One of the most significant hurdles to overcome if retiring before age 65 is health insurance costs. It is expensive and can break your retirement budget before qualifying for Medicare. What if I told you the cost of health insurance might have been drastically reduced, and no one is talking about it? Let me explain.
We work with a few families who are blessed to have employers that will pay their health insurance up to starting Medicare as a part of their severance and benefits packages; however, this is not the norm for most people. In general, if you retire before 65, there are four health insurance options to choose from: 1. Keep working until you reach 65. 2. One spouse retires and remains on the other spouse’s employer-provided health insurance. 3. Sign up for COBRA health insurance. 4. Sign up for marketplace insurance provided through the Affordable Care Act (ACA or Obamacare). Each option could make sense depending on your situation, but they all come with a downside cost. The option that I will focus on today is ACA marketplace insurance and how the American Rescue Plan has made this a much more affordable option.
On March 11th of this year, the American Rescue Plan (ARP) was passed. This 1.9 trillion-dollar behemoth was the third COVID-relief bill passed in less than a year, and it included a wide variety of economic stimulus through government programs and assistance. The most discussed provision of the ARP has been the Child Tax Credit. While it has benefited many young families, there has been a much more impactful provision of the bill that is not getting a lot of attention. The new phaseout rule applies to the Affordable Care Act marketplace health insurance.
Since the passing of the ACA, there has always been a Premium Tax Credit (PTC) provided to families with a Modified Adjusted Gross Income (MAGI) that is within 100%-400% of the poverty income level. If you were in that range, the PTC could wipe out your health insurance costs or lower it to a much more affordable amount. The original rule was a cliff provision, meaning if you went one dollar over the allotted 400% of the poverty income level, you received zero assistance from the PTC, and your health insurance premium remained expensive. The ARP changed the cliff provision to a phaseout provision for years 2021 and 2022, capping the premium cost at no more than 8.5% of your income. If your income is $75,000, your maximum monthly premium would be $530, half of what it would be under the old rule. As it stands today, this provision is temporary; but there are efforts in Congress to extend it past 2022.
This hidden gem in the ARP does not apply to everyone, but many people fit into this gap and have not heard anything about it. I encourage you to reach out to a financial professional to learn more. Who knows? Maybe this will give you the reason you needed for your retirement to make sense.
The Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.