The Affordable Care Act (Obamacare) is a way to help lower-income individuals and individuals without health care afford health care. Although health care is still extremely expensive, the Affordable Care Act provides subsidies. This article will look at the subsidy amounts by income for the the Affordable Care Act.
I’m a supporter of ACA despite the trappings of ever bigger government running our lives. Disease and accidents do not discriminate between the rich or poor. In a nation as rich as ours, nobody should die or get stuck in a permanent loop of poverty just because they can’t afford medical treatment.
The two most common reasons why people don’t retire earlier are: 1) Lack of money and 2) Uncertainty regarding health care access and costs. Soaring medical costs is also consistently a top-3 reason why Americans file for bankruptcy.
As an early retiree in 2012 with a full 30 years to go before being eligible for Medicare benefits, I was worried about health care. That is, until I did hours upon hours of research on the ACA and cheaper health care alternatives.
Now that I’ve spent a good amount of time studying what healthcare.gov has to offer, I’m no longe as worried about health care benefits. For those with low-enough income, I’m thrilled for the potentially millions of other people who don’t have health care or who have no desire to work into their 60s for health care benefits.
I’ve also discovered that even millionaires will be eligible for health care subsidies. The reason why even millionaires can get health care subsidies is because the subsidy amounts are based off income, not net worth.
Obamacare (ACA) Subsidy Amounts By Income
When it comes to paying income taxes and receiving health care subsidies, it’s generally better to be middle to lower middle class. The philosophy on Financial Samurai is to be wealthy but blend in with the crowd. Staying in the shadows is even more important as an early retiree because we are no longer contributing as much to society, yet we don’t look as old as we should which may anger some people.
We already paid our dues in the form of taxes, hence why we retired. One tip for early retirees is to never tell anybody you’ve retired. Instead, tell them you are unemployed, a consultant, or an entrepreneur to deflect envy and potentially garner sympathy.
The below are four charts I painstakingly put together by inputting income levels in the Kaiser Family Foundation Subsidy Calculator. A Silver Plan is used in the example where the insurer will pay for 70% of the medical expense.
Premium expense is capped at 9.5% of income, and out of pocket expense excluding premium expense ranges from $6,350 for a single individual up to $12,700 for a family of four. You are welcome to play around with the calculator to fit your situation.
The key to getting health care subsidies is to have your income less than 400% of the Federal Poverty Limit (FPL). The FPL changes every year to account for inflation. However, these figures below are more or less the same on a percentage basis.
Based on household size, so long as you make 400% or less of FPL, you will be eligible for health care subsidies. The less you make, the more health care subsidies you will receive.
Subsidy Amounts By Income For A Family Of Four
Subsidy Amounts By Incomee For A Family Of Three
Subsidy Amounts By Income For A Married Couple With No Children
Subsidy Amounts By Income For A Single Individual
Analysis Of Income Limits For Subsidies
Poverty levels are dependent on FPL
Income under $25,100 to be exact for a family of four (two adults, two children), $20,780 for a family of three, and $12,140 for an individual are considered poverty levels in the United States. The calculator spits out $0 subsidies, which is a glitch, implying such applicants pay $0 to next to nothing for annual health care premiums.
After earning an income of $100,400 or higher for a family of four, $83,120 for a family of three, $65,840 for a married couple with no kids, and $48,560 for single individuals, you will no longer receive government health care subsidies.
The basic math is 4X the Federal Poverty Level (FPL) as determined by the government. Despite the phaseout, the good thing is that it looks like the max % of income one has to pay annually in premiums gets fixed at 9.5% of gross salary no matter what you make.
Other levels of coverage
The premium and subsidy amounts above are based on a Silver plan. You have the option to apply the subsidy toward the purchase of other levels of coverage, such as a Gold plan (which would be more comprehensive) or a Bronze plan (which would be less comprehensive).
Out of pocket costs
The out of pocket costs excluding premium costs are capped, depending on your situation. For example, a family of four making $50,000 cannot exceed $10,400 for the silver plan for example. The out of pocket increases to a maximum of $12,700 for a family of four making $94,000. The out of pocket costs for an individual making $30,000 cannot exceed $6,350. It’s good to see these out of pocket costs limited, however, they still seem quite high.
A family making $50,000 a year should bring home roughly $35,000-$40,000 after taxes. To spend 30% of their after tax income on health care is a large percentage. Hence it is always important for people to continue saving no mater what their income level. The point is at least we know our backstop cost and can plan accordingly.
Related: The Health Affordability Ratio
How To Take Advantage Of Health Care Subsidies
It’s obviously better to make so much money where you have no problem affording unsubsidized health care. However, let me share some ways in which everybody can better benefit from government subsidies.
