Thanks to the Affordable Care Act aka Obamacare, the health insurance options available to us are standardized. It definitely makes it easier to compare and contrast.
And thanks to a series of somewhat dated yet excellent blog posts (e.g. Obamacare Optimization in Early Retirement and Obamacare Optimization vs Tax Minimization) I have a clear understanding of how to balance costs and benefits.
Unfortunately, that balance seems to require either a cheap plan with insanely high deductibles (just pay the first $13,000 of medical needs out of pocket, good times) or an OK plan with decent benefits but restrictive income challenges.
So which did I choose? Both.
The Obamacare Tick-Tock
“Better”
Bronze insurance plans for a family of 4 in our zip code cost ~$1,300/month, unsubsidized. Deductibles are about $13,000 and insurance pays absolutely nothing for anything until we first pay that $13,000 deductible. Very “affordable.”
Silver plans cost about $1,650/month, unsubsidized. For the extra $350 we get a lower deductible ($1,600) and a Dr visit costs $15.
Any subsidy will be applied equally to either plan. So… which is better?
The answer seems simple – that which costs the least for the amount of medical care we actually use.
Alas – by definition that is unknowable… In the 4 months that we have been in the United States, 1 of us has been to the doctor twice – I paid $159 for a varicella vaccine and $220 for a visit to an urgent care center (plus $29.99 for a round of amoxicillin.) (And now the urgent care center is asking for another $38 for… reasons?)
By my math that costs less than the $29,000/year Bronze plan.
But $29,000 is less than appendicitis or being hit by a bus. Probably.
Subsidies
It isn’t completely fair to look solely at the unsubsidized cost of insurance. Unless of course you are ineligible for subsidies, as we are in 2021.
But what to do going forward? According to this fancy calculator, as a low-income household (~200% FPL) in 2022 we should get a free Bronze plan or a nearly free Silver (subsidies of $1,300-$1,600+/month.)
This presumes no Roth conversions, no capital gain harvesting, and no unexpected income. Which could be a tall order – these are the core tenets of lifetime tax minimization. After 8+ years of major tax hacking it would be a bummer to just stop.
So what I have decided to do is to alternate between the two.
Tick-tock.
Obamacare Tick-tock
Since 2022 is our first year on an Affordable Care Act health plan and we have no recent experience with US healthcare, we have signed up for a nice Silver plan with aggressing cost sharing. This should keep expenses at a minimum.
With a projected income of about $52,000/year / 200% FPL this should be around $100/month all up.
I plan to hit our deductible and then some – namely from some physical therapy on an old shoulder injury and some recent sciatica issues. Perhaps some acupuncture and medically necessary massage would be called for, who knows. There are also a few things from my most recent physical in Taiwan that I would like to explore further.
With all of that sorted, in 2023 we could switch to a Bronze plan.
With income up to ~$87k/year / 300% FPL this would cost about $0. Ideally Doctor visits would be limited to an annual preventive exam. Anything needing follow-up could potentially be pushed into 2024 (within reason.)
With that extra $35k of income potential to play with, this would be the year to realize some capital gains, do an end-of-year Roth conversion, beef up the HSA, pay off any debt incurred the prior year, etc…
Silver – Bronze – Silver – Bronze – Tick – Tock
Gotchas / Risks
This all works if health care needs are predictable and driven by “wants” vs needs. Accidents or illnesses could throw things askew… but worst case we are protected from financial doom by a Bronze plan deductible.
If things go awry during a Silver year (unexpected income?) then worst case advance premiums would need to be repaid (but with limits below 400% FPL.)
Summary
The best health insurance solution is the one that costs the least for the amount of medical care you actually use. There is little point in paying for a high-end health plan if the odds of using it are low.
By alternating between years with low-income/high-end health plan/high usage healthcare and high-income/low-end plan/low usage healthcare years, there is potential to minimize overall healthcare expenditures.
There are risks, but they are limited. And perhaps it will all work perfectly, like… clockwork.
Related resources:
- ACA Premium Calculator
- Obamacare Optimization in Early Retirement
- Obamacare Optimization vs Tax Minimization
- Obamacare Advanced Premium Tax Credit Repayment Limitation
Have you Tick Tock’d health insurance?
This is exactly the conclusion i arrived at for our family of 3 though the case is weaker so long as the aca subsidy cliff is gone.
On our low-AGI years, we are just barely able to push to 195% of FPL and get pushed into MN Care, a program covering those below 200% FPL that are on our states ACA. For 2022, our effective tax rate, inclusive of healthcare, on a few thousand more deductible dollars into an IRA was around 28% but also eliminated nearly any cost risk from deductibles and will likely lower actual expenses even more. From a simple tax rate table analysis I might have expected around 13% inclusive of QBID so 28% and risk redn is great.
