Retirement health benefits are rapidly becoming a thing of the past. If you retire before you qualify for Medicare at 65, that can leave you in a pickle. Here is how to get health insurance to bridge the gap.
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Speaker 1 (00:07):
Welcome back to 30 Minute Money, the podcast that delivers action oriented smart money ideas and little bite size pieces. I'm Scott Fitzgerald from ROC Vox Recording and production in our lovely Bushnell's Basin studio, Steve Wershing from Focused Wealth Advisors. The answer man, joining me today for having an episode. How's it going? It's
Speaker 2 (00:26):
Going well. How are you?
Speaker 1 (00:27):
I'm doing well. So this, this, this is, uh, an episode that's about, so you've retired early, you've retired before the age of 65, and so you don't, you no longer have health insurance from your employer, but you're not quite old enough to get the Medicare right? So what do you
Speaker 2 (00:43):
Do? Yeah, and that's what I already talk about. Exactly. So this is a big issue. So one of the biggest financial planning issues for retirees is healthcare costs and one of one, one form or another. But how you get that coverage between that is, is a real challenge. So I wanted to talk a little bit about, um, where you can find it and a couple of, uh, ideas that you wanna keep in mind if you sign up for the, uh, the New York Exchange. So before we get to that, um, it may, so for some people, if they retire from big companies, there may actually be retiree health benefits. So a company may provide health insurance for people who retire, but those companies are getting fewer and fewer. And so most people who leave the employee of a company leave their health insurance behind. Now, there is a way that you can continue getting the coverage you had at work for at least 18 months after you leave. It's called cobra, Cobra, the Cobra Benefits, um, and which is named after the tax bill that put it into effect.
Speaker 1 (01:45):
It's kind of also named after the snake cuz it bites
Speaker 2 (01:48):
. Yeah, exactly. Well, and that, that's why most people don't take it is because it bites . Um, uh, you know, the, the, um, the fact is that that employers pay a lot for healthcare benefits for their employees. So even though, uh, COBRA benefits enable you to buy the insurance at the same rate that your employer was paying, so you get an opportunity to buy at that bulk discount, it's still real expensive, expensive enough that for most people it's not really a viable option or it's not an attractive option. And so the big choice now thanks to Obamacare is the, uh, New York, if you're living in New York, it's the, uh, the New York Exchange, the buying it off the exchange that was, you know, created in, in the, as a, as a way of responding to Obamacare. Obamacare, if you remember, um, was established, uh, all these different states were, were, um, could established these health insurance exchanges so that you had a place where you could buy health coverage in New York was one of the ones that create that, responded to that and created its own exchange. And that's where you would go to, uh, to buy health insurance if you needed to buy it individually. But you need to shop carefully because there's a lot that you need to understand to make sure that you get the right plan for you.
Speaker 1 (03:05):
And they have all of the prices and everything is listed on the exchange. Is it easy to find?
Speaker 2 (03:10):
It is, yeah. The, the, uh, the exchange is easy to find. Um, New York, um, New York state of health is where you would go, but you, you, you want to drill down into it because, um, there are, I I think I was just looking on behalf of a client a week or two ago, and there are like, when you get, when you narrow, even when you narrow it down a little bit, there are, there's like over a dozen pages of table with all the different options in there. Yeah. So, and, and people, people are really, um, people are, are, you know, understandably enough people are looking for the lowest premium, but you really need to be careful because different premiums come along with different limits and different deductibles. And so as an example with the client that I was working with, um, you know, she left her job and she needed to get health insurance and so she found her way to the exchange and she just sorted on stuff and, and she picked a company that she was familiar with and, and so she had trust in and she just found the lowest premium, took it, and then she got injured and she found that she had an $8,000 deductible.
Oh, ouch. So we wanna be careful about, about just shopping based on price alone. You wanna make sure you do look at the, um, look, look, look at at least some of the specifics of the insurance. And if you don't really consume a lot of healthcare, the biggest one of course is gonna be what's the deductible if you do need it, how much are you gonna have to come up with first before the insurance really seriously starts kicking in? Now on the good side, um, there is probably, you may very well qualify for a subsidy to make it more affordable. So you'd look at the price on the exchange, but that's probably not what you're gonna pay because with all of the laws that have been passed over the past few years, um, there's probably some funding from the government that will come in and, and, and assist you with that premium. Uh, there was the American Rescue Plan, uh, act back in 2021. There was the inflation reduction act of in August of 22. Um, so you know, if you're a single taxpayer, um, you could, you, your income could be as much as $51,000 and you could still get a subsidy. If you've got a family of four, for example, you could go up to $105,000 and still get a subsidy. So still get some government assistance to reduce the amount of premium that you have to pay every month.
