Does the American Rescue Plan Change Health Care Planning for Early Retirees?

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The American Rescue Plan Act of 2021 is a sweeping piece of legislation signed into law on March 11. The most highly publicized provision of the act is a third round of economic stimulus. Every eligible American will receive $1,400 for economic relief amidst the Covid-19 pandemic, if you haven’t received it already. 

American Rescue Plan Act of 2021 creates more uncertainty with early retirement healthcare planning

The act also substantially changes health insurance premiums and subsidies for Marketplace plans. This has gotten far less press. It may have a bigger effect on many readers of this blog who need to bridge the gap from employer provided health insurance to Medicare.

Overview of ACA Changes Under American Rescue Plan

Nearly everyone who purchases health insurance under the Affordable Care Act (ACA) Marketplace plans will benefit by the changes enacted as part of the American Rescue Plan Act of 2021. In summary:

  • Early retirees with an income 100%-150% Federal Poverty Limit (FPL), who already paid little for health insurance premiums, will now pay $0 premiums for Silver Level plans.
  • Those with incomes from 150%-400% FPL will see substantial reductions in health insurance premium costs.
  • Those with incomes that exceed 400% FPL will no longer be subject to the ACA “subsidy cliff.” Health insurance premiums costs will be capped at 8.5% of income.
  • Older early retirees approaching Medicare age will benefit the most because costs rise as we age.

That’s good news across the board for early retirees who need to purchase medical insurance through Marketplace exchanges to bridge the gap from employer provided coverage to Medicare. Let’s look at the details and discuss early retirement planning implications.

Decreased ACA Health Insurance Premiums Under the American Rescue Plan

Part 7 of this Act reduces the maximum amount as a percentage of income, technically Modified Adjusted Gross Incomes (MAGI), that individuals or households will pay for health insurance premiums.

The changes in the maximum percentage of household income paid for Silver Health Plan insurance premiums under the Original ACA and American Rescue Plan Act of 2021 are summarized in the table below.

Income as % FPLOriginal ACAAmerican Rescue Plan Act of 2021
Up to 150%2.07 - 4.14%0%
150-200%4.14% – 6.52%0% - 2%
200-250%6.52% – 8.33%2.0% – 4.0%
250-300%8.33% – 9.83%4.0% - 6.0%
300-400%9.83%6.0% - 8.5%
>400%No Cap, Subsidies Eliminated8.5%

In a previous post, I explored Navigating ACA Tax Credits to Purchase Affordable Health Insurance In Early Retirement. It’s helpful to review a few scenarios I ran under the original ACA. I’ll then compare the scenarios under the new law.

Before and After Premiums — Low Income Early Retirees, <150% FPL

In my previous article, I shared how early retirees can control taxable income through some combination of frugal living and/or generating income that doesn’t count towards MAGI. They could purchase quality health insurance through ACA exchanges at very favorable rates. This is accomplished by receiving large premium tax credits due to having low incomes. Premium tax credits are equal to the total cost of the premium minus the individual’s or household’s required contribution.

In my prior example, I showed that a household with an income at 138% of the FPL was required to pay only 3.42% of their income towards health insurance premiums. In that scenario, the household would have paid $82/month ($982/year) for health insurance premiums. They would have received $1,320/month ($15,836/year) in premium subsidies.

Under the new law, things get even better for people in this scenario. They now would pay $0 towards health insurance premiums. Subsidies would cover 100% of the cost.

Before and After Premiums — Very Early Retirees, 150-400% FPL

When I wrote the previous article in November 2018, I entered our household scenario. We have two adults in our early 40’s, one young child, and estimated MAGI of $60,000. That income put us at 289% of the FPL for a household of three in 2018. We would pay 9.52% of our household income for medical insurance premiums under the original ACA.

In 2021, unsubsidized health insurance premiums would cost $14,358 for our family of 3. I increased our household income to $62,750 to adjust for slightly higher 2021 FPL to get us to the equivalent 289% FPL. Under the old law, we would pay $498/month ($5,974/year) in premiums. We would qualify for a subsidy that would cover the remainder of our premiums, amounting to $696/month ($8,384/year).

