You want to retire early but need to figure out a way to buy reasonable Health Insurance. Medical Insurance to cover you and your spouse or family. Even if it is just you, you will need coverage until you reach age 65 when Medicare kicks in. You have a couple of choices and one of them is to get your health insurance through the ACA- Affordable Care Act (aka Obama-care) and understanding the Affordable Care Act Subsidy Thresholds will be a huge help.
If your retirement income is low enough you may be able to get a reasonable policy rate. Possibly with a bit of subsidy instead of just going out on your own looking for your health coverage.
There are some Affordable Care Act Subsidy Thresholds details that you should be aware of to understand whether you will qualify for reduced health insurance rates. If your income is too low you will not qualify and be pushed to Medicaid. Too much taxable retirement income and you exceed any subsidy help through the ACA.
My Early Retirement Medical Insurance
I have medical coverage through a retirement benefit. For 2016 I pay a total of $851 a month or $10,212 a year which does also include a dental plan. I will use our taxable retirement Income (when not working) of $40,000 a year for my bride and myself as an example for this page. You can see now that our medical and dental insurance is a large percentage (22%) of our taxable income.
ACA Income Limitations and Calculations for Affordable Care Act Subsidy.
Like anything else the Federal Government has established, the calculation is fairly complicated to determine whether a subsidy is available to you and for what amount. The key factors are your Modified Adjusted Gross Income (MAGI), household size, your resident State and Zip Code. The final piece being what the IRS calls SLCSP or Second Lowest Cost Silver Plan.
Basically the ACA sets a limit on the percentage of your income that you will pay towards your health insurance. This percentage of income limits range between 2% to 9.5% of your MAGI. The determining factor is based on the ratio percentage of your MAGI to the Federal Poverty Level (FPL) for your specific size of household. The figures I am using to calculate the ACA income thresholds and subsidy comes from IRS form 8962.
See Table 2 of IRS Form 8962 for details regarding your income (MAGI) to (FPL) ratio and maximum percentage of income for insurance payment amount. It comes down to this. Your FPL percentage is the key to whether you qualify for any health insurance subsidies. There is also a “Cost Sharing Subsidy” if your FPL falls within 100% to 250% of the FPL range. The Cost Sharing Subsidy will also reduce the amount you will pay for health insurance.
The Federal Federal Poverty Level Table
Here is the Federal Governments FPL table that they are using for 2015:
- $11,770 for individuals
- $15,930 for a family of 2
- $20,090 for a family of 3
- $24,250 for a family of 4
- $28,410 for a family of 5
- $32,570 for a family of 6
- $36,730 for a family of 7
- $40,890 for a family of 8
Note: Federal Poverty Level amounts are higher in Alaska and Hawaii
Using this FLP table, my percent of FLP is figured out like this. $40,000 (our retirement MAGI) divided by $15,930 (FLP family of 2) which comes to 2.51 which = 251%. With this percentage I can now go back to the IRS table 2 of Form 8962 and see that my 251% means that the most I will pay for Health insurance if I choose the SLCSP or Second Lowest Cost Silver Plan or a lower Silver/Bronze plan is 0.0808 or 8.08% of my MAGI $40,000. That figures out to be $3,232 a year or $269 a month.
If the SLCSP plan is $10,500 a year then my subsidy would be $7,268. That insurance rate is much less than I am paying now with my retirement benefit. But then we are talking a policy that will most likely have higher out-of-pocket costs associated to it for co-pays and deductibles.
Why ACA is Important to me.
My retirement benefit is not secure and under constant scrutiny by a company that took over my old company. There is always the possibility that my earned benefit will be eliminated. It is nice to know that I will be able to find health insurance at a discounted cost if I need to.
I understand that by doing this calculation I can come close to what would be offered once I apply for insurance through my state’s applicable ACA site. There may be slight differences but this calculation would be very close
Affordable Care Act Subsidy Thresholds
Based on Table 2 of IRS Form 8962. If your MAGI lands in the 300% to 400% of FLP, $35,310 – $47,080 for individuals / $47,790 – $63,720 for a family of 2, then your maximum payment would be 9.5% of you MAGI that you would have to pay.
That said, if your MAGI falls below 100% of the FPL, $11,770 for individuals / $15,930 for a family of 2, you won’t qualify for ACA subsidy but instead be pushed to Medicaid.
If your MAGI exceeds $47,080 for a single household or $63,720 for a 2 person household your MAGI will have exceeded subsidy thresholds and you pay the full price of the policy you selected for purchase.
ACA Cost Sharing Reduction Subsidies
There are what they call Cost Sharing Subsidies (CSS) for those whose MAGI is in the range of 100% to 250% of the FPL. Qualifying for CSS means your deductibles, copays, and out-of-pocket maximums can be reduced for “Silver” ACA health coverage plans. Standard Silver plans cover 70% of medical cost. Qualifying for “cost sharing subsidies” will then cover 73% to 94% of medical cost depending on your MAGI ratio to FPL.
- If your MAGI is in the 100%-150% range of the FPL, Then the plan covers 94% of medical expenses: $11,770 – $17,655 for individuals / $15,930-$23,895 for a family of 2
- If your MAGI is in the 150%-200% range of the FPL, Then the plan covers 87% of medical expenses: $17,655-$23,540 for individuals / $23,895-$31,860 for a family of 2
- If your MAGI is in the 200%-250% range of the FPL, Then the plan covers 73% of medical expenses: $23,540-$29,425 for individuals / $31,860-$39,825 for a family of 2
In my case my MAGI is 251% of the FPL. I would not qualify for the cost sharing subsidy based on my early retirement $40,000 income for a family of 2. If I could lower my MAGI just $176 I could get 3% in Cost Sharing Subsidy. Obviously I would try to do reduce my taxable income since it is only a small amount.
Whether you agree with it or not, the ACA is here now and does offer a way, an option. A way to buy Health Insurance once you decide to pull the plug and retire early. The best thing I believe that came out of the ACA is you can no longer be refused medical insurance because of a precondition. That was a huge issue that enslaved people to their job to keep their medical insurance continuing.
Hopefully this page gives you an idea about the Affordable Care Act Subsidy Thresholds. You should be able to figure out where you would fall if you were to retire early and seek medical insurance through the ACA.
If you are retiring early with eligible children thus making yours a family of 3 or higher household, the Table 2 of the Federal Form 8962 and the Federal Governments FPL table provides all the information you need to make the calculations as I did above.