While we were planning for early retirement, health insurance was the scariest unknown variable in the plan. This was in the dark ages before the Affordable Care Act’s premium subsidies and guaranteed coverage. Back then, I budgeted $1,000 per month when family premiums were $500 per month simply because I expected insurance costs to go up significantly and to account for the chance that someone in the family might end up in the state’s high risk pool with insane premiums.
In 2014, the Affordable Care Act (also known as Obamacare) proved to be the golden ticket for many hopeful early retirees. Pre-existing conditions no longer mean you are uninsurable. If you make less than 400% of the poverty level (400% of FPL = $113,760 for our family of five) you’ll also qualify for subsidies to help pay for health insurance.
Because Mrs. Root of Good retired early two weeks ago, our family health insurance coverage provided by her employer ends on the last day of February. In this article I’ll outline how we applied for health insurance coverage on the healthcare.gov marketplace including the pitfalls along the way and how we secured subsidies that will pay for 88% of our health insurance.
Getting insurance and subsidies through Healthcare.gov
In general, to qualify for subsidies to help pay your insurance premiums, you have to apply for coverage through healthcare.gov, the government’s health insurance marketplace. Similar to employer provided health insurance, the healthcare.gov marketplace requires all applicants to apply during the open enrollment period. For coverage for a particular year, the open enrollment period usually runs from November 1 of the previous year to January 31 of the year of coverage.
To apply for coverage outside of that window, you must have a qualifying event. The most relevant qualifying event for those entering early retirement is the loss of employer provided health insurance, though marrying, divorcing, having a baby, and moving to a new state also qualify as a life event that triggers a special enrollment period for marketplace coverage.
If you’re losing health insurance coverage then you can apply for coverage through the marketplace up to 60 days before losing coverage.
In our case, our last day of employer provided coverage is February 29. Once we were within that 60 day window, I applied on January 4 to obtain coverage for the five of us.
The initial results of the January 4 application were not spectacular. Healthcare.gov said the adults were not eligible for subsidies and the kids were probably eligible for Medicaid or NC Health Choice and therefore not eligible for subsidies. Not exactly the results we were expecting. We were within the 60 day period of losing health insurance coverage and should have been able to sign up for subsidies for the adults.
I called the customer service number provided in our determination of eligibility. After calling and chatting for 30 minutes, the representative couldn’t figure out what was going on and I had to suggest I should try calling after Mrs. RoG actually leaves work and update the application at that point. The rep said that sounded like a good plan. Can you tell I was unimpressed with the healthcare.gov call center staff?
At this point I assume I screwed up some data entry on the healthcare.gov application page (it’s quite lengthy – plan on 30 minutes to 1 hour to complete the whole thing). Some of the questions about current coverage and loss of coverage aren’t very clear.
Healthcare.gov Application, round 2
Fast forward to February 5, 2016. Mrs. RoG is no longer working. I logged on to healthcare.gov and deleted the initial application from January 4, 2016. Then I filed a new application stating the insurance coverage is ending 2/29/2016 and that we won’t have coverage beyond that point. I also stated that Mrs. RoG had zero income (because she is no longer working).
For early retirees, it’s tricky answering the questions about income during the year to get your subsidies estimated correctly. On my application, I listed as income for the year:
- $20,000 self employment income
- $12,000 retirement income (this would be Roth IRA conversions)
- $10,000 investment income (dividends and interest)
I was shocked that the marketplace didn’t ask for any verification of income since this is a very atypical income profile for a 35 year old. When I applied the first time around in January the subsidy eligibility results stated I would have to submit additional info regarding income. Not so on application round 2.
I have no clue if that’s what my income will actually look like in 2016 but I expect to craft the income stream to be around $42,000. If I have less self employment income from the blog, I’ll convert more to Roth and take some cap gains from my taxable account. If I have more SE income, I’ll convert less to Roth and live off that higher SE income.
After submitting the application, I received a $200 per month subsidy for me only, with Mrs. RoG and two kids being eligible for the special enrollment period (to enroll in the Exchange coverage mid-year), but with no subsidies. The Exchange determined that the youngest kid (age 3) was not eligible for the exchange coverage but “may be eligible for Medicaid”.
I knew the eligibility for subsidies was flawed but couldn’t figure out why since I couldn’t find a way to review my application or update any erroneous answers.
I called the Exchange hotline again. Wow, these people sound like $9 per hour robots that are essentially flesh and blood embodiments of the automated Healthcare.gov application form. When I ask the rep “why aren’t we all eligible for premium subsidies?” there is zero thinking or analysis taking place. My options were to delete the old application and start a new one on the phone, enter a life event (change of circumstances) on the phone, or go online and pursue either of those paths on my own.
I chose the route of entering a life event on the phone, even though nothing had happened in the 15 minutes between applying online and working my way to a live (and possibly sentient) human representative. The rep guided me through the laborious and tedious process of answering all the questions I was asked online in presumably the exact same way.
Boom! Different outcome.
Mrs. RoG, the two oldest kids, and I are all eligible for an Exchange policy with a $909 monthly subsidy, reducing the monthly premium to $125 for a $0 deductible gold plated silver plan with 94% cost sharing subsidies (more on Affordable Care Act subsidies). For some odd reason, the three year old was once again “maybe eligible for Medicaid” but not exchange coverage or premium subsidies.
I couldn’t get an answer out of the rep as to why two kids would qualify for Exchange coverage and one would be dumped into Medicaid. Maybe it’s because he’s under a certain age?