I ran our scenario under the new law with the Kaiser Health Insurance Calculator. For an apples to apples comparison I kept income 289% of the slightly higher 2021 FPL amount. Under the new law, we would pay 5.56% of our income towards premiums. Our premiums would cost $291/month ($3,489/year). We would receive a subsidy of $906/month ($10,869/year) to cover the remainder of the cost.

This change would save us about $207/month ($2,485/year). We would pay about 40% less for health insurance premiums under the new law.

Before and After Premiums — 60 Year-Old Early-Retirees, 150-400% FPL

Age is one of the few factors that impact premium costs with ACA plans. The older you are, the more expensive your premiums. As a comparison to our family, I created a scenario of an early retired couple in their early 60’s.

Unsubsidized health insurance premiums for a 60 year old couple (assuming kids are grown and off the parent’s insurance) would cost $22,975 in 2021. For a household of two, the same 289% FPL would be $50,344. This income number is lower than the above scenario because FPL is adjusted based on household size.

At 289% FPL, they would pay 9.52% of income under the old law. Their share of the premiums would cost $399/month ($4,793/year). Their premium subsidy would be $1,515/month ($18,182/year).

Under the new law they would pay 5.56% of income. Their share of premiums under the new law would fall to $233/month ($2,799/year). Their premiums subsidy will now be $1,681/month ($20,176/year)

The changes in the American Rescue Plan would save this couple in their early 60’s $166/month ($1,994/year). They would also pay about 40% less for health insurance premiums than they would under the original ACA.

Elimination of the ACA Subsidy Cliff Under the American Rescue Plan

The second, and potentially far more important change The American Rescue Plan Act of 2021 makes to the ACA is eliminating the “Subsidy Cliff.” Under the original law, if your MAGI exceeds 400% of the FPL, you lose premium subsidies completely.

Earning a single dollar of additional income at the 400% FPL threshold could result in paying thousands of dollars in additional health insurance premiums. Your subsidies would drop to zero.

With the change in the new law, the maximum anyone will pay for health insurance premiums is 8.5% of their income. If your income exceeds 400% of FPL, you won’t lose thousands of dollars in premium subsidies. Instead, you will pay $8.50 more per year in health insurance premiums for every $100 of extra income you earn.

Eventually, the highest earners will lose subsidies completely. They will have to pay the full cost of health insurance premiums. However, it is a gradual sliding scale down to zero subsidy.

Numbers better demonstrate the impact this new law will have on early retirees whose income just exceeds the 400% FPL threshold. Let’s dive in…

Premiums at the Subsidy Cliff — Very Early Retirees

In my earlier post on ACA subsidies, I showed how a $100 difference in annual earnings at the 400% of FPL threshold would impact us. We would be sent over the ACA subsidy cliff. In that scenario, earning an additional $100 caused premium subsidies to drop off “the cliff” from $683/month ($8,194/year) to $0 under the original version of the ACA.

A similar scenario under the new law produces a much less dramatic result. An income of $86,700 puts us at 399% FPL in 2021. At this level of income, our premiums would cost $613/month ($7,352/year). Our subsidy would be $652/month ($7,825/year). Subsidies would cover a little over half of our total $15,177 premiums cost.

Under the original ACA, we would have paid 9.83% of income towards our premiums. The new law saves us almost $1,000 in this scenario.

Bumping income up to $87,000 puts us at 401% FPL. At this level of income, our premium cost rises a few dollars to $616/month ($7,395/year) while our premium subsidy drops a few dollars to $649/month ($7,782/year). Under the old law we would pay the full unsubsidized cost of $15,177. This is about double what we would owe under the new law!

Under the American Rescue Plan, a small difference in income equates to a small increase in health insurance premiums and decrease in premium credits. This makes planning more predictable and less punitive if you make a small mistake around the 400% FPL cutoff point.

Premiums at the Subsidy Cliff — 60 Year-Old Retirees

Medical insurance premiums increase as we age. This new law is most impactful for early retirees approaching Medicare eligibility who are over the 400% FPL cliff. Let’s look at one last example.

Returning to a couple of 60 year olds, their unsubsidized insurance premium would be approximately $1,880/month ($22,563/year). 

Entering an income of $68,800 for this household of two puts them at 399% FPL. The American Rescue Act caps the amount a household pays for health insurance premiums at 8.5% of income. Under the original ACA they would have paid 9.83% of income.

