When I retired four years ago, my company-provided retirement health insurance premiums were $425 a month for a $10,000 deductible family plan, no vision, prescription or dental benefits included. After four years of The Affordable Care Act, (ACA) my monthly premium has escalated to $1,079.17 a month. This would be like the price of gasoline increasing from $2.50 to $6.35 and calling this government benefit the “Affordable Petroleum Act.”
Another annual tax deadline has come and gone. All Americans must, by law, attest to the Internal Revenue Service they are covered by an approved health care insurance policy, are exempt under one of the hundreds of exemptions offered or pay a tax penalty. In addition to my website and blog being about a home free travel adventure in retirement, it is also about the finances required for leading such a home free life in retirement. Under the Menu heading on this web site, Details/The Budget, I discuss some of our travel costs, both fixed costs that you will have regardless of your travels, along with variable costs. I’ll try to stay out of the politics, but all working people thinking of retiring before 65, when Medicare kicks in, need to understand and plan for the huge fixed costs involved in the so-called Affordable Care Act.
I retired from BB&T Bank in April 2011, thirteen months after the Affordable Care Act was passed. While BB&T Bank is not well known in the West, it is the 10th largest bank in the US, with a significant presence in the East. As with most major US corporations, all full time workers and management of BB&T are offered health insurance coverage while working and in retirement.
Included among the hundreds of pages of my retirement package were my two choices for health coverage in retirement. There was a very costly, low deductible plan and a much less expensive plan, which we selected, with a $5,000 per person annual deductible. Both plans are managed by Blue Cross/Blue Shield. The premium was initially $425.70 a month in 2011 to cover my wife and me, no vision coverage, no dental coverage, no prescription coverage. This was less than ideal and hundreds of dollars more than I was paying as an employee, but I was retiring early and these were my two choices. For only $5,108.40 a year we would have health coverage as long as we paid the first $10,000. After that, BB&T would cover up to 80%. So if I needed knee replacement surgery and the subsequent rehab at a cost of $75,000, I would only have to pay 20% of $75,000 + my $5,000 deductible + premiums of $5,100, or a total of $25,100.
Upon learning our 2015 monthly insurance premium was increasing from $645.26 in 2014 to $1,079.17, I signed onto the South Dakota healthcare exchange and found that the high deductible coverages they offered were even more expensive! Keep in mind that if I did not pay the total annual health insurance premiums of $12,950.04 we would be subjected to an IRS penalty of approximately $1,500. What kind of a penalty is that? I can either spend $12,950 or $1,500? What would posses anybody to actually pay for this exorbitant cost of insurance? I do not view this premium so much as health insurance but as asset protection insurance. If I was to incur some huge hospital bill with no insurance and the hospital learned I had assets to cover the bill, I’m confident I would be required to pay the entire cost.
Some retirees may be able to simply hope that they do not get sick, pay the ACA penalty if they do not qualify for one of the hundreds of available exemptions, and wait for Medicare to kick in at 65. However, hope is never a good financial plan and not a viable alternative for someone with meaningful assets.
How is it there is not a huge outcry against this so-called Affordable Care Act? The answer seems to be that the high cost I am experiencing applies to relatively few people, only early retirees. Most working people are offered health insurance through their employer and covered at a highly subsidized cost to the company, or they are over 65 and covered by Medicare, or worse Medicaid. Many young people simply ignore the Obamacare requirement of buying insurance. The young feel healthy and invincible, and the fine is negligible, a tiny fraction of what the cost of ACA approved healthcare insurance would cost them. Younger people who elect to not get health insurance coverage likely can qualify for one of the many exemptions which totally relieve someone of the tax penalty. Further, the collection of any IRS penalty is limited to deducting the penalty from any annual IRS refund. These fines will likely never be collected since by law they are not allowed to be turned over to outside collection agencies. And finally, those with lower incomes who desire ACA coverage qualify for material insurance premium subsidies so clearly they will not be complaining. So those Americans who are most effected most by the high cost of Obamacare are couples who have retired early and have incomes above approximately $63,000 or individuals with incomes over approximately $47,000. Below 400% of the poverty level, people receive subsidies for their federally mandated health care insurance.
How should a potential retiree plan for such an increasing insurance premium? The only financially sound option is to plan for similar increases in the years to come, until you reach the age of 65. If one works for a union, the medical costs are very different and much cheaper due to their contractual monthly benefits. However, in the profit oriented corporate world, if costs continue as they have in the past, I must allow for a future monthly Affordable Care Act premium of $2,875, or $34,500 annually, in the next three years. Nothing has happened to the ACA or medical profession that would decrease this premium escalation. The ACA was never about controlling medical costs, just providing coverage. Young healthy kids I know personally are not signing up. Some people I personally know are nearing 65 and are simply hoping they remain well until they qualify for medicare. Those signing up for Obamacare are the ones with known medical conditions, work in hazardous industries, receive huge subsidies, or have material financial assets to protect. Healthy people are often not buying into the system, so it is left with an adverse selection of less healthy patients supported by only a few healthy customers and early retirees with assets to protect. Built into the ACA is guaranteed payments to the caring hospitals for those patients without insurance. Unlike prior to the ACA, hospitals will now get paid for those who cannot meet their huge deductible or those with no insurance. It appears to me the so-called Affordable Care Act will continue to become more and more expensive.
Based on numerous appearances on CNBC we know the leadership of BB&T Bank where I retired is pro Obama and are supporters of the ACA. Therefore, the following note attached to the 2011 BB&T Retirement Insurance Enrollment Guide was likely not politically motivated: “While we appreciate some of the goals of Health Care Reform, there is a general consensus that this legislation will be ineffective at controlling healthcare costs. It adds additional bureaucracy and misregulates the various players in health care.”
Many proponents of Obamacare point out that finally people with pre-existing conditions can get health coverage and kids may be carried on their parents policies until the age of 26. I agree it is unacceptable for an insurance industry to prevent anyone with a pre-existing medical condition, or a 5 year cancer survivor, access to medical or dental insurance as was the case before the ACA. However, even the most loquacious lawyer politician could probably cover those two topics in 10 pages. The problem is the Affordable Care Act is many thousands of pages long and growing.
Good luck to future early retirees needing to budget for their health care costs.