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How Obamacare Is Creating New Pathways To Retirement

February 28, 2014 • Page 2 of 3

The ACA guarantees that you can get insurance outside your employer's group policy. Before health reform, people over age 50 often found themselves blocked from obtaining coverage of any sort because of preexisting conditions. That is prohibited under the ACA.

We all know people who have hung on to jobs by their fingernails just to keep health insurance while they wait to become eligible for Medicare at age 65. Research by the Center for Retirement Research at Boston College confirms this, showing a marked spike in retirement (as measured by Social Security claiming decisions) at age 65. In effect, the ACA means these fingernail hangers can let go.

"We're already seeing it in some of our client conversations," says Michael Kitces, partner and director of research for Maryland-based Pinnacle Advisory Group. "We'll ask, 'If access to health insurance wasn't an issue, would you still be doing what you're doing now, and working where you work?' The answer in a lot of cases is, 'Actually, no.'"

New Math

Although insurance companies can set premiums up to three times higher if you're over age 50, the overall cost will be held down for many by cost-sharing subsidies and advanceable, refundable tax credits on premiums.

The cost offsets depend on your income, and that's why CBO is forecasting that some people will reduce their working hours. The tax credits are available to families with income between 100 percent and 400 percent of the federally defined poverty guideline. At 400 percent, families aren't required to spend more than 9.5 percent of their income on premiums.

This year the subsidies are available for individuals with annual income between $11,490 and $45,960, and from $23,550 to $94,320 for a family of four. The definition of income is modified adjusted gross income (MAGI), which includes wages, salary, foreign income, interest, dividends and Social Security benefits.

The subsidies are creating new math that anyone getting close to retirement age should heed.

They create incentives for households to carefully manage income to stay within premium assistance brackets. Limiting the number of working hours is one way to do that; another is to reduce taxable income by maximizing contributions to a 401(k) or health savings account at work.

Deferred Annuities

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Comments

CFP 10 years ago

Employees asked to do the job of co-workers who have been let go are not necessarily more productive. I worked with employees in that situation at one time. One supervisor told me that over half of her employees were out on FLMA due to stress. She said that she was going next. One woman told me that she was quitting for a less stressful job. She said that it was impossible for the four of them remaining in her unit to do the work that had been done by 10 in the past. I asked her what she would be doing. She said that she was going to teach high school.
jlterry3 10 years ago

So let me get this straight? Older Americans can now elect to work fewer hours because they can get a subsidy for their health insurance, paid for by the rest of us who are still working for a living and trying to make ends meet and this is a good thing?
bruce0800 10 years ago

Charles I'm not a fan of the ACA and agree with most of the comments. But issues such as employment, productivity, retirement, investment strategies, etc have a lot of moving parts and difficult to predict.- long term However, it's widely accepted that reduced working hours lead to greater productivity. In recessions companies cope with lower demand by laying off employees and/or reducing employee hours. One person does the job of two, or two people do the job of three. When demand begins to pick up, employers are reluctant to begin hiring because they want to be sure the recovery will be sustained - creating even greater productivity.
walkersw 10 years ago

Richsuro is exactly correct. (see comment below) If rates were not going up why did most of my health insurance clients elect to renew their plans in December to avoid ACA rates for 2014? Why did I have people hurrying to get plans with an effective date prior to Jan 1 , 2014? Mark Miller seems to think that people becoming less productive and therefore being subsidized more by the government is a good thing. That is simply a way to get people to vote for whomever is giving them funds they did not earn. Look at the Food Stamp program. Stephen Walker
CFP 10 years ago

So, Obamacare has encouraged workers to manage their income so that they can continue to receive subsidies. As they successfully "manage" their income, they also keep their taxes at a certain level or possibly make it into a lower tax bracket as tax brackets change over time with inflation. Now, where is the government obtaining the money for the subsidies? Oh, from those taxpayers who aren't eligible for subsidies so they have no reason to "manage" their income! Overall Obamacare premiums are lower partially due to higher copayments and deductibles. Also, premiums are lower because the young, whose higher premiums were intended to subsidize the capped premiums of their elders, are not buying coverage lowering the overall anticipated premium total, but also creating a situation in which premiums for all probably will have to rise in 2015.
Charles Stanley 10 years ago

Doesn't reduced working hours equal less productivity, or am I missing something? It seems to me that while this will be happily received by some workers, that the overall effect on the economy will be a drag due to reduced productivity. Some will, according to the advice in this article, purposely not work and produce as much in order to gain benefits at the expense of the tax base so there is less productivity and more drag on the economy via tax costs. It may be welcomed by some individuals but for those who look at the big picture, I don't think the picture is so pretty.
ThomasRSchwebach 10 years ago

Yes, premiums are less than anticipated ONLY because plan deductibles are so very high, along with reduced provider networks available. Focusing merely on the premium is a false comparison. Secondly, isn't it just splendid that people will work less-to receive MORE money from the government to PAY for their subsidized Obamacare, meaning the taxpaying people who continue to work 40-50 hours a week. Yes, I insist YOU give me more of your hard earned money to pay for MY healthcare, because I chose to work less. Liberals sell their false narrative that now these people can spend less time with their children. Or just maybe, they'll sleep in longer, enjoy a leisurely cup of coffee while chatting on their subsidized Obama-phones, and spend more time watching TV. That's the more likely scenario, isn't it.
richsuro 10 years ago

You really shouldn't have drank the Kool-Aid...........