This couple would pay premiums of $486/month ($5,834/year) under the new law with subsidies of $1,394/month ($16,729/year). Lowering the cap that a person at this income must pay decreases the premium by about $1,000/year compared to the old law.

Increasing income to $69,100 pushes this couple to 401% FPL. Their premiums at this level of income under the new law will cost $489/month ($5,874/year). Their premium subsidy is $1,391/month ($16,689/year). Under the original ACA, they would have lost this entire subsidy by exceeding the “subsidy cliff” by a few dollars.

The new law produces a staggering saving of about $17,000 for this couple!

The American Rescue Plan Act of 2021 clearly benefits early retirees buying Marketplace health insurance plans. Still, there’s a major problem for early retirement planning.

Planning Implications

The American Rescue Plan Act of 2021 explicitly states that the changes to ACA subsidies are applicable only in the 2021 and 2022 tax years. What happens beyond that? No one knows for sure.

If you haven’t made a decision for this year, or would like to change your plan, there is a Special Enrollment Period through May 15, 2021.

For households like ours who plan year to year, learning of this retroactive change three months into the year is not helpful for 2021. We’ve already decided last December that Kim will continue to work enough so that we are getting our insurance through her employer through at least this December. 

We still have twenty plus years until we’re both eligible for Medicare. We have at least a decade when we’re also responsible for our child’s health insurance. Without clarification on what happens to this law long-term, we could theoretically pay anywhere from $0 to $15,000 for annual health care premiums. Those numbers don’t account for additional expenses if we actually need to receive medical care. They also don’t account for the facts that health care costs tend to inflate faster than the general inflation rate and premiums will get more expensive as we age.

Health insurance is still the big wild card in early retirement planning. We may not have enough saved to sustain an early retirement. Alternatively, we may have already saved too much. It’s a massive challenge to plan for something as important to your retirement success or failure as medical insurance. The rules can change at any time.

What to Do?

For early retirees who are within a few years of Medicare eligibility, the American Rescue Plan is a game changer. It can potentially save you tens of thousands of dollars in anticipated health insurance premiums over the next two years. This can bridge the gap to more predictable retirement healthcare expenses.

Long-term planning (defined as beyond 2022) of medical insurance for early retirement still requires assessing which way the political winds are blowing. This is always dangerous. We shouldn’t place too much stock in any plan that requires our predictions to be correct.

In 2016, presidential candidate Trump ran on the promise to “repeal and replace” the ACA. President Trump, with Republicans controlling both the House and Senate, failed to do so. So it seems that some version of the ACA will be around for the foreseeable future.

Under a new Biden administration with a Democratic House and Senate, there is a clear will to expand the ACA or create new government health insurance options. The politics and economics are complicated.

This new legislation is in effect for only two years. There will be a midterm election then. The political winds may shift again. The future remains unclear.

Our household will continue to remain flexible. I’m of the opinion that we are not truly financially independent until our investments can produce enough income to pay our full unsubsidized health care costs. Being financially independent while being dependent on unpredictable government subsidies for something so important seems like an oxymoron.

This may mean we work longer and earn more than we ultimately need. But in the face of such uncertainty, that risk seems like a better alternative to not having enough.

Related: A Flexible Plan For Health Insurance In Early Retirement

Chime In — Respectfully!

I am always impressed by the level of knowledge and creativity shared by readers of this blog and look forward to reading your ideas, insights, and solutions in the comments. I understand political risk is part of the challenge when planning for health insurance in early retirement. As much as I would like to, we can’t discuss health care in the United States without mentioning the political component.

That said, we are at a time of extreme political polarization. Name calling and ideological rants are not helpful to anyone trying to develop a plan to transition to retirement sooner. Please refrain from posting such comments here. There are thousands of other places on the internet for those seeking that.

I reserve the right to delete or edit comments that don’t comply with this request. Thank you.

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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. You can reach him at chris@caniretireyet.com.]

