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.
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.
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
CBO estimate of health insurance premiums under Obamacare, Nov. 30, 2009
Health Insurance Premium Credits in the Patient Protection and Affordable Care Act (ACA)
Kaiser Family Foundation - Health Reform Subsidy Calculator
Federal Register - Health Insurance Premium Tax Credit
IRS - Affordable Care Act Tax Provisions
State of Indiana -- Actuarial analysis of Obamacare.
State of Oregon -- Actuarial analysis of Obamacare.
Actuarial Value and Cost-Sharing Reductions Bulletin
Plan Levels and Standardization of Coverage
Commonwealth Fund -- Choosing the Best Plan under Obamacare