The difference between expected marginal rate as we push down income a bit and actual rate is a step up in savers credit and premium savings of MN Care over even heavily subsidized ACA / MN Sure rates.
It leaves us, and it sounds like maybe you, at a cash flow deficit that we can tolerate for a long time but eventually will want to address via giving up the subsidy occasionally and going to the top of the 12% fed bracket via conversions to Roth and tax gain harvesting to bump basis.
Low consumption and low cash flow are key. Maintaining a mortgage at 2.75%/30y has a minor indirect carrying cost here by increasing cash flow needs that, hopefully, is swamped by investment returns.
Deciding whether to be low or ‘high’ agi will be a year by year decision factoring account balances and tax position, oddball events, legislative changes, and healthcare anticipated needs.
I’m greatful but it’s too complex a system.
The system is definitely too complex. The kids will be on Medical for income <266% FPL, which I dislike because I would rather they share the family deductible with us. We could be on Medical also if income was less than 138% FPL, but mathematically difficult. I could maybe get us as low as 150% FPL with some Herculean effort which would get us to a CSR-94 plan instead of CSR-87 and the marginal rate there is indeed quite high. A high use healthcare year could actually correspond with a reduction in income anyway.
We will be cash flow negative which I'll just address with debt if need be. I only need to swing that for 12.5 years until I get unrestricted access to the retirement accounts (Roths.)
Beyond our similar conclusions, we apparently suffer similar sleep disruptions caused by EoY healthcare cost optimization (presuming you’re stateside).
When we’ve been on ACA (as we are in 2021), I’ve often chosen to place members on separate plans which MnSure allows. For example, my wife tends to be a higher consumer of healthcare than me so sharing a deductible is terrible. Meanwhile, our son has historically been a low user as well. Thankfully MnSure allows this. I’ve met others that were unaware this was even an option.
Given that it’s you though, I imagine you’ve thought this through and concluded that a one deductible covering the entire family is a good risk reduction over separate ones or even segregating a specific member into a higher cost copay style plan.
MN’s interesting in that it has this middle program of MnCare between the 138% FPL and 200% that seems really good.
My wife’s still working some, self-employed, so we have some income but some good tools (i401k) to push AGI down but I don’t think we could get to 138% no matter how herculean an effort I made short of her quitting. She’s happy with a 2/3rds FTE’ish position and I’m happy to have the income and still avoid draw downs.
Long term, I need to keep in mind the possibility of our mix shifting increasingly pre-tax and the implications of that (we’re maybe 55% pre-tax at the moment).
Short term it’s very year-by-year though. I can imagine a year where we add another or a EV and find we want to pair that credit with a high income year. That assumes the credit remains nonrefundable and who knows about that.
I once created a model for ACA and taxes to project taxes out 5 years with annual configuration changes. It was surprisingly how the very distorted effective tax rates, inclusive of ACA, made the alternating low/high model meaningfully better. Frustratingly complicated.
Anyway, appreciate all the information of the years. I definitely improved my ability to optimize all this a lot, at a cost of a lot of hours reading and building spreadsheets. Thankfully that part was mostly oddly enjoyable.
Nice – it’s always a pleasure to meet another Excel weirdo. This stuff is just good fun :)
This is just me being unable to do anything productive until after the kids are asleep. I think the sleepless nights were 6 months ago when we were considering moving / buying a house / etc…
The existence of a deductible encourages binge/starve usage of healthcare and the rest just comes from that. What a system! Very unhealthy / neurotic.
I forgot to say… the family deductible is the same whether the kids are on the plan or not, and if history serves they are the ones who use the majority of care. I’m sure Jr will have a couple broken bones what with his energy and daring levels, and it is easy for me to postpone a Dr visit for myself but Mom doesn’t accept any nonsense when it comes to the kiddos. So overall sharing the same deductible between 4 people instead of 2 should result in overall lower expenses
It’s so nice to see this detail discussed. This is similar to what I’ve been doing with the Silver working well for me (includes acupuncture, even at Bastyr, which surprisingly fixed shoulder and sciatica, as PT could not). While I never quite know what my annual income will be until the year ends, guestimates have been close enough (or I repay any difference at tax time). I also want worldwide or EU healthcare coverage at some point, but until Covid is under control, that’s unfortunately on hold. Thanks again!