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55 Comments

  1. We signed up for a Bronze HSA plan for 2021 where our ACA subsidy nearly covers the whole premium. As such, we pay for routine care out of pocket against the deductible, aside from preventive care. The HSA feature can also be used to keep us under the 400% FPL, or just be another tax advantaged bucket. The rescue plan may help us minimally to eliminate the remaining premium, but maybe we could have saved more with a Silver plan. I don’t think we’re allowed to change until next open enrollment. Exceeding the 400% FPL to Rothify more doesn’t look like it will pencil out.

  2. Chris,
    I think you are correct that this section of the American Rescue Plan is more important than the level of coverage would seem to indicate. I read it with much interest and appreciate your analysis. Currently I am 62, employed, single, and earning well over the 400% FPL. I still struggle with the conceptual cost of health insurance in terms of economic sense for me. I would have retired several years ago except for this. Even though this reduces the rates for ACA insurance for me somewhat, I am still going to continue to work until I am 65 to maintain the Company health insurance program, which for me , as a single person, is subsidized down to $0. Unless the talk of reducing the Medicare age from 65 to something lower comes to pass, I, personally, will remain in the ranks of the employed until I am 65. Always enjoy your blogs, thanks,

    1. Thanks for reading Kevin. If you aren’t in a rush to retire, then I think your plan makes perfect sense. If you are eager to be done, but are holding on only because of health insurance, it is worth running your scenario in the Kaiser Health Insurance Subsidy calculator linked in the article and on the resources link at the top of this page. You will have to estimate what your income will be in retirement. The numbers may surprise you. Some of the scenarios I ran surprised me.

      Best,
      Chris

  3. Like 70% of all Americans I have no pension. I saved for over 30 years. Purchased rental properties and contributed to my IRA.
    I am now retired. My plan was to have several Certificates of Deposit had 4% to generate $25,000 yearly income. As you know rates are close to zero now .
    The stock market and real estate market are overvalued and present more risk than I want.
    What suggestions do you have to use this money to create passive income

  4. We delayed retiring until I was able to have a 100% success rate on multiple calculators using a budget that included our full estimated unsubsidized health insurance costs, with those costs increasing at a rate higher than inflation.

    We likely did work several years longer than really required, but we weren’t willing to risk having to depend on subsidies.

    Do we manage our MAGI to obtain subsidies now? Most definitely. Every year we can do that further decreases the risk of outliving our money. It also increases the pool of money we may need for possible LTC someday, as we plan to self-insure for that.

    1. That all makes sense to me Lorraine. In our case, we were able to create a much better work-life balance through semi-retirement with my wife working part-time remotely and me earning some money from my writing. Full retirement with no income seemed too risky given the uncertainties in health care costs between the health care marketplace and not knowing what our personal health statuses will be.

      Best,
      Chris

  5. This is very helpful information, whether regarding the new plan (American Rescue) or the ACA. My wife and I are both approaching age 59 and seriously thinking about retirement. When calculating one’s own numbers, getting the “income” correct is vital. Are this article’s references to income (400% FPL, etc.) referring to total income, adjusted gross income, or taxable income from IRS tax forms, or something else? And what constitutes “income”? I am confident that pensions are a yes, but I and my wife will also be drawing from employer-sponsored plans, including 457, 401a, 403b plans, and we both have Roth IRAs.

  6. Great info, Thank you! Looks like we can relax through 2022.

    My State’s ACA told me that if (at year’s end) my income was lower than I estimated, they would refund any premiums that I overpaid. Overpaid because I didn’t take all the subsidies I was entitled to. Has anyone here ever received that sort of refund?

    This is a tremendous deal for us early retirees. I expect working taxpayers may tire of paying higher taxes for all the government spending. I don’t feel like we can bank on ACA remaining in it’s current form beyond 2022

      1. Thanks for chiming in and Sharing John.

        Fred, I agree on all counts that the ACA (especially as it stands for the next 2 years) is a great deal for early retirees. I also agree that it may not be sustainable in the long run. Time will tell, but I’m not betting my financial future on it.

        Best,
        Chris

    1. When you get your 1095-A form for 2021 to enter into your tax software, it will calculate any refund that you may be due based on what you paid in premiums. Halfway through 2020, I adjusted by expected income down and I received a refund as I was paying more than I should have been paying in premiums for the first several months of the year.

