An Obamacare Loophole For Early Retirees?

This entry was written on April 21, 2013, way before Obamacare took effect. Here is an update concerning my situation dated July 26, 2014: http://aboutlifeandrunning.blogspot.com/2014/07/qualifying-for-medi-cal-due-to-obamacare.html .

I didn’t expect to write about anything today, especially not about politics. But this is not about politics but rather about retirement. After I finished reading about buying health insurance with Obamacare, I just had to share a surprising discovery that could affect me and perhaps you. The main I concern I’ve had about retiring early (if I could), was getting affordable health insurance. I was already dreading the thought of having to work until I reach 65 when I would be eligible for Medicare, or stop working earlier and move to the Philippines. Of course you can always buy coverage from private insurance companies, but they are very expensive and if you have a pre-existing condition, your premiums could be higher or you could be denied coverage. So I decided to do some research on how Obamacare would affect the cost of health insurance coverage for early retirees, who won’t be eligible for Medicare until age 65, and found some interesting things about the Affordable Healthcare Act of 2010.

First I went to this website: coveredca.com to check out how Obamacare would work in California. I read through pages of information but they didn’t clearly indicate how early retirees would qualify. The main criteria they had was income. Where would early retirees get their income and how is that calculated? The website didn’t clearly say. So I asked Mr. Google this question: “Do early retirees qualify for medicaid?” A whole bunch of financial and news websites came up explaining a glitch or loophole in Obamacare. Here are a couple of examples: http://www.forbes.com/sites/financialfinesse/2012/07/03/surprising-ways-the-new-health-care-plan-can-speed-up-your-financial-independence-day/ and http://www.huffingtonpost.com/2011/06/21/obama-health-care-law-medicaid-middle-class_n_881412.html.

Basically, what is says is that early retirees can qualify for subsidized health insurance starting in 2014 or if you fall under a certain income level, then you qualify for Medicaid and don’t have to pay for health insurance. Interesting! If this is the case, then I hope the law isn’t overturned by the powers that be in Washington, D.C.

So hypothetically, if I am able to pay off my mortgage, then I won’t be requiring too much monthly income to cover my day to day expenses and utility bills. Let’s just say I only need $1,000 a month to survive ( I can actually subsist on less). That’s what I have to withdraw from my savings and would make my income $12000 a year which would qualify me for Medi-Cal (California’s Medicaid). So if anybody ever reads this and is familiar with the subject, please correct me if I’m wrong. Based on the California program, I will not have to start paying for health insurance until my income goes over 15,850. If I understand what I read correctly and I actually have to buy subsidized insurance, that would give me a Silver Level coverage. Until the open enrollment starts later this year, I won’t know how much the Gold or Platinum Level coverage would cost, which is the highest tier of coverage available. That means more out of pocket to pay for the insurance monthly, but lesser to pay when you get treatment.

Then I realized, I was actually wrong about withdrawing from my savings as income. Regular banks savings actually don’t qualify as income because they had already been taxed beforehand. Now if I start withdrawing from my regular IRA or 401K at age 59 ½ , that would actually be considered taxable income. So while withdrawing from savings until it runs dry, my taxable income would actually be zero. Right? I don't have enough savings to last until I turn 59 ½ though :( .

If that Obamacare loophole is for real, then it’s almost too good to be true. Will the law be amended to fix this loophole? Because it is to my advantage, then I hope not. You mean to say I could possibly afford to retire in the U.S. and not have to do it in the Philippines?!

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