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Studying the long-term effects of the Affordable Care Act, the Congressional Budget Office recently projected a drop in hours worked equivalent to having 2 million fewer full-time workers in the workplace in 2017. Several factors play into this forecast, but one major driver is the flexibility offered by available affordable health insurance. So how will the new law affect your ability to retire early?
You may be eligible for deeply discounted health insurance
Insurance premiums for older men and women are expected to drop by 19% and 32%, respectively, under the Affordable Care Act, according to a recent study. This will decrease the amount of out-of-pocket premium dollars this population will need to spend on health insurance, meaning they will need less money to cover health expenditures.
Furthermore, health insurance companies are no longer allowed to refuse coverage or increase premiums based on pre-existing conditions or the age of the enrollee. Before the ACA, many Americans needed the insurance benefits offered through their work -- and therefore stuck with a full-time job. But if health insurance is available at a lower cost, older Americans could choose to retire and purchase coverage through the exchanges.
Premium costs are expected to drop thanks to tax credits -- essentially discounts on monthly premiums. Enrollees can qualify for tax credits based on their family size and income, and this may allow them to work less or not at all. The ability to purchase affordable health insurance is not the only reason people may consider working less: Premium costs decrease as income decreases, so there is an incentive to work less and therefore to earn less. The regulations for the 48 contiguous states are:
- $11,490 to $45,960 for individuals
- $15,510 to $62,040 for a family of 2
- $19,530 to $78,120 for a family of 3
- $23,550 to $94,200 for a family of 4
- $27,570 to $110,280 for a family of 5
- $31,590 to $126,360 for a family of 6
- $35,610 to $142,440 for a family of 7
- $39,630 to $158,520 for a family of 8
Community rating restrictions require health insurance providers to offer policies to their costliest beneficiaries at no more than three times what they charge to their least-costly ones -- regardless of health status. As a result, older Americans will, on average, see a 13% drop in their premiums -- as opposed to a 75% spike in costs for the youngest group of insured Americans.
This drop in cost for older Americans may mean less of a need for employer-based insurance, less money needed in their 401(k) accounts, and, therefore, less time spent in the workforce.
For example, using the Covered California shop-and-compare tool, a couple in San Francisco, both age 55 and with a household income of $60,000, could find bronze coverage for $2 per month after premium tax credits. While not all prices are so low, this exemplifies just how affordable some plans can be.
Medicaid expansion may be your ticket
Medicaid is expanding in some states, and this expansion will cover a group of newly eligible individuals: people between 19 and 65 who have an income below 138% of the federal poverty level ($15,856 this year for a single person), meet citizenship requirements, are not incarcerated, and do not qualify for Medicare.
The expansion of Medicaid benefits is made possible through federal funding mandated by the ACA, and will result in a having higher number of Americans qualify for additional health-care benefits -- making early retirement possible for some. Beware, though, that Medicaid expansion has not been approved in all states. You can find information about your state here.
Some important care is now free
Marketplace insurance plans cover a set of free preventive health benefits that are not subject to a copayment or deductible. Certain tests and screenings have specific criteria based on health and age, and some may be more applicable than others, so don't worry about getting every screening just because it's free. There are some screenings that everyone should consider getting, and women have an additional set of benefits to take advantage of. While these free benefits are an exciting part of the Affordable Care Act, know that they are free only when performed by an in-network provider.