How Obamacare Could Help You Retire Earlier (or Destroy Itself Trying)

ObamaCareNow that the Supreme Court has ruled the Patient Protection and Affordable Care Act constitutional, it's time to consider how best to use it to your advantage. One way to benefit is that if you're looking to retire early, the court's decision could have just handed you the biggest gift of your life.

The reason is that two of the law's key features -- guaranteed coverage and subsidized premiums -- play right into the hands of those who'd like to leave the rat race behind them. With guaranteed coverage, anyone who wants to can buy insurance, regardless of pre-existing conditions. With subsidized premiums, taxpayers could be on the hook for paying premiums for anyone making less than 400% of the poverty level.

The Big Change

In essence, unless and until money to fund the program runs out, Obamacare has just made retiring early much easier. Prior to the law's passage, if you wanted to retire early, you needed to do one of the following:
  • Convince your former employer to keep you on its health care plan.
  • Go uninsured and hope for the best.
  • Be healthy enough to qualify for insurance on your own.
  • Qualify for some other group plan (like a trade association or union).
  • Lower your assets down to Medicaid eligibility levels.
  • Follow a carefully prescribed process of exhausting COBRA coverage, then qualifying for guaranteed issue insurance under HIPAA.
In most cases, though, you either would be committing yourself to going broke, or you would be required to pay the full cost of your insurance, plus you'd have to figure out how to cover any premium increases. That's an incredibly risky undertaking, and it means that someone retiring young enough would need to have several hundred thousand dollars invested just to cover health insurance premiums until Medicare eligibility.

With this new law, as long as your income falls below the level of 400% of federal poverty guidelines, your out-of-pocket premiums for "silver" level coverage are capped on a sliding scale that gets to be no higher than 9.5% of your income. The rest of the costs of insuring you are covered by taxpayers.

That's a Huge Subsidy

The table below shows what that means in terms of income levels that qualify for subsidies and the capped out-of-pocket cost of typical insurance:

Household

Size

Annual Income

at Poverty

Level

Annual Income

at 400% of

Poverty Level

Out-of-Pocket

Annual Premium

Cap at

Poverty Level

Out-of-Pocket

Annual Premium

Cap at 400% of

Poverty Level

1

$11,170.00

$44,680.00

$223.40

$4,244.60

2

$15,130.00

$60,520.00

$302.60

$5,749.40

3

$19,090.00

$76,360.00

$381.80

$7,254.20

4

$23,050.00

$92,200.00

$461.00

$8,759.00

5

$27,010.00

$108,040.00

$540.20

$10,263.80

6

$30,970.00

$123,880.00

$619.40

$11,768.60

7

$34,930.00

$139,720.00

$698.60

$13,273.40

8

$38,890.00

$155,560.00

$777.80

$14,778.20

Sources: U.S. Department of Health & Human Services, U.S. Senate.


When you consider that the fully loaded costs for insuring a family of four are already in the neighborhood of $15,000 per year, those out-of-pocket premium caps take quite the pressure off -- as long as those caps really do hold.

For a potential early retiree, qualifying for those subsidies is as simple as keeping your income below that 400% of poverty level. The median household income was $49,445 in 2010, well below the subsidy limits for all but one-person households. If your debts are paid off, you're not overly picky about your car, home, clothes, or food, and you're no longer paying the costs of getting yourself to work, keeping your income down in that range doesn't seem like too difficult a challenge to meet.

What Could Go Wrong?

Nevertheless, in spite of the law being blessed by the Supreme Court, the very generosity that makes it attractive to potential early retirees will likely be the economic source of its ultimate undoing. The law may cap out-of-pocket insurance premiums, but that cap doesn't eliminate the total cost of the insurance -- it merely shifts the difference to taxpayers. Indeed, by so significantly shifting costs, it fundamentally changes the nature of early retirement planning. Rather than "save, invest, and figure out how to cover your costs," the incentive has become "pay off your debts, keep your other costs and your income low, and your neighbor will cover your health insurance for you."

Given that so many people so easily stand to qualify for such large subsidies simply by keeping their incomes below the caps, Obamacare is virtually guaranteed to cost significantly more than initially projected. That's an issue compounded by the fact that many of the tax increases that purport to pay for the program are levied on high earners. As long as your individual expenses are reasonable, it's a lot easier to keep your income down than it is to raise it -- and that's especially true if your income comes from your own investments and you can largely control the timing and the form that income takes.

