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The subject of health insurance in the U.S. tends to make people cringe immediately when thinking about it.
And rightfully so! I don’t think anyone can argue that the system in the U.S. is broken. It’s overly complex, the costs are out of control, and something needs to change. Now, we might all have different thoughts on what should be done, but we all know that something needs to be done.
Unfortunately, though, the choices are pretty limited. If you live in the United States, you’re kind of stuck with the system. If you’re employed and your employer subsidizes most of your costs, you’re in pretty good shape.
But what if you want to retire before Medicare kicks in at age 65? Yeah, good luck!
Unless you’re sitting on a giant nest egg, this can be a real stumper. I know of several folks in my circle of “older” friends and acquaintances who would like to retire but will continue to work until age 65.
You already know the answer to this – they just can’t afford the cost of health insurance in the U.S. otherwise. It’s a shame that it has to be this way, but we’re stuck with it for now, though I do have hopes of this changing down the line.
The choices for health insurance during early retirement generally include:
- COBRA – for up to 18 months after leaving your employer (though that tends to be very expensive)
- The public marketplace (aka the Affordable Care Act or Obamacare).
- Non-insurance coverage such as the health care sharing ministries (though there are a lot of limitations in these)
- Mooch off your spouse’s health insurance if they’re not planning to retire anytime soon
- Finding a part-time job that offers health coverage (Starbucks, anyone?)
- Bailing completely and moving abroad
There are other options for health insurance in the U.S., but these tend to be the ones talked about most frequently.
When I first retired at the end of 2018, we used Liberty HealthShare, a health care sharing ministry, for about 8 or 9 months. It filled the void for us, but we weren’t impressed. They were doing some huge infrastructure upgrade that went south around that time and it made it a nightmare for everyone. We spent a year or two constantly chasing after them to get reimbursed for even just routine physical claims…. not fun.
We’ve been fortunate though to be living in Panama for the past 2 years since 2019. Because of that, we were able to switch to ex-pat insurance, which is available to folks who are out of their home country at least 6 months out of the year. We have a silver Global Medical Insurance plan at IMG Global and pay just $345.59/month total for the three of us. You can see what an ex-pat plan would be for you here:
This covers us across the globe – including the U.S. If we chose not to include the U.S., our cost would be much lower. However, the main purpose of us having the insurance is to cover us when we would come back to the States for a visit.
When we go to the doctor here in Panama, we don’t even use our insurance. Lisa just had a routine mammogram this past summer and the total cost without insurance was $55 out-the-door. That’s for the testing, x-ray images, and lab results with diagnosis. We paid while leaving and that was it. It still amazes me.
But now, the times, they are a-changin’. We’ll be moving back to Ohio in the spring of next year. There are good and bad points to this move but believe it or not, I think the cost of health insurance in the U.S. for us will actually be one of the good points.
Strange, right? Doesn’t seem to make a lot of sense, does it?
You wouldn’t think so because you’d expect our costs to go up dramatically. However, I’m anticipating that our premiums will go up only slightly but our deductible will go down and our plan will be better.
Don’t go rolling your eyes at me – it’s true! Here’s why…
The odd nature of a modest retirement
Our budget for our family of three comes out to roughly $50k per year right now. We could probably spend a little more than that and be fine, but I prefer not to if possible since it starts to break my comfort level a little.
Some may look at that as pretty minimal, but I’d have to disagree. Although we tend not to spend a lot on things we don’t care about like cars or fancy clothes, we get to travel more than most folks we know, go out to eat regularly, and don’t really seem to want for much.
But there’s one little benefit to our spending that’s also useful for us. Although I’m earning a little bit on this blog, it’s not very much (for now). So our main source of income is just the Roth IRA conversions that we’re doing every year. This is being done slowly as a ladder to move money from our old 401(k) plans (now in rollover IRAs) to our Roth IRAs.
As we do these conversions, we’re careful in trying to stay in the 12% tax bracket. Because our conversions are taxable events, that means our goal is to stay under $81,050 in adjusted gross income for 2021, for example.
So here’s where it’s a little strange. We currently have over a $1.6 million net worth that puts us over the 90th percentile in “wealth rank” among households age 45 to 54…
Nice job to us… pat on the back.
However, because we’re not actually pulling in much of an income, we look to be relatively “needy” through the government’s eyes. For some reason, income is the metric generally focused on in determining how well-off you are versus looking at your net worth.
This can likely also be helpful if/when Faith goes to college in regards to financial aid. Although some private schools drill deep into your net worth, most state universities use the FAFSA and look at your income instead of your net worth.
So by living a more modest lifestyle in retirement, we actually end up keeping a lower profile with regards to the government and several other entities.
Why that matters for health insurance in the U.S.
Ok, so let’s get to the heart of the matter. Because of the government’s metric, we’re more than likely eligible for subsidies offered for health insurance in the U.S. through the ACA health insurance marketplace.
