Obamacare wobbles but works for us and millions – Tax credits under Republican plan won’t cover high cost of insurance
By Tom Nichols
Paying for health insurance for our family of three was my biggest worry after Judy and I quit our middle-class jobs, gave up our employer-subsidized coverage, and hit the road in The Epic Van.
Thanks to Obamacare, health care has been affordable during our first three years of early retirement.
Now, we’re among about 20 million Americans whose health care coverage is at risk as Republicans in Washington proceed with their plan to repeal and replace it.
I don’t want you to shed any tears over the predicament of a couple of well-off Baby Boomers wandering across America and having a good time. We chose to leave the workplace and are healthy enough to return if necessary, though we would earn a lot less than we did.
But I do want you to consider the predicament of millions of Americans between 55 and 65, those who involuntarily lost their jobs and health insurance as globalization and automation swept away their livelihoods.
Or consider those who work in part-time jobs or as private contractors and don’t qualify for employer-subsidized insurance. Or consider those who want to create their own business or need several years of college or technical training to switch careers.
Or consider those who must give up a job to care for a loved one with a permanent disability a debilitating medical condition or terminal illness.
For all those who rely on Obamacare, the Republican plan to replace it is absurdly inadequate.
The centerpiece of the Republican alternative, the American Health Care Act, is a $4,000 tax credit to buy health insurance in the individual market. The most popular Obamacare regulations, insuring everyone with pre-existing medical conditions and allowing young adults under 26 to remain on family insurance plans, are preserved. The least popular regulation, requiring nearly everyone to buy health insurance or pay a tax penalty, is scrapped.
Simply put, the problem with the Republican plan is that tens of millions of households do not have enough income to pay the market price for health insurance plan with a $4,000 tax credit.
Let’s examine the actual market price of health insurance in the United States and the incomes of Obamacare enrollees.
Nationally, it costs $23,419 a year to insure a family under an employer-provided plan, according to a 2016 Kaiser Family Foundation Employer Benefits Survey. That is $18,142 in premiums paid by employers and $5,277 in out-of-pocket costs paid by employees.
Judy and I left behind about $14,000 a year in employer-paid compensation through Judy’s employer, Arizona State University. It’s an untaxed benefit that obscures the market price of family health insurance in the United States. We paid $4,000 in payroll deductions and copays and prescriptions.
I use employer-provided insurance as the basis for market price because it is the largest sector of our fractured and massively inefficient health care system, which expends more in gross domestic product than any nation on earth. Even with trillions spent each year, the United States has one of the lowest life expectancy rates in the industrialized world.
For a moment, let us accept the position of Republicans in our nation’s capital who believe that the repeal of Obamacare, which covers a tiny swatch of our vast health care tapestry, will begin to mend the entire system, unleashing repressed market forces and reducing health insurance costs for everyone, with or without a job.
Let’s agree that Americans deserve more insurance options, but that taxpayers should only pay for insurance with less comprehensive benefits than those offered by private employers or mandated under Obamacare. And offer a plan with higher deductibles without frills, permit insurance sold across state lines to let marketplace efficiencies take effect and lower the average cost of insurance for a family to $15,000 a year. That would be about 35 percent less than the cost of insurance offered by employers. Mission accomplished, say those who support the Republican plan.
Well, please remember that two-thirds of Obamacare enrollees live in households with incomes below $30,000. Under the Republican plan, a couple will get about $8,000 in tax credits to pay for an insurance bill of $15,000, leaving them with a shortfall of $7,000. Paying $580 a month for health insurance, plus deductibles, is almost impossible for anyone who must pay rent and utilities, feed and clothe the kids and keep the car running.
It is not unreasonable to accept the estimate of the Congressional Budget Office that 24 million fewer people will be insured in the United States in 2026 if Obamacare’s system of tax credits and federal payments for Medicaid are replaced with the Republican plan. The plan is projected to cut federal budget deficits by $337 billion over the next 10 years. Insurance premiums would rise substantially in the first several years of the Republican plan but then would fall a bit in later years. It’s projected that insurance rates would be 10 percent lower in 2026 than they would be under Obamacare.