    2. When I did my taxes with one of the common software programs, the calculations were done transparently based on the 1095A the Feds gave us for 2020. The subsidy I was owed or owed the government was tacked onto the return. Note that for last year (2020) extra premium subsidies owed (if your income was higher than estimated when signing up for ACA) was waived as part of the ARP bill.
      https://www.healthinsurance.org/blog/2021/03/10/how-the-covid-relief-law-will-rescue-marketplace-plan-buyers/

  7. It’s a good article. If wish you’ve presented differences in a table to show the differences. It’s much more helpful visually than reading as a text.

    Yes, it’s exciting if such a plan stayed long term, but like you said it’s very temporary. In addition to that, somebody would need to pay for such generous subsidies, right? Since I view HC business rigged in the USA, we (the small people) would pay one way or another… If we don’t pay, our children or grandchildren will pay. Businesses don’t have any interest to reduce their profit margins… we live in a truly greedy capitalism. I’m not against capitalism per se at all, but what’s happening in the HC and education industries, it’s very disturbing. I also worked for a company in the medical field and saw financials and participated in the meetings for many years, hence my high skepticism.

    I wonder if say there was a miracle and they made ACA more reasonable long-term, what would happen with the job market. I think a lot of older people would welcome a chance to retire but are holding their current jobs for as long as possible due to the HC/dental insurance. If they were able to retire, more doors would open for the younger generation. However, I don’t have any statistics or data to back this personal bias of mine. I drew such a conclusion after reading anecdotal lamenting about HC costs and ACA over the years in the forums and blogs.

    1. Thanks for the feedback S&M. I agree that there are a lot of numbers in there and I tried to make it as clear as possible. I’ll have to consider more tables in the future.

      I can’t disagree with anything you write. I retired early b/c I couldn’t stand working in our health care system. Now, the biggest challenge and frustration of early retirement is the same broken health care system.

      Cheers!
      Chris

  8. This is great information. Currently I am still paying very high premiums for COBRA coverage. We decided to go with this for 2021, due to unclear MAGI picture for 2021 (likely to be over the 400%).

    Now this does seem like a game changer. I punched all of the info in at Healthcare.gov to take a look at the special enrollment period, but I am still hesitant to make the switch off of our nice PPO plan.

    Has anyone made the jump from a high-end PPO plan to a Silver Tier ACA plan?

    1. Wait until April 1 as that is when the updated subsidies are supposed to be on Healthcare.gov so you will be able to get a more accurate picture of the plans and your expected premiums.

      1. That’s what I was wondering. The website currently shows premiums with the old subsides in place. Planning on switching plans once the changes are in place.

    2. Accidentally Retired, Yes, we made the switch from a high end PPO employer plan to a ACA Bronze HSA plan when we retired in 2019. As we approach two years in this plan we have been happy with it so far. The higher deductible isn’t overly high in our plan, and the tax free money we put into the HSA each year is a added benefit going forward. Our total out of pocket costs have been similar. It was a bit scary at first as it was change, but we’re glad we made the change. RIck

      1. rick,

        I appreciate you sharing your experience. One bit of nuance I would add is to ask if you’ve had to use your insurance much?

        I hear similar testimonials from people who use health sharing ministries who talk about how happy they are about them. Then they have a medical event and find out that the coverage is not great.

        It’s important to remember that insurance is a negative expectancy decision. We expect to pay in more than we get out, so we want to not insure more than we need to. That said, we also don’t want to be underinsured when it comes to risks we can’t afford to take.

        Insurance companies can spread risk across a population and thus view the financial risks involved much differently than the individuals buying insurance who need to look at the potential outcomes on an individual basis.

        Hope that adds some clarity for others making the insurance decision.

        Best,
        Chris

        1. Chris,
          Good point. We use our plan at a low level, as we did our employer plan. That said we ran the numbers on the Gold/Sliver/Bronze plans where we live for low/medium/and worst case situations. I started completely against Bronze as it feels like less, and we came from a high end plan. In our area the HSA Bronze has a 3-4k higher deductible versus Silver, and small difference in coverage. This led to us being ahead in low and 1 medium usage situation, behind in 2 medium usage situation(bad broken leg with other injuries for example), and roughly even in a worst case situation(why we have coverage).
          Of course, it all depends on your insurance company and the details of the plan. 1 state west where my brother lives I would have gone with their Gold plan. That said not even considering at Bronze HSA plans at all because it feels like less might not be the right move. All options should be considered as you enter retirement in my humble opinion.
          Rick

          1. Thanks for sharing that. And you make a great point that I hear from readers every time I write about this topic, experiences vary widely from state to state and even within a state as far as options available.