To paraphrase former British Prime Minister Margaret Thatcher, the trouble with socialism is that you eventually run out of other people's money. Now that Obamacare and its tax, subsidizing, and guarantee rules have been upheld by the Supreme Court, the only real question that remains is: When will that money run out?


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306 Comments

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gbuddha2012

thank God for Obamacare... healthcare is a human right not a cash cow for the insurance industry

November 13 2012 at 3:42 PM Report abuse rate up rate down Reply
Jason Bolejack

OBAMA CARE LAW

It needs to be repealed! Look whats in it!

** Page 58 and 59: The government will have
real-time access to an individual’s bank account and will have the authority to make electronic fund transfers from those accounts

** Page 203/line 14-15: The tax imposed under this
section will not be treated as a tax. (How could anybody in their right mind come up with that?)

** Page 241 and 253: Doctors will all be paid the same
regardless of specialty, and the government will set all doctors’ fees.

** Page 272.! section 1145: Cancer hospital will ration
care according to the patient’s age.

** Page 317 and 321: The government will impose a
prohibition on hospital expansion; however, communities may petition for an exception.

** Page 425, line 4-12: The government mandates
advance-care planning consultations. Those on Social Security will be required to attend an “end-of-life planning” seminar every five years. (Death counceling.)

** Page 429, line 13-25: The government will specify
which doctors can write an end-of-life order.

HAD ENOUGH????

“Finally, it is specifically stated that this bill will not
apply to members of Congress. Members of Congress are already exempt from the Social Security system, and have a well-funded private plan that covers their retirement needs. If they were on our Social Security plan, I believe they would find a very quick ‘fix’ to make the plan financially sound for their future.”

August 17 2012 at 2:22 PM Report abuse rate up rate down Reply
alpambuena

nice try, but your math does not add up. as time goes on, and we see that the obummer health plan is not working, new taxes, and more funding will be required, which means higher premiums, to compensate for thos who pay nothing. as the longer waits, longer lines, and over crowded facilites start jamming up the system, and people complain, then the states will have initiated plans to alleviate the situation, and government will have to supplement the crises. when doctors find out that they will be making even less money, the shortages will start, and more government mandates are currently being written, as we speak, in which there is no funding available.

July 03 2012 at 8:58 PM Report abuse -1 rate up rate down Reply
clyogi

When I read the headline, I immediately thought that the best way for people to be able to retire early is for the nation to elect someone else to be President. The economy is terrible and is getting worse. Most Americans will now need to work until removed from the workplace in a wooden box. Interest rates will stay ridiculously low so long as the economy is in the toilet.

July 03 2012 at 4:43 PM Report abuse -1 rate up rate down Reply
1 reply to clyogi's comment
CherMoeLin

The economy was crashing under the burden of the theft and corruption of the former administration, two UNfunded illegal wars based on lies AND the huge tax cuts and loopholes for the rich and the corporations. All the outsourcing of jobs, people losing jobs, people's homes being taken away by those in the banking sector that screwed them over, people who lost their pensions and those who the SEC didn't catch who were fleecing the people ... well, that pretty much explains the economy in the toilet. Throw in the fact that Republicans refused to create the JOBS they promised with all the TAX CUTS THEY DEMANDED, because they needed to fulfill their goal of DESTROYING the president and making him a 1-term president ... well, there you have it. The WAR ON WOMEN, the war on gays, the war on Unions, the war on minorities .... well, it sure looks like Republicans are taking this country down the big tube as fast as they can. They're snatching our money out of our hands as we slide.

July 15 2012 at 11:24 PM Report abuse rate up rate down Reply
davidumf92

I AM A BUSINESS OWNER (SMALL BUSINESS) 13 EMPLOYEES. I PAY 100% MEDICAL INSURANCE FOR MY EMPLOYEES. I OPENED IN 1992. PLEASE SOMEONE TELL ME CAN I DROP ALL THE MEDICAL INSURANCE AND LET OBAMACARE TAKE CARE OF THEM? 13 EMPLOYEES x $15,000 A YR = $195,000.