Years where you are making a move as you are, or first retiring and leaving employer insurance, are definitely harder to get affordable care since income is different than in ensuring years. Meanwhile I’m concerned that higher health insurance costs early on in RE can exacerbate SORR. Medical seems to operate on a cash flow basis in that it’s based on monthly income, not annual, correct? Is it still difficult to have income at 138% for the duration of the year to enroll in Medical for this year only?
With your tick-tock strategy, any difficulties with the ACA in having such different incomes from year to year? Are you providing a letter to attest to income, or something else?
Thanks for a helpful post. Hope you are settled in and enjoying CA.
ACA is annual. Medical is monthly.
ACA is based on expected income – just report what you expect and go from there. An affidavit is sufficient proof and the $$$s are trued up in the tax filing.
This year since we didn’t exist in any California database we had to share a lot of detail on the Medical side – I submitted an affidavit and records for 3 months of dividend income and business income/expenses. The ACA side just referenced that same data.
Love you content. It provides insight into elements that most folks wouldn’t think about off hand.
Can you please elaborate on the difference between the ACA, which, of course, provides healthcare insurance, and “medical.” I’m confused….
Medi-Cal is California’s expanded Medicare. Sorry, writing it as medical is confusing.
Any “low income household” automatically has children covered under this system, where low-income household is defined as income < 266% FPL. For adults it provides coverage for income < 138% FPL.
For 2021 have you just been going with the (not so) affordable bronze plan? Are you intentionally doing Roth conversions or seeing enough monthly dividend income to keep the adults off Medical this year?
We had no insurance at all for the past 3 months, and then started a Bronze plan at $1300-ish for the month of December.
This was about $1k cheaper than paying the mandate penalty in California. 3 months with no insurance is OK, but once you go beyond that you pay the penalty.
In hindsight we could have had the kids on Medi-Cal since day 1 since it is based on monthly income rather than annual. By the time I figured this out it was Thanksgiving, so we ended up paying about $300/kid for the month of December instead of $0.
Have you looked into splitting your family into different plans/levels? When my wife was pregnant one year, we put her on a gold and then I was on a HDHP bronze so I could contribute to a health savings plan. I’m not sure if you can still do that but it worked back when Obamacare first started.
I didn’t (you can still do this.) By having us all on the same plan, when I hit the deductible this year all of Winnie’s care will be free also.
Would be interesting to see the price difference on the subsidized amounts. If the silver plan costs hypothetically $100 month more isn’t that a hedge against potential unexpected medical bills. I 1/2 expected to see some fancy graphs like I did in is your 401k to big that compared income ranges with bronze,silver,gold plans with types of income for ultimate optimization. This is what I hope to be calculating this time next year when we plan to take the leap.
I have those graphs in the these posts:
Obamacare Optimization in Early Retirement
Obamacare Optimization vs Tax Minimization
Hey Jeremy, how did you figure $52k CA AGI for 2022 would qualify for a zero cost plan? Based on what we discussed a few months ago I have $43k or so as the top CA MAGI I can make to get our family of 3 a zero cost high deductible plan. And the next income threshold was $54k and that would cost us about $180/mo. Did the limits change significantly now for 2022?
Oh and my kid would be on MediCal also. So I guess the numbers I calculated here for for my wife and I.
We are a family of 4 so 1xFPL is $4,540 higher than for a family of 3.
With the kid(s) on Medical you still calculate your premiums as a max % of income based on full family size.
Curious if you considered some of the health cost sharing programs out there. I know there are some limits on reimbursements and some have a Christian viewpoint, which bothers some, but do offer an alternative for a healthy family.
We are not eligible for the cost sharing programs due to my wicked sinful ways.
That is not what bothers me though – there is no legal obligation for an HCSM to pay your bills, although I did consider signing up for Our Lady of Perpetual Health. John Oliver has a good episode on HCSMs.
LOL – your humor never disappoints.
I never understand why patients sign up for these HCSM Ponzi schemes. Why would anyone throw their money at something completely unregulated with no obligation to pay for anything?
Medi-Cal is decent (not great) for kids, but TERRIBLE for adults, so good move.
How are you cutting your income to 52k a year?
No Roth conversions, no capital gain harvesting, and selling $1 million worth of stock
Can you elaborate on why Medical is terrible for adults?
I have a more detailed version of this question but it ended up as a reply to someone else below (need coffee, sorry)
Medi-cal requires a ton of paperwork and reimburses poorly, if at all. Many of the best places don’t take it.
Pediatric providers do because the majority of kids are on Medi-cal in many areas, and, well, guilt.
Paperwork and bad reimbursement on the provider’s side I guess, and they have enough other customers to sit it out. Seems to vary greatly from state to state, which is kind of nuts. Thanks.
