise (and if I want to at the time), I’d quit my day job to work on my passions (yoga, writing, teaching, etc). This would mean giving up my employer’s health insurance plan. With that said, here is a quick summary of how I understand the options once you leave your employer’s plan:
- You plan to live on less than 400% of the poverty level. You qualify and will receive a subsidy correlated to how much you withdraw from your accounts and/or make on side hustles. In order to get the subsidy, you have to go through the exchange to purchase the insurance.
- You plan to live on greater than 400% of the poverty level. You will not qualify for a subsidy, meaning you have to pay 100% of the cost out of your pocket. Now, you’ll want to do some research to find out what plan is best for you. If you are relatively healthy, you may want to opt for a low premium (the amount you pay each month, regardless of if you need the insurance), high deductible (the total amount that you have to pay out of pocket before the insurance kicks in). However, if you think that you may have some hefty medical bills in the future, you’ll likely want to choose a higher premium, lower deductible plan. The choice is yours.
- You had private insurance prior to FI and are happy with your plan. You may be able to keep your plan; however, that depends on if its coverage complies with ACA. This is part of the hole that I see in the system. Let me explain….
I’m going to use a 29-year-old male (let’s call him Bob) that doesn’t smoke as an example.
- Pre-ACA: Bob can go to the private exchange and purchase a $10k annual-deductible plan for $42/month ($504/year). Now, this means that any and all expenses up to $10k must be covered by Bob. However, maybe Bob has easy access to $10k and is willing to take the risk that he won’t actually need the insurance. He doesn’t want to be stuck with the bill for expenses significantly above $10k, but he also wants to keep a low monthly rate.
- ACA – private coverage: The cheapest option (according to ehealthinsurance.com) would be $189/month ($2,268/year). Now, this is the “bronze” level plan, which covers quite a bit more than his old plan covered, which is nice, but he may not even need or want additional coverage.
- ACA – public exchange: Here it is estimated at $211/month ($2,532/year) if he doesn’t qualify for a subsidy, based on the Subsidy Calculator. This is what would change if you live on/make less than 400% of the poverty level.
- ACA – catastrophic plans: Bob may be able to get a catastrophic plan, which is similar to the high deductible plans; however, he won’t qualify unless he has low-income (and under age 30) or a hardship exemption (and over age 30). Which, I think we can all hope we don’t qualify for!
- ACA – penalty tax: His last option is to weigh the costs of insurance against the penalty tax each year and go without insurance. Let’s say it’s 2016 (ACA is fully implemented), Bob’s withdrawing $30k/year to live on and he has to pay the penalty of 2.5% of income. He’ll have to pay $750 in penalty tax, which is $246 more than the original high-deductible plan. So, now Bob pays more and gets no insurance.
What I believe this law is doing is raising the standard of health insurance in America to a level beyond what it needs to be. And, in my opinion, this is an unfair application of the health care reform that we so desperately needed. Individuals like Bob don’t need to be told what type of insurance they have. For those of us that hope to be FI prior to Medicare age, we should be able to “self-insure” to a certain level. I have heard about grandfathering certain plans in; however, I haven’t found anything very helpful to explain that concept, nor will it be relevant when I reach FI age. Also, when you consider that 78% of the medical-related bankruptcies in the US happened to people that HAD MEDICAL INSURANCE, it shows that we most likely didn’t even fix the real problem (crazy-high medical costs) by requiring more people to have insurance.
Are you happy with how the law was implemented? What would you change? Do you plan on getting insurance if you don’t currently have it? What do you think you’ll do when you reach FI?
Link love: If you were looking for a better explanation of the details for complying with the law, check out this post by G.E. Miller at 20somethingfinance.