            Best,
            Chris

  9. I signed up for a gold plan (it is cheaper than silver in my state) in Dec 2020 for ~$400 / mo after subsidies at 400% FPL. If I now realize more income – to do a Roth conversion – will the premium difference simply be reflected as additional tax owed at next year’s tax filing.

  10. Thank you Chris for another informative and timely blog article. My son informed me that there were changes and I got an email from my plan provider. Since I knew your article was coming, I got lazy and waited for it. I found your examples very helpful. I guess I will need to find out more for my specific health plan. Last year I paid no premium and even got more back after filing taxes. This year, using the same income, I have a $128 per month premium. But that is lower (as it was last year) because the health provider gave a 10% discount for completing a survey. So now I am not sure if I save by using the special enrollment period.

    I am thankful for the ACA financial aid I get. I am not sure I would have retired early without it. Even a 2 year boost helps.

    1. John G,

      I agree that the ACA is a great deal for early retirees, assuming it lasts. I’m just not confident what our system will look like over the next 20+ years, so I’m keeping my options open.

      Best,
      Chis

      1. I went to Healthcare.gov and the pricing of the plans has not changed. It looks like I have to wait until April 1 based on this link: https://www.healthcare.gov/more-savings/
        It also says the the deductible may start over if I change plans. I currently have a bronze plan and I think I am limited to choosing another bronze plan if I decide to change plans.

        1. If you’ve already met or spent a fair amount toward your deductible, that is something to look out for before switching plans in mid-year. Thanks for sharing that.

  11. I agree with some of the other comments saying that this was an excellent article with great explanations!

  12. At the time I was considering leaving the workforce about five years ago (ironically, job-related stress was impacting my health), I read a post Darrow had written on the ACA. His thorough explanation went a long way toward increasing my understanding of a complex law. Now, I’m sure your detailed, updated version will do the same for many others. The healthcare industry is skewed toward insurance carriers and drug companies through the tremendous effort of those businesses and their industry associations. (There is definitely something wrong with a system that has not allowed the federal government to negotiate better drug prices for Medicare recipients who often rely on a fixed income to get by.) If I’m not mistaken, medically related reasons continue to be the overwhelming cause of personal bankruptcies in this country. It’s critical to understand the many healthcare options and the ramifications of each if we wish to be successful in deploying our financial resources effectively, and the industry does not make it easy (or sometimes even possible) to do so. Thanks for another timely, informative article, Chris, and for all the effort that went into it. For your own personal situation, you are wise to hope for the best and plan for the worst because healthcare is likely to continue to change if political winds shift in the years ahead. For now, we’ll make the best decisions we can with the information we have available and hedge our bets whenever possible.

    1. Mary,

      Thanks for the kind words. I agree that the system is broken. Beyond not negotiating drug prices, there is no price transparency in the system at all. I have some interesting videos that I’ll share in next week’s “Best of” that demonstrate this.

      I’m generally of the belief that consumer’s need to be more directly involved in paying for their care to bring costs down. As the system is now, there is a major disconnect between consumer and payer that keeps prices artificially inflated. People seek too much care b/c they don’t know what it costs, and generally someone else is paying for it anyway. This is PART of the problem.

      However, it is hard to be an informed and responsible consumer when providers make prices difficult to impossible to decipher. And it is totally unacceptable that patient’s are then held responsible to pay these outrageous fees that they never agreed to, or could even know, prior to receiving care.

      You are correct that medical expenses are still a leading cause of bankruptcies, and not just among the uninsured. For these reasons, we must do our part to be informed about how the system works and use it to protect ourselves from financial risks that can destroy households that are otherwise financially independent.

      Best,
      Chris

  13. Very helpful to those planning for early retirement .I came across an article that the rescue plan will cover Cobra payments for those who quit their jobs.Do you have any information or advise as to how to avail on this provision?

