Beware Of Obamacare’s Medicaid Trap If You Retired Early


HelpWhat I am about to say only applies to a very small minority of Americans.  It does not make a great deal of sense to most of us.  However, those who have retired before they were eligible for Medicare need to read this entire post.

My best friend from high school, and his high school sweetheart, got married after they graduated from college.  They elected not to have children.  That meant that they did not have kids constantly asking for money.

As a result of their life-choices, they were able to save enough money during their working years to retire early.  Today, they travel a great deal.

THE STORY

Last month they spent a week at an archeological dig in New Mexico.  They left NM to go on a cruise to the western Caribbean with my wife and myself.  After the cruise they drove back to NM to finish their dig.  Unfortunately, their dig was on federal land and they were asked to leave when the government shut down.

Instead of going back home, they went to state-owned territory to do some camping and hiking.

I could go on and on about where they have traveled, but you get my point.  They are away from their home quite a lot.  In fact, they are only in their house for a few weeks at a time, while they are planning their next trip.

THE TRAP

Here is the problem.  They have a financial planner who has done a good job of making certain that they only withdraw enough money from their savings to pay for their travels.

Since they tend to be “frugal” with their expenditures, the amount they must take out of their retirement savings each year to maintain their life-style is less than the Federal Poverty Level.

Most, but not all, of my clients are either small business owners or work for small businesses that do not offer group health insurance.  The “Marketplaces” may be a good idea for America’s lower earners, but I get at least one call every day from someone who makes too much to qualify for tax-credits to help with their health insurance premiums.

While there are millions of Americans, who are on the outside looking in at those who do get help from either their employer or the federal government, to pay their high health insurance premiums,  there is another group that can accidentally be harmed by Obamacare.

Those people are like my high school friends.  During their working years they saved enough money to allow them to retire early.  They do not have group health insurance through their employer that makes them exempt from Obamacare.  Neither are they eligible for federal tax-credits to help them pay for their health insurance premiums.

You thought they would get federal help?  In a way you were right, but in a way you were mistaken.

People, like my friends, could accidentally fall into a trap that is within Obamacare.

Since my friends only take enough out of their savings each year to maintain their lifestyle, 5 out of the last 6 years, the amount of income they have claimed has been less than the Federal Poverty Level.

If they do that in 2014, and participate in the new federal “Marketplace” for health insurance, they will not qualify for a tax-credit to help pay their health insurance premium.  They will be enrolled in their state’s Medicaid plan.

That could mean that their traveling life-style could change.  If one of them got sick while they were out-of-state, they would have a very hard time trying to find a doctor.  It is likely that they would have to go to a very expensive ER if they wanted treatment for a sore throat.

(It is hard enough to find a doctor who will accept new Medicaid patients when they live in the same state.  Finding a doctor who will even treat a person with Medicaid from a different state is even harder.)

People with a PPO though work or an individual plan should not have as many problems.  People with Original Medicare are exempt from Obamacare and would not have the same problems.

THE SOLUTION

If you have saved enough money to retire early, my recommendation to you is the same that I gave to them.  Unless you have a “grandfathered” health insurance plan, avoid the new federal “Marketplaces” if the amount you claim on your 1040 will be less than the Federal Poverty Level and buy your approved health insurance plan directly from a health insurance company, outside of the “Marketplace.”

If the Modified Adjusted Gross Income on you 2014 tax return is estimated to be lower than your state’s Medicaid threshold, there is a good chance that you will automatically be enrolled in your state’s Medicaid program.

If you do not travel, that is not necessarily a bad thing.  However, if you do take trips outside of your state, it could be problematic if you require non-emergency medical care while you are away.  You could be forced to cut your trip short and travel back to your home state, when you don’t feel good, to get the medical help you need.

Balance

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