July 03 2012 at 9:20 AM Report abuse -1 rate up rate down Reply
2 replies to davidumf92's comment
CherMoeLin

Imagine Paul Ryans plan of giving each senior citizen $15,000 a year to pay for their Medicare PREMIUMS AND ALL MEDICAL AND DRUG COSTS. How far do you think that will go? As a small business owner, I believe President Obama's plan offers discounts or tax writeoffs or incentives for you to give them insurance. Almost all employees pay part of their insurance through their employer. Why don't YOU? Or are you just looking for sympathy?? Not only that, the President has even given companies an "out" by charging a small fee if you DON'T give them insurance coverage ... like $75.00 for the first year and a little more the 2nd year, etc. Try to get more of the facts before you get your undies in a bunch. Obviously the plan isn't perfect yet, but believe me, the alternative of being 1 illness away from bankruptcy or dying because you can't afford coverage isn't too appealing. And it's more prevalent than you think. By the way, don't just think of this as "Obamacare", since it was crafted after "Romneycare". Perhaps you could give them both credit. What Romney has planned if he overtakes the White House is going to put YOU out of business anyway. So maybe you shouldn't worry so much.

July 15 2012 at 11:30 PM Report abuse rate up rate down Reply
Popeye Americannews

You are making milllions off your 13 employees, the least you can do is insure them. Don't be such a greedy bastard.

September 28 2014 at 8:23 PM Report abuse rate up rate down Reply
sumter61

I WANT THE SAME HEALTH/MEDICAL INSURANCE AS OUR BELOVED CONGRESSMEN AND WOMEN RECIEVE WHEN THEY RETIRE

July 03 2012 at 9:07 AM Report abuse +10 rate up rate down Reply
1 reply to sumter61's comment
dianekanca

YES! And with their tax breaks, too. You know, the ones they don;t want anyone else to have.

July 03 2012 at 2:48 PM Report abuse +3 rate up rate down Reply
woodsidefigueroa

Thank You, Thank You, Mr. Obama and American Tax Payers. At last my husband and I can drop our $500 a month insurance payment and use that money to enjoy our retirement!! Las Vagas here we come. The rest of you make sure you keep working hard and keep that Obamatax coming!!

July 03 2012 at 8:18 AM Report abuse +1 rate up rate down Reply
robertthompsonb

I can afford to retire, but cant afford medical. that just changed !!!

40 years I have paid taxes that have supported alot of bad programs, with one of the more recent being the housing bailout..bank bailout, GM bailout. I paid for my house..... I have watched as a large percent of the youth feel they dont have to work, or pay taxes..
my time has just arrived, and I plan to take it...

THANK YOU PRESIDENT OBAMA

July 03 2012 at 7:42 AM Report abuse rate up rate down Reply
nosleaz44

One of the things I'm really not hearing about Obama Care is the fact that those who will be opting for early retirement will be doing so on my back. Who do these people think are paying for this? The American taxpayer. Obama is not taking the money out of his personal stash, we, the already overbudened, in debt beyond belief, taxpayer are paying for this...

July 03 2012 at 6:29 AM Report abuse +2 rate up rate down Reply
2 replies to nosleaz44's comment
CherMoeLin

Take a look at what Bush burdened the country with compared to President Obama, before you start blaming. Think of it this way .... if people opt for early retirement (I assume you mean retire at 62, 63, 64 or 65 as opposed to 67???) then there will be more jobs for this country. The Republicans aren't creating any with their TAX CUTS, so if we baby boomers retire, you can have our jobs. We've already paid our quota since the 50's and 60's when we started working. You younger folks expect everything to be handed to you. All we seniors expect is what we put in after we worked our butts off all these years. Now the Republicans want to snatch it away from us. Sure, all those baby boomers (huge numbers of post-war babies, now grown up, and former workers in this country) that paid dearly into the system and the Republicans are seeing this great big huge Social Security pot brimming with money and just ITCHING to get their hands into it again, and this time to empty IT ALL into their pockets, not just borrow from it and toss in an I.O.U. that they'll never pay back.

July 15 2012 at 11:37 PM Report abuse rate up rate down Reply
Popeye Americannews

They are smokers and are obese and are going to die. Active, energetic, skinny people with long life expectencies don't retire early. but they sure milk the long term care programs to the fullest. It's either pay now, or pay later, figure it out and don't be such an a$$.

September 28 2014 at 8:27 PM Report abuse rate up rate down Reply
jwesty5978

Count me in! I am 53 with 33 years of service for the same company, have a defined pension plan, 401-k, ect.. I am going to retire at 55 and keep my yearly taxable income below the threshold for a single person and have you Obama fools pay my Health Insurance premiums...

July 02 2012 at 5:02 PM Report abuse +2 rate up rate down Reply
3 replies to jwesty5978's comment