    1. My understanding is that Cobra will be covered for a period if you lose your job as another provision of this bill, but not if you quit voluntarily. I feel certain I read that somewhere in my research, but can’t readily find a source to share. Hope that helps! Feel free to share a link here for others if you find it.

      Best,
      Chris

  14. There may be young people on here still deciding whether the military would be a good career option, or perhaps the older readers are in a position to advise such young adults on their career choices. So I’ll take this opportunity to point out the huge advantage you get with military health care. My wife and I were fully covered under Tri-Care before and after my military retirement. When we used military hospitals everything was free, but we could also go downtown with a small copay. Prescriptions filled on base were free, or downtown with a small co-pay. ($5 or $10). Because of this, I was able to retire at 62, and could have done so many years earlier but we waited to strengthen the rest of our portfolio.
    As we turn 65, we have to sign up for Medicare Part A&B, which costs $148.50 per month. We also sign up for Tricare for Life, which is a great supplement that covers most of the out of pocket costs that Medicare doesn’t. TFL costs us $25.25 per month each. My wife had a 4-day hospitalization with ICU and extensive treatments last year, which cost us out of pocket less than a grand.
    There are many other benefits to being military retired, but this is a huge one that doesn’t get enough attention.

    1. JJ,

      Timely comment. I just was helping out a young person setting up their investment accounts last night. They’re in the process of leaving the military and going to grad school. I brought up that exact point.

      He had already done a tour in Iraq. He also talked about not wanting the potential of being forced to move every couple of years. Military lifestyle is definitely not a free ride, and military retirees earn those benefits. That said, you’re absolutely right that Tri-Care is a great deal once you get there.

      Best,
      Chris

  15. Great post and analysis Chris. The key here is the fact that it’s only for two tax years. I suspect the midterms will change things drastically in DC as history shows and this will likely change as well. Even though this is good for us FIRE folks, I worry that our tax code – already more complex than Chinese algebra – is now getting further complicated by temporary changes that all have different or unknown expiration dates.

    1. Dave,

      I try my best to simplify the tax code and focus only on the things that impact me directly or a substantial portion of this audience to keep it manageable. It is crazy when the rules change so often, and particularly over the past year the number of changes to the rules, dates, etc has been insane.

      Cheers!
      Chris

  16. They just extended the May 15 deadline three months to August 15 (see the link by Chris under the first comment).

  17. Great article and insightful analysis Chris.

    I was wondering if you or others on this post have thoughts on this example. We are at the 400% FPL and receiving a HC tax subsidy. We suspended Roth IRA Conversions for 2021 due to being eligible for the HC tax subsidy. With the American Rescue Plan & elimination of the tax subsidy cliff, would it make sense to do a Roth Conversion in 2021? My thinking is the tax would be 12% (our current bracket for MFJ) + 8.5% (“tax” for > 400% FPL) on the converted money. Or should we wait to convert and collect the extra HC tax subsidy for Bronze HSA Plan according to KFF Marketplace Calculator?

    1. Good Question Harold D.

      The answer as with most of these questions is it depends on a lot of factors. But assuming you’ve done the analysis and it makes sense to do a Roth conversion EXCEPT that the income would have pushed you over the subsidy cliff, then yes it would make a lot of sense to convert as much as it makes sense to convert this year and next. You’ll pay a little more in health insurance premiums, but you won’t lose your subsidies completely if your income exceeds 400% FPL as you would have before and may again after this act expires.

      Best,
      Chris

  18. Excellent review of the changes Chris; thank you. The Kaiser calculator is a great tool. My wife (age 56) and I (age 63) have been on an ACA Bronze plan since my wife retired in 2018 (I retired in 2016). We’ve actively managed our income to stay just below the subsidy cliff and as a result have had virtually “free” health insurance; paying less than $20 per month for a high deductible bronze plan.

    Although about 70% of our assets are in tax advantaged accounts and I’m concerned about taxes in future years when SS and RMDs kick in, we haven’t had the opportunity to do any ROTH conversions since we’ve had to keep our MAGI below the cliff. Now that the cliff is gone (for at least the next two years), we could increase our MAGI significantly, stay largely within the 12% tax bracket, and still get a nearly fully subsidized bronze plan.