For those of us who are senior, the most ominous provision in the Republican health-care plan is one allowing insurers to charge their older customers five times the rate of their youngest enrollees, instead of three times the rate of their youngest enrollees under Obamacare. There’s no provision in the plan to adjust tax credits for inflation.
There will be winners under the Republican plan. Younger Americans will benefit from lower insurance costs and the households with incomes of more than $250,000, insurance companies and medical device makers will receive billions in tax cuts.
The biggest losers under the Republican plan are likely to be the working poor. The hardest hit will be those who do not qualify for Medicaid and have incomes between 100 percent and 400 percent of the federal poverty level, which is $11,880 to $47,520. You might call them the forgotten Americans.
Now back to Tom, Judy and Nate. On behalf of our family, I want to praise Obamacare in case it is buried this year.
Although wobbly, it works for our family of three with a household income of about $65,000, even in Arizona, where only one health insurer remains in the marketplace in Maricopa County. Obamacare works for us because we are eligible for large, adjustable tax credits based on our income and geography. It means that we still have affordable insurance even though the market price for private health insurance in the Arizona marketplace doubled in 2017.
Here’s how Obamacare has worked for our family of three since we left our jobs:
Judy and I, in our early 60s, don’t have any health issues that require expensive medications or frequent visits to medical specialists. However, we both have pre-existing medical conditions. Judy has celiac disease and I had throat cancer about 10 years ago. Nate, our son, is a healthy young man in his early 20s, just out of college and living in Arizona.
In 2015, the market price of our silver Obamacare plan, which covers about 70 percent of out-of-pocket medical costs, was $1,156 a month, or $13,872 a year. After tax credits, our family of three paid $498 a month. Nate’s portion of the premium was $98 a month. Each of us carried a $3,000 deductible under the plan.
In 2016, the market price for our bronze Obamacare plan, which covers about 60 percent of out-of-pocket medical costs, was $1,066 a month, or $13,788 a year. Judy and I paid $512 a month and expect a federal tax refund this year to offset our insurance premiums a bit more. Nate’s portion of the premium was $83 a month. Each of us carried a $5,500 deductible under the plan.
In 2017, the market price of a monthly premium for our silver Obamacare plan, doubled to $2,191. With the help of Obamacare tax credits, we pay $512 a month. Each of us has a $4,200 deductible.
We await the outcome of the repeal-and-replace fight in Washington before deciding on the extent of our travel in The Epic Van in 2018.
I my next post, I’ll tell you more about our three-year experience under the Affordable Care Act, including our customer experience, adjustable tax credits and how they relate to our federal tax filling, how our son was included under Obamacare, and a summary of out of pocket expenses.
When I began running the numbers for our projected 60K retirement budget two years ago, I couldn’t help thinking that the assumptions in it were delusional. Judy, meanwhile, was characteristically confident we could travel full time in The Epic Van and live on $5,000 a month.
She’s way ahead of me in visualizing blue skies in any new venture. I enjoy riding along, but worry more about a catastrophic storm ahead.
It would be easy to underestimate our annual retirement spending by many thousands of dollars. Imagining living on less than half of our 150K pre-retirement income is easy, but did we have the commitment to do it? Would I be slinking back to the workplace in my mid-60s, scrambling to salvage a nest egg squandered?
It turns out my worries were overblown, and Judy seems to be right about early retirement and going nomad, as she was about other big ventures like getting married (1982), publishing a newspaper (1989), starting a family (1994) and taking a family sabbatical (2000).
Touring America for nine-plus months on a 60K annual budget is doable. We spent $5,119 a month last year, coming within about 2 percent of our target of $5,000. Lower than estimated fuel costs, vehicle maintenance and taxes, along with more than two months of cheaper, stationary living with Judy’s mom in Arizona, helped us nearly reach our 60K target.
On the positive side of our assumptions, we expected to spend about $500 a month on diesel fuel and pay about $3.50 a gallon. We spent $416 a month, paid closer to $3 a gallon and traveled about 15,000 miles.
