Frequently heard in our office, “I’d like to retire early, but I can’t figure out how to continue affordable health insurance until Medicare.” In the absence of a beneficent employer, there is little one can do, except to select COBRA (the mandated availability to continue company insurance coverage for up to 18 months) or ObamaCare solutions, both of which tend to be prohibitively expensive. Any break in continuous health insurance coverage could result in personal economic ruin.
In the short term, there is possible assistance for some very specific Americans. Imbedded in the American Rescue Plan Act of 2021, which is known to most people as the most recent COVID-19 Spending Plan, there is a short-term assist for some people. Unfortunately, so far it applies only to calendar years 2021 and 2022, but if it becomes popular, that could well be extended into future years.
Under the 2021 COVID-19 law, people ages 63 or 64 may have a short-term solution. Since Medicare doesn’t start until age 65, Congress established “fallback” coverage under the Affordable Care Act, or ACA. Commonly dubbed “ObamaCare,” ACA coverage is not always “affordable.” Additionally, anyone who has checked the price of COBRA coverage through an ex-employer knows that COBRA is no financial panacea. Wildly expensive, it is out of reach for many Americans.
Under the new provision, and only for the remainder of 2021 and all of 2022, the cost of new ObamaCare coverage under ACA is capped, based on income. For under-65 Americans, ACA coverage costs will be capped at 8.5% of the taxpayer’s MAGI, or Modified Adjusted Gross Income, which for most people is the AGI on their Form 1040 Tax Return.
This means a taxpayer with a MAGI of $50,000 would only be required to pay $4,250 annually, or $354.17 per month. With that level of income, this deal could be very enticing. For many people, it could make the difference between a desired early retirement and working until Medicare age.Unfortunately, this assistance sunsets on 12/31/22. In an extremely politically charged year, the future of this provision is unclear. We will, as always, keep you posted.
If you fit the description of a person who would choose to retire early, and if you will reach Medicare age before the end of 2022, this may be of interest to you. It should be especially interesting if retirement would result in a large reduction in income. Carefully planning income, from Social Security claiming, Retirement Account distributions, etc. would enhance your ability to get coverage at very minimal cost.
As Congressional discussions go forward, the 12/31/2022 sunset date may be extended. If it happens, we will report, and there would potentially be many more people positively affected by this provision.
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