One of the major challenges for anyone considering early retirement is healthcare. When I prattle on and on about our FIRE plans to our friends and family, the most frequent question is, “What are you going to do about health care if you’re not working, Mr. Smarty Pants? Huh??”
Well, we have thought about that. Mrs. G and I will be several years away from Medicare eligibility when we we walk out of our offices for the last time, climb onto our Surly Long Haul Truckers and ride across the good ole USA, and will need some form of health coverage. Delaying our freedom just for insurance is not an acceptable option.
American Health Care is Best! Right?
Many people are faced with the decision to continue working because of the expense and complexities of the employer-subsidized US health care system implemented 60 years ago. Despite assertions by politicians who claim our system is the best in the world, it’s actually an expensive, inefficient pile of pig vomit. Was that too harsh? Ok, I will rephrase that.
Despite exceptional healthcare workers (I work with many) and the wide availability of cutting edge technology in the United States, our system cannot objectively be considered anywhere near the top in terms of cost, efficiency or clinical outcomes. Many elements of our system truly suck, and one of the suckiest is the employer-based insurance coverage, which made absolutely no sense in the 1950s when it was developed and makes less sense now. Aside from the insane escalation of costs spawned by this ridiculous structure, this binds people to their employment longer than necessary until Medicare eligibility kicks in. We don’t seem to mind the government paying for roads and wars, and subsidizing corn, milk and oil (!) but somehow paying for healthcare is a dirty commie conspiracy. Go figure. But this post is not about that. This post is about me, Mr. Grumby, and my quest to find affordable health care options when Mrs. G and I jump off of the hamster wheel early next year.
Oh Shit, Is He Going to Talk About Obamacare?
Yes I am. For early retirees or others who don’t have employer coverage for one reason or another, the Affordable Care Act is an excellent solution in many ways. If the mere suggestion of this very polarizing and widely misunderstood (and misrepresented) topic causes you anxiety, calm the hell down and read my post. It’s informative, hilarious, and thought-provoking. I should know, I wrote it myself.
ACA for the Grumbys
So, what are our options next year? It’s safe to say that the ACA will eventually cease to exist or will be modified in some way. But more than likely, major changes will take some time and the ACA will be available in some form for a few years. That is the assumption I am basing this post on.
The first thing I wanted to do is get an idea of what our premiums would be, even though it could change in the next year or two. I went to Healthcare.gov* during open enrollment and plugged in our ages and state of residence. The site then displays a page listing numerous premium and deductible options. For the purposes of this post, I chose high deductible plans with an HSA, because I am counting on our relative youth and healthy lifestyle to minimize our need to access health care. I will also say that, despite the well-publicized serious malfunctions during the first year, it is actually a pretty slick website that allows you to shop different plans.
*For those of you you are screaming “SOCIALISM!”, you’ll be happy to know that the exchange lists insurance plans offered by private-sector companies like Cigna, Kaiser and Providence.
Full Price Coverage on the ACA Exchange
The plans below are similar to what I would choose if I retired today (man,does that sound good!) Mrs. G and I would pay between $600 and $800 per month for an high deductible plan. The deductible and out-of-pocket max are $14,000 combined. That sounds high, but given our history we are betting that we will spend much less in any given year. If we somehow had a crisis that required spending $14k a year, we could sustain that for the eleven years before I (Mr. Grumby) reach Medicare age.
Below is a hypothetical look at 3 plans for 2017 at Healthcare.gov. I chose the examples only for comparison and do not intend to reflect any preference or recommendation on which company to pick.
The ACA provides a Premium Tax Credit (PTC), which is essentially a subsidy or discount, for lower income families and individuals. For the purposes of this example I used an income of $62,000. This resulted in a premium tax credit (subsidy) of about $362 per month, greater than a 50% savings from the original premium. So our premium options range from $270 to $360 per month for the plans below. As I plugged in different scenarios, the tax credit phased out at an income of $64,100. This will change depending on each individual’s variables.
How can we qualify for subsidized health insurance if we saved enough to retire early? The beauty is that the subsidies (PTC) are based on income, not net worth. Whether or not that is the best approach is certainly debatable. But as long as our income is below the cutoff, we qualify. And because we spent only $53,700 in 2016, we should have no trouble coming in below the $62,000 cutoff after we retire. Click the photo to see in full res:
The Grumbys Are Living Off Of My Taxes!
Some people might be outraged that we would accept a subsidy. They might say, “Blah! That’s what’s wrong with this country, too many people taking handouts!” Well, hold your horses there, you bootstrap pulling, self-determining, rugged individualist! As I mentioned above, the ACA subsidy is also known as a Premium Tax Credit, and it functions like other tax credits. One prominent example that every parent is familiar with is the Child Tax Credit, which is where the taxpayers subsidize every child that is born to the tune of $1,000 each, up to age 16.
For those who are upset by the Grumbys receiving a healthcare subsidy, I would assume that they have taken a principled stand by against all taxpayer-supported subsidies by refusing their $1,000 Child Tax Credit every year. But no one does that. Parents and others rightly accept the tax benefits for which they qualify, and so will I.
If the available health care options don’t meet our needs when we retire, Medical tourism is a viable alternative for early retirees who want quality care at affordable prices. You might be concerned about seeking care outside our borders, but there is no need to be. Many objective studies have proven that the US system is nowhere near the top in most categories. Well, except cost. If you look at health care expenses and outcomes in 15 other high-income countries, the US spends 50% more as a percentage of GDP than the second most expensive country (Woo hoo! Take that, France!) and at least twice as much per-capita than most. Outcomes in the US are mostly middle of the pack or worse, which is particularly alarming because it proves that higher cost does not correlate to better quality. Many of these medical tourism destinations have achieved far better outcomes in most major categories and cost far less. Plus, you know the price up front. Have you ever tried to find out what your next surgical procedure or doctor’s visit will cost ahead of time? Impossible.
Neither Mrs. Grumby or I would hesitate to seek care internationally. It’s a no-brainer. GoCurryCracker wrote a very informative post about their international health care experiences.
Healthcare in Early Retirement- What Are Your Thoughts?
If you are close to FIRE, are there options in the US that I missed?
If you are retired but haven’t reached Medicare age, what have you discovered about finding affordable health coverage?
I highly recommend The Healing of America, by T.R. Reid. It is so well-written and accessible that even I understood it! He describes the major forms of health care in several industrialized countries, including the US. If all of our politicians would read it, our system be fixed in a few months. But I don’t think too many of them are ready for books with “words”. Ha! (But you know I’m right.)
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Disclaimer: I have researched this subject and am comfortable that the information presented above. However, I am not a tax expert, nor do I play one on TV. I am a guy writing a blog. And despite the fact that I am very trustworthy, seek appropriate guidance on your own rather than blindly trusting what you read in my blog (or any other blog for that matter).