That’s right – our health insurance will be cheaper than what a high-income self-employed person would pay for the same insurance. It might even be cheaper than what an employee might be paying in premiums through their paycheck – even after their employer absorbs a good portion of the cost.
Is that fair? Maybe or maybe not, but those are the rules that are currently in place for the time being. It’s another example of where the more money you make as an employee can be a penalty in our society.
And similar to how there are legal ways to pay less in taxes as long as you’re still playing by the rules and investing in real estate or businesses, this is an example where our modesty pays off.
It’s interesting to me that the rules bend the way they do. Something like this doesn’t help all early retirees either. I’m sure those who are Fat FIRE, like my friend Leif from Physician on FIRE, likely won’t qualify for this. Assuming his family is getting their healthcare through the ACA (I don’t know if that’s the case), they’ll likely have larger premiums with no help. Granted, Fat FIRE folks are further ahead than we are financially, but there’s no reason we should really be eligible for this either just because our expenses are lower. It’s just such an odd thing to me.
Anyway, when you apply for insurance through HealthCare.gov (the Affordable Care Act marketplace), you estimate what your household income will be for the year. It then determines what your savings will be based on your modified adjusted gross income (MAGI), which is your adjusted gross income along with a few other factors.
Once we move back and the dust settles, our MAGI will likely float around $75,000 per year. Remember that for us, this is not how much money we’re earning or spending. Instead, it includes our Roth IRA conversions since those count as taxable income. It also includes any earnings Route to Retire brings in. The number could change based on several variables but I think $75k is a fair number to use right now.
When I plug that in (along with our ages, kids, etc.) into a health insurance marketplace calculator, like the one Kaiser offers, here’s what it returns…
Looking at this, you can see that we can expect to pay around $446/month for our family of 3 for a silver health insurance plan. In this example, 58% of the plan’s cost will be subsidized… 58%!
During my last year of employment in 2018, I was paying what amounted to $411.69 per month in premiums. My employer was picking up the rest of the cost, which I’m sure was substantially more.
That was 3 years ago and for a high-deductible plan! With this, I can expect to pay about $35 more than that per month for a lower deductible plan. It’s also only a little more than $100 more than we’re paying now for our ex-pat insurance. And right now, we have a higher deductible, which might not need to be the case anymore… though we might keep it higher to drop the premiums even more!
Again, I’m not saying whether I agree with the rules or not – that’s for the majority of voters to decide over time. But I can tell you that we’ll gladly accept the offer while it’s available to us. That will make health insurance in the U.S. affordable to us.
As a side note, Justin from Root of Good is an early retiree who has been utilizing these subsidies for himself and his family for years now. He’s written some great posts on the subject (like this one), which is what drove me to investigate this years ago.
Odds and ends…
First off, this hasn’t taken into consideration the specific plan we’ll choose. Maybe we’ll go with a higher plan or maybe a lower plan. We’re also not going to need insurance until we return either and we might even stay on the ex-pat plan for most of next year.
Considering the choices and that everything changes over time, know that these aren’t going to be exact numbers. However, it gives us a nice feel on what to expect when we do make the change.
Another important piece of information is the so-called “subsidy cliff.” Essentially, this term meant that if you had an income of even $1 over 400% of the federal poverty level, you lost all help from the government. This all changed recently though…
Ever since the health insurance marketplaces/exchanges debuted for 2014 coverage, the premium subsidy (premium tax credit) eligibility range has been capped at household incomes of 400% of the federal poverty level (FPL). People with incomes above 400% of FPL have been on their own when it comes to paying for health insurance. (Note that California has its own premium subsidies that extend to 600 percent of the poverty level.) But that has changed for 2021 and 2022, thanks to the American Rescue Plan’s provision that eliminates the subsidy cliff.— Healthinsurance.org: Obamacare’s ‘subsidy cliff’ eliminated for 2021 and 2022
Who knows if it’ll return after 2022, but it’s one less worry for the time being.
And then, of course, other factors could come into play. Lisa wants to get a part-time job when we get back. Will her income affect these numbers? Will she have an opportunity to get insurance through her employer? Will Route to Retire start bringing in enough income to throw everything off?
What’ll happen then?
Nobody knows. And that’s fine.
In some scenarios, we can make some easy changes. We could adjust our Roth conversions to have less taxable income. We could shelter some (or all) income from Route to Retire or Lisa’s part-time work into 401(k) plans. Regardless, there will always be something to take into consideration.
We have a plan for now for health insurance in the U.S. once we return. But, as we all know, this is a moving target (and usually not for the better). If changes occur that make the cost of insurance unaffordable at some point, we’ll adapt accordingly.
For now, I’m just content knowing that I won’t need to go out and get a 9-5 again anytime soon. 🙂
Plan well, take action, and live your best life!
Thanks for reading!!