I would recommend using the free app GoodRx when filling any prescriptions. It is used instead of your insurance and shows the cost at all your local pharmacies which can dramatically be different and sometimes is even cheaper than an insurance co-pay. I bet the amoxicillin would have been much cheaper!
I now have a GoodRx card and app. At the time I just needed a prescription filled at 9 pm and the pharmacy was next door to the urgent care center. $30 seems reasonable for a 1 time purchase
I just checked – cost would have been $7-$12
This is a nightmare. I’m going on ACA next year for the first time and if I include Roth conversions it seems there’s little gain in subsidies vs long term taxes.
I’m also on the fence about Bronze/HSA vs Silver. Is the tax advantage on $3600 really worth it? And as I age how likely am I to stay on the Bronze plan anyway?
Thanks for the discussion!!
$3,600 for HSA contribution? Plus another $3,600 for Roth conversion to be tax neutral (HSA contribution offsets “income” from Roth conversion.)
20 years from now that might be worth a whopping $40k!… by itself, maybe not a big deal. Do it for 5+ years and then you have something…
It is a younger man’s game. I have spent about $0 on healthcare over the past 10 years. Over the next 10 that probably won’t be the case.
Game of chicken! :)
But with some math on your side
Can you elaborate on why Medical is terrible for adults? Is it the provider network, trouble signing up, coverage? I keep seeing this but don’t know what to compare it to. I am somewhat surprised, since it is a Medicaid expansion state, and I’d think that there’d be high demand for decent care.
I think Medical is managed care, which in some states also appears to have plenty of providers within the standard networks of the private insurers that the state contracts with.
In CA it varies by county; Is part of the problem that most providers you’d want are out of county?
Or that the insurers with good provider networks don’t provide managed care through Medical at all?
Sensible strategy. Go with silver if you know you will have a lot of expenses in the upcoming year. Go with bronze if you anticipate minimal expenses. Cheers!
Yessir, anticipate and plan – aim to lump your medical expenses into the Silver year.
Thanks for always posting interesting and helpful information. I always look forward to a Go Curry Cracker! post!
Today is the 1st anniversary of my early retirement. ACA is a Godsend. Thanks Jeremy for your blog. It has made my transition so much easier. I had been thinking about doing a tick tock with ACA. I had cancer surgery earlier and therefore met my deductible, took advantage of other services like dermatology, urology and cardiology screening to insure that my retirement will be a long one. Next year should be a breeze for me and my family. Like you say it does take some planning on our part. Even with this we have not spent any of our stash. More power to go curry cracker!
This certainly has been a problem in early retirement. We’re a family of four and we retired two years ago in our early 50s. We chose a Bronze HSA plan the last two years.
In 2020, we kept our income just under 400% which meant our premiums were $30 a month. In 2021, we also kept our income below 400% FPL and our premiums were $0 a month. Unfortunately, in both years we had relatively unforeseen medical expenses that caused us to meet the full deductibles of $13,000+! I knew I was “gambling” somewhat by choosing the low/no deductible plan, but each year I thought there was no way that we’d actually meet the deductible – I was wrong.
Well, what to do for 2022? I need to generate income at about the same rate, so no cost sharing reductions. If I use the ACA modeling tool, it says that the costs (premiums and payments toward deductible) for a Silver policy will be significantly more than a Bronze plan for someone in my situation. Given that, why would I do anything other than a Bronze plan? So, that’s what I’ve signed up for at the moment. Maybe this will be the year we have low medical expenses! I have two days to decide if that’s really the right path…
As of September 2021, I can personally verify that appendicitis + recovery is $140,000….
… or $2600 with a silver plan in Washington State. Thanks Obama!
As I slowly put together our retirement plan, I wanted to say thanks for sharing all these details and calculations. They’re really helpful in seeing what options currently exist and sort of validating my expectations that managing healthcare insurance is going to be a headache. Though I could hardly expect anything else staying in the US.
It is definitely a headache. The US system is very broken.
Thanks Jeremy, always appreciate your posts and have learned much.
Yes, our system is ridiculously complicated and doesn’t appear that will change anytime soon.
Have to accept there will be years where you could be out of pocket $13k. Easier to accept a $13k investment loss as its just a paper loss unless you’re actually cashing out. A bit tougher to accept when you’re actually spending the cash.
For sciatica relief check out YouTube videos on “sciatic nerve flossing”. Looks too simple to work, but it has for many.
Stick with it…..nerves are tricky when they get aggravated. They can take more time than other injuries depending on a few factors ( length of time they’ve been aggravated, etc.).
Feel better.
