If you are a high-income boomer, Obamacare can be a pricey way to cover your health insurance needs until age 65, when Medicare kicks in. Depending upon where you live, you could find yourself footing the bill for the entire cost of a health plan purchase through the Healthcare.gov Marketplace -- all it takes is earning just $1 more than the government rules for eligibility dictate. In some states, the subsidy amount can top $15,000 per year.
Why the subsidies are so variable
The wide disparity is because of Obamacare’s built-in limits on income according to family size, which determine whether or not you will receive a subsidy from the government – and, if so, how much.
These income limits can trip up boomers for a couple of reasons. The first is that older workers tend to make more money than younger people – about $20,000 more annually – simply because they have been on the job longer. The other is that the insurance policies for boomers are more expensive, meaning that forgoing a subsidy will hurt a lot more.
Using the dandy tool provided at the Henry J. Kaiser Family Foundation, you can easily see how subsidies tie in to family size and income, putting boomers at a disadvantage. For example:
- A 45-year-old couple with an income of $62,040 living in the Colorado Springs, Colo., area could buy a Silver plan costing $6,671 yearly. They would receive a subsidy of $777 from the government. If their income was actually $62,041, they would get no subsidy, and pay the full amount.
- A 60-year old couple in the exact same circumstance would be offered a plan for $12,538 per year, for which they would receive a subsidy of $6,644, paying out-of-pocket, like the younger couple above, $5,894 annually. If their income was found to be one dollar more, they would have to pay the entire amount out of pocket.
- If the younger couple lived in Norwalk, Conn., their plan would cost $11,407, for which they would receive a subsidy of $5,514 annually with an income of $62,040. Add $1 to that salary, and the whole cost would be shouldered by the insured.
- For the 60-year-olds, a Silver plan costs a whopping $21,440 – for which they would receive $15,546 in subsidies, as long as their income was lower than $62,041. If it isn’t, this couple will be socked with an incredibly large insurance bill every year.
What’s a boomer to do?
If boomers cannot obtain insurance coverage at work, or their coverage might be cancelled because it doesn’t comply with the new insurance standards, they may have little choice but to purchase a plan through the health exchange.
All applicants on the Marketplace must estimate their income for the next year. For those who make more, they will have to repay some of their federal subsidy; if they make less, they will receive the difference as part of a tax rebate after filing their tax return.
The exchanges use modified adjusted gross income in order to compute subsidies, which is adjusted gross income in addition to any tax-exempt income. Boomers seeking to pay as little as possible for Marketplace policies should do what they can to make sure that amount doesn’t rise above the income restrictions – even by one dollar.
This may take some fancy figuring, possibly with the help of a financial advisor or tax attorney. It may include things like adjusting your work schedule, and putting away more pre-tax income into investment vehicles such as individual retirement accounts and 401(k)s. By doing so, you’ll not only save on insurance premiums, but you’ll also be saving more for retirement – a definite win-win.
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