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Why I'm Not Worried About Obamacare Premium Increases.

Why I'm Not Worried About Obamacare Premium Increases.


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This article was first posted November 1, 2014.


Obamacare's open enrollment period for health insurance coverage effective Jan 1, 2015 starts on Nov 15, 2014.

Despite dire predictions of skyrocketing health insurance premiums by Obamacare's opponents, CNBC recently reported that consumers will see modest premium increases on average. Premiums ranged from a 15% increase in Louisiana to a 2.5% reduction in Oregon. Some 85% of Obamacare participants receive a refundable tax credit that reduces their monthly costs even further. As Retire Early showed in an article last year (Don't Get Stabbed by the Obamacare Spike), there's a tremendous financial advantage for middle-class retirees to limit their income to no more than 400% of the Federal Poverty Level.

400% Federal Poverty Level Income Limit

If you can keep your adjusted gross income (AGI) beneath the 400% of Federal Poverty Level limit ($46,680 for singles, $62,920 for married couples) your annual health insurance premium is capped at 9.5% of your income. If you can reduce your income even further to 138% FPL ($16,100 for singles, $21,710 for married) your monthly premium is limited to 3.3% of your income or about $40/month for a single person. Below 250% FPL your out-of pocket expenses are limited as well. Our Obamacare participant with the $40/month premium would have his annual out-of pocket cost capped at about $1,000.

For 2015, the income limits for eligibility for Premium Tax Credits increase slightly versus 2014.



400% Federal Poverty Level (FPL) Income Limit
. ----- Family Size -----
Year 1 2 3 4
2015 $46,680 $62,920 $79,160 $95,400
2014 $45,960 $62,040 $78,120 $94,200


Tax, income, and health insurance planning for 2015

There are several things you can do to minimize your taxable income in retirement and increase the value of any health insurance subsidy you may be eligible for.

    1) Limit tax-exempt income -- since tax-exempt income is included in the Modified Adjusted Gross Income calculation for the health insurance subsidy, it's best to minimize it.
    2) Minimize dividend income -- consider replacing high-yield dividend stocks with investments that have little or no dividend income like a small-cap index fund.
    3) Minimize capital gains, maximize tax-free returns of capital -- if you did any tax-loss harvesting in the market meltdown during the waning days of the Bush Administration, you should be sitting on some unrealized capital losses. By matching the sale of some winners and losers, you may be able to make a sizeable withdrawal from your portfolio without incurring any tax liabilty.
    4) Select a HSA-qualified health plan -- If you're healthy and don't have much in the way of medical expenses, select a HSA-qualified health plan. Any contribution you make to a Health Savings Account (HSA) reduces your modified AGI by an equal amount.


    2015 HSA Contribution Limits, Deductibles, and Out-of-Pocket Expenses


    • HSA holders can choose to save up to $3,350 for an individual and $6,650 for a family (HSA holders age 55 and older get to save an extra $1,000 which means $4,350 for an individual and $7,650 for a family) - and these contributions are 100% tax deductible from gross income.

    • Minimum annual deductibles are $1,300 for self-only coverage or $2,600 for family coverage.

    • Annual out-of-pocket expenses (deductibles, copayments, and other amounts, but not premiums) cannot exceed $6,450 for self-only coverage and $12,900 for family coverage.

      Minimum
      Deductible
      Maximum
      Out-of-Pocket
      Contribution Limit
      Age 55+ Contribution
      Single
      $1,300
      $6,450
      $3,350
      $1,000
      Family
      $2,600
      $12,900
      $6,650
      $1,000


    5) Delay taking Social Security benefits -- as an early retiree ages and enters the 59-64 age bracket, health insurance premiums reach their peak. It may make sense to delay Social Security benefits until age 65 when you qualify for Medicare so that you maximize the value of your health insurance subsidy before then.
    6) Tap your Roth IRA -- you may be able to make tax-free withdrawals from a Roth IRA, though most financial planners advise against it to keep the tax-free compounding of investment returns intact. You should probably exhaust the first four items on this list before considering a Roth IRA withdrawal.
    7) If you are employed -- and in danger of breaking the 400% FPL limit by a small amount, you may want to see if your employer will grant you a short unpaid leave of abscence.
    8) Small business owners -- may want to move up any planned capital expenditures that would benefit from Section 179 accelerated depreciation to reduce income in the current year.

Millionaires can qualify for free Medicaid under Obamacare?

Since Obamacare doesn't have an asset test, you could have a $100 million in Berkshire Hathaway stock and qualify for Medicaid as long as your interest, dividends, and capital gains income was below 138% FPL. However, Medicaid's Estate Recovery Program may make you think twice about doing so.

There is a small chance Medicaid could seek to have your Estate reimburse the program for any medical care you received under the Obamacare Medicaid expansion after you die. To date, only Oregon and Washington have changed their rules to limit Estate Recovery to long-term nursing home care. If you live elsewhere, don't go whole-hog and try to qualify for Medicaid if you're wealthy. Realize a few capital gains and keep your income above the 138% FPL threshold and be content with a $40/month premium and a $1,000 annual out-of-pocket limit. It's still a heck of a deal.

What if you refuse to buy health insurance?

For 2015, the penalty for not buying health insurance is the greater of $325 or 2% of your household income over the IRS Federal tax filing threshold. (The threshold is about $10,000 for a single person, $21,000 for a married couple in 2014.) The size of the penalty is capped at the nationwide average annual premium for a Bronze Plan sold on the exchange.

If you are buying health insurance on the individual market, you owe it to yourself to get a price quote from the Obamacare exchange. Not everyone's a winner, but many people are pleasantly surprised by the premiums and coverage offered. If you're getting your Obamacare information from Fox News or another right-wing source, you may be leaving thousands of dollars a year in tax credits and premium savings on the table.




Related Web Sites for additional information.

Time Magazine -- Bitter Pill: Why Medical Bills Are Killing Us
http://healthland.time.com/2013/02/20/bitter-pill-why-medical-bills-are-killing-us/

CBO estimate of health insurance premiums under Obamacare, Nov. 30, 2009
http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/doc10781/11-30-premiums.pdf

Health Insurance Premium Credits in the Patient Protection and Affordable Care Act (ACA)
- Congressional Research Service, June 13, 2012

http://www.fas.org/sgp/crs/misc/R41137.pdf

Kaiser Family Foundation - Health Reform Subsidy Calculator
http://healthreform.kff.org/SubsidyCalculator.aspx#incomeAgeTables

Federal Register - Health Insurance Premium Tax Credit
https://www.federalregister.gov/articles/2012/05/23/2012-12421/health-insurance-premium-tax-credit

IRS - Affordable Care Act Tax Provisions
http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

State of Indiana -- Actuarial analysis of Obamacare.
http://www.in.gov/aca/files/Individual_Market_Premium_Rate_Change_Variability_under_the_ACA_Final.pdf

State of Oregon -- Actuarial analysis of Obamacare.
http://www.cbs.state.or.us/ins/consumer/federal-health-reform/wakely-aca-actuarialanalysis-20120731.pdf

Actuarial Value and Cost-Sharing Reductions Bulletin
http://cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf

Plan Levels and Standardization of Coverage
http://www.acscan.org/pdf/healthcare/implementation/background/PlanLevelsStandardizationofCoverage.pdf

Commonwealth Fund -- Choosing the Best Plan under Obamacare
http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2012/Aug/1626_Lore_choosing_best_plan_HIE_actuarial_ib_v2.pdf



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