Speaker 1 (05:38):
So you could still get a subsidy up to $51,000.
Speaker 2 (05:41):
Yeah, you could be making $50,000 and still get a subsidy from the government. And how much
Speaker 1 (05:46):
Did it usually pay?
Speaker 2 (05:47):
Well, see that's, that's where, of course it's the government, so it gets more confusing as you go along , it's based on what county you live in. So they actually, what they do is they try to, um, they try to tailor it to, um, the cost of living where you are and in New York that that breaks down to the county level. So you would go to the site and you'd put in your zip code and it would tell you, you know, would look at what county you're in and then it would calculate the subsidy based on that. The, the whole, the whole idea of the bill was that, um, they wanted people not to have to pay more than eight and a half percent of their income to health insurance. That's kind of the level that they, that they aim for. So, um, so the subsidies can be different based on income and based on, uh, the cost of living in your county.
So you've gotta put that into the system to help figure it out. The, um, now it's only available to New Yorkers who buy insurance through the exchange. So if you've bought some outside of the exchange, if you've got bought it through an association or if you've bought it through, uh, if you've got directly to an insurance company, then you cannot take advantage of the subsidy. But if you buy it through the exchange, then the subsidy, um, would apply to you. But you need to know that it is potentially there for you and you need to apply for it. So this client I was just telling you about, she tried to find the lowest premium, got the low premium, that's what she started paying. Never realized that maybe she could qualify for a subsidy. So she never applied for it and therefore of course she didn't get it.
Hmm. And what if your income changed this year? Yeah, well and that's, um, that's the example of, of my client. So my client retired earlier this year and that's why she needed to buy this insurance. And so, um, she's not gonna make this year what she made last year because she's retired now and she's making, she's bringing in less. And, and we can engineer that to some extent. We can decide how much she takes out of taxable accounts versus how much she takes out of retirement accounts. If she takes a lot more outta the taxable accounts, well then her taxable income's gonna be a lot lower. And so theoretically she should qualify for more of a subsidy. And so you can apply when you apply for the subsidy, you can update how much you project to make this year, and that will cha that will qu potentially qualify you for more subsidy than last year's tax return would have indicated.
So you can, when you make the application, you can put on there how much you project making this year, and then they'll give you the subsidy. Now you gotta be careful about that because at the end of the year, they will true it up at the end of the year, they'll take a look at your tax return and if you've applied for more subsidy than you qualify for, they'll just bill it back to you. Oh, okay. And so we wanna be careful about that because, you know, it's based on modified adjusted gross income. And so there's no leeway here. There's not like there's a conversation to be had. They look at, they look at that number and then they, they decide if they, if, if an adjustment is necessary. And if so, you get a bill That's a four letter acronym. You that's a four letter acronym.
Yes, you got me on that one. So what, what exactly is the modified adjusted gross income? So it goes back to a tla, which is what we're all a fan of. The three letter acronym is AGI adjusted gross income. Um, modified adjusted gross income adds back the amount of social security that was taxable. So AGI is kind of the number that, that, that gets you closest to taxable income. Um, but to get to modified, you add back the taxable portion of the social security that you received. Um, here's, here's where it gets to be a little bit dicey. So you know that a lot of what I try to do with clients is to help them get a better balance between the three tax buckets, the, the taxable accounts, the tax deferred accounts, and the tax free accounts we want. Typically, what most people strategically need to pursue over time is to get money out of the tax deferred accounts and into the tax free accounts.
And most of the time moving from one bucket to the other is taxable income. And that makes sense. If we can keep you in a low bracket, it still makes sense long-term to do that, but it adds taxable income to your return. And so if we do things like Roth conversions through the year, that adds to that M A G I. And so if you've applied for the subsidy based on you know, how much pension and how much social security you're getting, without thinking about whether you would do a Roth conversion or not, you can end up getting a surprise cuz if later in the year you do a Roth conversion, that's gonna show up on your tax return and the state's gonna come back and say, okay, well you owe this much of a subsidy back to us.
Speaker 3 (10:34):
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Speaker 1 (11:59):
Health insurance between retirement and Medicare. The question has been answered and Steve has a 30 minute action item for us.
Speaker 2 (12:06):
30 minute action item. If you, uh, are retired but not yet 65, go to go to the New York State of Health and sign up for an account. That's the easiest thing to do. Whether you're gonna decide to apply for a subsidy or whether you're gonna need to get that insurance, at least sign up for an account and then you have access to all that.
Speaker 1 (12:24):
And while you're on the internet, you can download all of the other episodes of 30 Minute Money. You can find email@example.com on all the podcast platforms. Steve is at focusedwealthadvisors.com. You can find me at rocvox.com. Thanks again for joining us for 30 Minute Money. We'll see you next time.