1) Maximize contribution to pre-tax retirement accounts.
Contribute the maximum $19,500 to your 401k to reduce your taxable income by $19,500. If you have a working spouse, do the same thing to get a combined $38,000 reduction to your MAGI.
You can contribute $6,000 each to your IRA as well pre-tax if you make under ~$122,000 as a single and under $193,000 as a married couple. But your goal is to get way down the charts so you start receiving subsidies.
2) Start an S-Corp or LLC.
Starting a business is a way to reduce your taxable income by deducting all business related expenses. Everyone should check with an accountant first about deductions before going ahead because each business is different. There is a lot of overlap in terms of business expenses and general lifestyle expenses.
For example, if you are a Scuba Diving Instructor, how are you going to put together your course and write about your experiences online about scuba diving in the Maldives without going to the Maldives? There’s no law saying you can’t enjoy yourself on business.
You can start your own website to legitimize your business with Bluehost. You get a free domain name for a year. There’s not a day that goes by where I’m not thankful for starting FinancialSamurai.com in 2009. I no longer ever have to work for someone else. I pay ~$750 a month for excellent healthcare, and it’s tax deductible.
3) Become a rental property owner.
All expenses related to operating your rental property are tax deductible. Add on the non-cash expense of depreciation and you’ll easily be able to reduce your rental income and pay less taxes.
If you have a rental property in Bora Bora, you can deduct your transportation costs to get there. Not bad at all. In fact, I believe there’s a golden opportunity to buy real estate in 2021 because mortgage rates are low. Meanwhile, the time spent at home is way up.
One of the easiest ways to buy real estate is through Fundrise and CrowdStreet. They are the two leading real estate crowdfunding marketplaces today. Both are free to sign up and explore. I’ve invested $810,000 in real estate crowdfunding since 2016 to earn 100% passive income.
Both platforms provide investors the ability to diversify their real estate investments into commercial real estate across the country. There is a demographic shift towards the heartland of America due to technology and the rise of remote work.
4) Own income producing assets and be debt free.
Let’s say you own $1 million dollars worth of property outright. It generates operating income of $45,000 a year (4.5% net rental yield). You have no other income, but you have no debt so life isn’t too hard supporting your family of four. Your family qualifies for $5,640 a year in health care subsidies and you only have to pay $2,650 a year.
Another example is amassing a $3 million dollar stock portfolio yielding $90,000 a year in dividends. In addition, you have a $25,000 a year deduction in primary mortgage interest. Your MAGI is $65,000 meaning that you and your family of four still qualify for $2,600 a year in health care subsidy as multi-millionaires.
5) Check with private exchanges online.
Like every good deal shopper, you shouldn’t just rely on one source. I checked online for very similar plans for a family of four and for an individual and here’s what I came up with: $950 a month for a family of four with a $5,000 max deductible and $210 a month for a 35 year old individual in good health with a max deductible of $2,000.
There are many options tailored to each individual case. For those of you who have much higher incomes than $94,000 for a family of four and more than $30,000 per individual and can’t adjust your MAGI down any further, going the private exchange looks like the better option.
Bottom line: It is much better to have a high net worth and low adjusted gross income instead of a high adjusted gross income and low net worth to take advantage of government subsidies.
I’m sure the government realizes this as well. It is the government’s way of encouraging individuals to save and invest for their future. By accumulating a healthy amount of assets, the government will also reward you with subsidies.
Affordable Health Care For All
The charts demonstrate that income plays the key role in how much subsidy an individual or a family gets. Together, we are helping subsidize lower income groups to gain health care access that they deserve. Helping others is what being a good citizen is all about.
Those with pre-existing conditions and who are considered of lower health can no longer be denied health care or discriminated against. Yes, Obamacare creates somewhat of a moral hazard when it comes to exercising and eating healthy. Perhaps you’ll eat one more donut and watch TV for a couple hours longer instead of work out.
However, just as the rich help subsidize the poor through a progressive tax system, the healthy will subsidize the less healthy through the Affordable Care Act. Life is easier with the ACA, which also means our health will unlikely improve.
The largest point of contention will likely be how the government determines what income levels are poverty levels. Such determination will decide on subsidy amounts. It’s difficult to live on less than $20,000 a year as an individual in San Francisco for example. Yet the poverty level is only $12,140 and below.
The greatest benefit from the Affordable Care Act is that if you or your family are experiencing hard times, you will be highly subsidized until income improves.
Having at least disaster insurances is tantamount. For those who are considering quitting their jobs to do something new, or others who’ve decided to get out of the rate race early, you’ve now got one less thing to worry about.
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