Thanks, I will check that out on YouTube. I’ve been doing stretches which does help a bit but I’m still taking Advil on the regular.
Yes there could be a year where you have to pay out $13k. The loss in this case is a bit smaller since you would have to pay higher premiums and the deductible on the Silver plan, so maybe it is an $8k-$10k higher expense if bad things happen.
Then it is just a question of how long it takes for you to save <$10k - with HSA contributions and Roth conversions plus $ not spent because the insurance pays for you
It’s so interesting how cheap you can live (in a very expensive state) if you’re smart and invest when you’re younger. Use gains from a previous year to buy RE in cash, and then you can mostly tweak your yearly income to qualify for subsidies and other favored tax status.
Now if only I could tell my college-aged self to not wait till his mid-30s to start investing I’d be golden. Thanks for another good article.
PS – Please add a way to subscribe to comments so I get an email when someone posts a comment.
Looking to switch to ACA by mid 2022. Nervous about loosing good employer health plan. Appreciate if you all could share you experiences with ACA plans in terms of network coverage and claims processing.
Due to some pre-existing conditions I am worried about balance billing and uncovered charges in case of hospitalization as these exclude Max Out of Pocket limit.
Thanks in advance!
Sam, my experience was great. I got a policy with the states premier insurance company for much less than I was paying through my employer. The key to ACA is keeping your income low on paper(1040). Best wishes to you in 2022!
Thanks Steve. Glad to know that it was good.
That is the plan, use GCC wisdom to keep the income low!
Healthcare is a problem in the US with these super high premiums etc. We have a similar but different problem in South Africa.
Although the costs of medical care are a bit lower our medical cover starts at 0 deductible, but is then limited to maximums that change each year.
For example Oncology is a maximum of $12500, but often that doesn’t cover much treatment. The plan costs $250pm.
We don’t have plans that cover more than that, but generally hospital stays are paid for but the tests are not. So you need the cover, but have no idea how much will actually be paid.
It isn’t as exorbitant as the US, but it seems it might not be the worst idea to self-insure.
Curious why the amoxicillin was so $$$. It’s usually cheaper, annoyingly, to pay cash for generic medications than to run them through your insurance. They always run my insurance at the pharmacy, I ask for the generic price and save $20 most of the time. Of course, then it doesn’t count towards a deductible.
At Costco pharmacy (you don’t have to be a member), amox is a bit cheaper than $29.99.
https://www.costco.com/drug-results-details-price?storeId=10301&drugId=31&drugName=Amoxicillin&encodedDrugName=Amoxicillin
Not worth worrying about for the occasional prescription, but it can add up for ongoing medications, particularly if you aren’t expecting to meet your deductible that year.
I don’t fully recall, but I believe it was amoxicillin in liquid suspension… not sure if that matters.
When you were ineligible for subsidies, did you buy a Silver plan through the ACA?
I’m curious because California and my state have some off-exchange (but ACA compliant) “silver” plans that offer the same coverage BUT allow an HSA, which Silver plans in CA and my state no longer seem to offer.
If I *know* I will be above the subsidy a certain year, you can bet I will be buying the off-exchange, ACA compliant “silver” like plan that allows an HSA. This would go double if I had a family and could contribute yet more to an HSA.
Insurers are smart to see this market- higher earners who need insurance plans and who will benefit financially from an HSA. Let’s hope they keep offering this.
For a low-income year, I was pleased to note that not only does the ACA offer cost-sharing, but California has very strict laws on who must be offered charity care (I’m sure you know this, but here’s the link for those who would be interested) https://www.natlawreview.com/article/california-health-care-legislation-signed-law-governor-newsom. Essentially if you are below 400% of the FPL you are eligible for charity care if you have “high medical costs” even if you have insurance. This is way better than the ACA standard, which is 200 or 250% of the FPL. Kaiser, Stanford, and UCSF all have excellent links on their websites.
Also, since medical debt below $500 will not longer appear on credit reports, I’m not sure what, exactly, the incentive is to pay these smaller bills?? Anyone?
And, finally…as you know you can always negotiate with hospitals. They will usually reduce the bill if you offer to pay in full instead of financing. My system also automatically gives a 12 month, zero interest payment plan; many not for profits have similar.
But…all unnecessary headaches in a dysfunctional system that serve to increase the cognitive burden and beat us all down, no?
I bought a travel insurance policy for a few months as part of our move and then bought a bronze plan for the month of December, afair.
The system is overly complicated – its basically wild west profit motive and nobody with any sort of moral courage amongst those who can fix it (congress.)
Yep. Just lines the pockets of insurers.