The rep suggested I apply directly to North Carolina’s Health Choice (medicaid for kids) to expedite the process for our three year old. If he’s deemed ineligible then he can get coverage and subsidies through the Exchange (after we enter another Life Event in the system). Since the medical and dental coverage is slightly more comprehensive under NC’s Health Choice plan, I applied for coverage for all three children.
Eleven days after applying for coverage at healthcare.gov, we received our brand new UnitedHealthcare insurance cards in the mail. Effective date for coverage is March 1, 2016. We get to keep all our old doctors.
The application process eventually worked. At least for four of us. I’ll get into what we’ll do for the three year old further down since he doesn’t currently have any insurance as of March 1.
Medicaid Vs. Marketplace Exchange Subsidies
Eligibility for premium subsidies through the Marketplace Exchange hinge in part on whether there is “minimum essential coverage” available elsewhere through an employer plan or medicaid, for example. If minimum essential coverage is available somewhere else (even if you didn’t and can’t sign up for it now), you are normally ineligible for premium subsidies through the Exchange.
I was worried that I would take the big fat subsidies from the Exchange for the two kids and then have to repay them when I file taxes for 2016 because they are eligible for medicaid in our state (kids are eligible below a certain income level; adults aren’t generally eligible here in our wonderful non-medicaid expansion state). Remember, if you’re eligible for medicaid, then you have access to minimum essential coverage and therefore aren’t eligible for premium tax credits.
Fortunately I found this juicy nugget buried on page four of the Form 8962 Instructions that basically says I’m safe to take the premium tax credits for the kids’ Marketplace Exchange insurance because the Marketplace determined they were ineligible for medicaid/CHIP.
“However, if a Marketplace made a determination that you or a family member were ineligible for Medicaid or CHIP for certain months (for example, you were approved for APTC for those months), the individual is considered ineligible for Medicaid or CHIP for those months, even if your actual 2015 income suggests that the individual may have been eligible for Medicaid or CHIP”
~ IRS Instructions for Form 8962, Premium Tax Credit, 2015 version, Page 4
We were approved for the advanced premium tax credits at least for now, so we won’t have them clawed back on Form 8962. That is, unless or until the kids are determined to be eligible for the medicaid/CHIP program, at which point they will presumably lose their eligibility for subsidies through the Marketplace. I guess I’ll have to file another Life Event in that situation.
Back up plan: COBRA Coverage
Our sweet little three year old doesn’t have any health insurance coverage past February 29. That would normally be a scary situation, since if something serious happened to him on March 1, it could put a huge dent in our early retirement stash. We might have a lot of money, but we can’t take a half million dollar hit if he ends up in the hospital for a prolonged stay. Health insurance isn’t about health at this point, but rather about protecting our assets.
Hopefully we can push along the Medicaid/NC Health Choice application and get him covered under the state’s health insurance plan for children before his current insurance expires on February 29.
If not, we’ll rely on plan B: COBRA coverage. But we won’t apply for it right away. We have two months after the employer provided coverage expires to apply for COBRA coverage. We can call up the COBRA folks on April 30 and get health insurance for our little guy. And it’s retroactive.
This means we can wait and see if he has any ridiculously expensive medical needs during March and April before deciding whether to get COBRA coverage for those two months. Gotta love the kind of insurance that lets you see whether you need it in hindsight before deciding to pay for it.
The hope is that by April 30, our three year old will have coverage through NC Health Choice. That will allow almost three months from the time we initially applied for Medicaid/NC Health Choice to review and approve our application. Even an inefficient government bureaucracy should be able to handle a routine application for health insurance in under three months, right?
Through the COBRA paperwork, I see that insurance coverage for one person is $257 per month. If we had to follow plan B and apply for COBRA insurance for the little guy, the ten months of coverage from March to December would be $2,570.
The downside of going with COBRA coverage is that he would no longer be eligible for ACA subsidies for the rest of the year even if we dropped COBRA coverage. We could reapply for Medicaid/NC Health Choice for him (which he should qualify for), but he couldn’t get subsidies through the healthcare.gov marketplace until next year.
Updated on 5/14/2016: Exactly three months after applying for Medicaid/NC Health Choice for our youngest, he was accepted for coverage retroactive to February 1. We were in limbo during May 1-6 after our COBRA election expired, but in hindsight he would have been retroactively covered. All’s well that ends well I suppose.
My thoughts on the process
There are a number of hoops to jump through, but the gold plated silver plan we ended up with is pretty sweet. The maximum out of pocket cost is $500 per person and $1,000 total for the whole family.
I prefer to have the kids on the NC Health Choice plan because it has lower copays and provides 100% coverage for dental care (instead of 80% coverage for dental through the health insurance plan), but I won’t cry if they remain on our UnitedHealthcare policy.
Overall, I wish the process were much simpler. We had to apply to two different places for health insurance (healthcare.gov marketplace and the state’s Department of Health and Human Services’ ePASS portal). Why, oh why? Healthcare.gov knows we want coverage for our kids. In a perfect world we could complete the medicaid/NC Health Choice application while all the info is already in the system.
At the end of the day, we obtained reasonably good insurance for most of us, and eventually got insurance for our youngest member of the family. We paid within $5 of what I’ve been estimating based on the healthcare.gov estimates when we provide our income. Preferring to stay healthy, we hope to continue to not use our insurance very often, but sleep well at night knowing we are insured should the unexpected happen. Because it probably will at some point.
What is your experience with the Affordable Care Act? Are you dreading the application process?
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