    So what I’m mulling over now is whether doing ROTH conversions or selling some after-tax assets that have big chunks of capital gains makes more sense. I’m sure the answer is probably “it depends” and maybe I’ll just split the difference since figuring out the answer appears to be beyond my pay grade! Admittedly though it’s a good problem to have. Thanks again for the excellent post.

    Best,
    JEFF

    1. See Harold D’s comment above. I think in general yes, either makes sense. As for which makes more sense, I suppose it depends on how much of your taxable accounts are gains vs. basis, the size of your tax deferred accounts, etc.

      Have you tried either the Pralana or NewRetirement calculators we affiliate with? Both allow you to model different scenarios and I think that it’s extremely helpful to use a tool like these that allow you to see the whole picture in ways that aren’t necessarily intuitive. Full disclosure, if you click to them from the links on our site we’ll receive a portion of sales, but the full price of either calculator is a drop in the bucket to what you could save in future taxes just by getting this decision right.

      Hope that helps.

      Cheers!
      Chris

  19. Great article Chris! Three issues. First, I know somebody who moved and changed plans mid-year under special enrollment. Their was a two month waiting period before the new plan kicked in and I believe they were left without insurance for two months. Will that happen if we change plans?

    Second, I already made the full contribution to my HSA. If I enroll in a new non-HSA eligible plan I will need to get some of that money refunded and figure out how much I can keep in. The Finance Buff had an article on how to do the calculation a few years ago.

    And finally, I have a neighbor who enrolled and unenrolled their college student child during a plan year. Details aren’t important. But they had an absolute nightmare with the Exchange getting proper 1095A, subsidy changes, etc. They were on the phone for hours with the case bumped up to supervisors and above.

    All of this to say that I wonder if switching plans will come with these and other unanticipated administrative hassles. The lesson learned for me was to chose a plan at enrollment and don’t touch it until next year’s open enrollment!!

    1. Pete,

      You capture a few of the many complexities of our current system well. Regarding your first question, there is an extended open enrollment period to accommodate for this change in law. Regarding your latter point, unfortunately how all of that shakes out remains to be determined.

      I think we share frustration over the fact that this law, while a definite improvement for early retirees in the very short-term, does nothing for the long-term and adds complexity for this year with retroactive changes that come months after most of us have selected our insurance for 2021.

      Best,
      Chris

  20. According to the Nevada Health Link website (our state exchange), the SEP is only available to “uninsured Nevadans” or those who experience a qualifying life event. Do you know if the availability of this SEP varies by state? It would not surprise me if our state website was wrong.

    1. Unfortunately I can’t help you there Lisa. One of the frustrating things about the exchanges is that how well they function varies quite a bit on a state to state level.

      Sorry!
      Chris

  21. Thanks for a great article! My husband (age 63) retired in January of 2021, and was given the option to elect Cobra before April 4, 2021. He did elect Cobra, before we knew about the new coverage rules. Now ACA looks like a better choice for him. We have looked at the KFF calculator to get estimated subsidy information. Our income for 2021 will be in the neighborhood of 400% of FPL. Can he “drop” Cobra at this point and use ACA? I know that this was not possible before the changes. I am 65 and on Medicare, but still working.

    1. I don’t know why you couldn’t switch during this special open enrollment period, but I’m not absolutely certain and I can’t provide you specific advice. I would reach out to an insurance broker or directly through the exchange in your state for a definitive answer. Also, if he was let go by his employer, a provision of this act may make it more beneficial to stay with Cobra depending on the specifics of your situation. That is worth looking into as well.

      Best wishes,
      Chris

      1. Thanks, Chris. I’ve been speaking with an ACA navigator today, and I got some really good information from her. FIrst of all, my husband can drop COBRA and enroll in the Marketplace even though he left employment voluntarily. And, even better news, employers may have to cover the whole COBRA premium April 1-September 2021, even if the employee left voluntarily. I’ve done some reading that seems to question this, but there may be a lot of maneuvering by employers after April 1.

        1. Clare,

          You’re definitely wise to stay abreast of the situation as there continues to be changes here and there. I had not heard about that COBRA provision being in place for an employee who left voluntarily.

          Best wishes getting it all figured out. Glad if I could help a little.

          Chris

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