On the negative side, we aimed for $50 a day in daily living costs that include groceries, restaurants, bars, camp fees and laundry. In nine-plus months of travel we spent $57 a day, about 14 percent over budget.
Our 3,200 mile detour in July from Glacier National Park to a family reunion in Illinois, and back to the Rockies, was our biggest budget breaker of the year. We spent $72 a day in July on groceries, dining and entertainment when our son Nate flew to Chicago to join us.
We had lots of fun, but our monthly budget deficit was rising with the summer heat. On Aug. 1, we knew a mid-course budget correction was necessary. It was time to redouble our efforts to meet our $50 a day spending target.
After trial and error during our first seven months on the road, we resolved to follow the “New American Nomad principles” for limiting grocery, dining, entertainment and camp spending:
- Cooking 18 or 19 of our 21 weekly meals in The Epic Van, with whole grains, beans, fruits and vegetables. Half of the meals are vegetarian. The other half use inexpensive animal protein, mostly low-fat ground turkey, chicken and a little fish. We’ve cut spending on prepared sweets and snacks to come close to our $850 monthly grocery budget.
- Modifying our dining and entertainment habits to get closer to our $400 a month target. We plan a 50-50 split. Eating out at moderately priced restaurants, food trucks, farmers markets and fairs once or twice a week, saving our dining dollars on special occasions with friends and family. We gave up on twice-a-week Mexican lunches. Last year, we spent about $370 a month on restaurants, and we’re trying to get closer to $200.
- Drinking beer at local brew pubs or bars with a view or music twice a week and limiting appetizers to once a week. And seeking out inexpensive museums, self-guided historical walks, used books, Redbox kiosks, free news apps, public radio, inexpensive community film showings and small-town festivals. That preserves entertainment dollars to spend on an occasional splurge, like the Buffalo Center of the West, in Cody, Wyoming, the Hiawatha rail trail on the Idaho-Montana border or a boat ride in Glacier National Park. Last year, we spent about $180 on entertainment. We don’t buy baubles and books from museum gift stores and historic downtown shops, like we did in out pre-retirement life, in order to stay close to our $200 a month earmarked for entertainment.
- Finding federal, state, or county camp sites of $15 or less a night. There are hundreds of inexpensive camps across the West, many with views we used to spend several hundred dollars a night for at inns, hotels and bed and breakfasts. We also spend two or three nights a week doing free overnight stays in small towns (county courthouse squares and sleepy main streets are a favorite), at Walmart parking lots, and with friends and family. RV campgrounds, which often charge $35 to $75 a night, wreck our $200 a month camping budget, and we prefer the relaxed atmosphere of parks. We used commercial campgrounds during emergencies, in 100-plus degree July heat near Glacier National Park and a couple of sub-freezing April nights on the Nebraska plains, when we needed electricity to stay cool or warm. We budgeted $200 a month and spent $210.
On a chilly final day of September, we toasted success in meeting our $50 a day budget for the month, as we gazed at grassy dunes and slate surf n’ sky from a bar overlooking the Trail of Discovery in Long Beach, Washington. We had reduced our daily spending from $72 in July, to $48 a day, while thoroughly enjoying the Pacific Northwest. We were spending less than we did earlier in the year, but enjoying our wandering ways even more.
We begin our second year in the Epic Van with more confidence we can follow the “four percent rule” for withdrawing retirement assets and yet enjoy a rich nomadic life on about 60K a year. It may take a few extra thousand dollars occasionally to pay for unexpected events in early retirement, but we don’t obsess over four percent. We can accept a five percent drawdown if necessary. We call it an emergency fund.
If we spend beyond the five percent withdrawal threshold, I guess Judy will have to go back to work. (“Dream on,” she said.)
|Expense category||Budgeted amount||Average monthly spending|
|The Epic Van loan payment||615||612|
|Prescriptions and copays||0||100|
|Phone-data (for 3)||285||310|
Selling our house and cars and trimming our daily spending allowed us to retire seven years early and tour America full time in our fancy van.
By Tom Nichols
(Part 2 in a series. Read part 1 here.)
I once lived the $150,000-a-year life in Scottsdale, Arizona.
Loved it for the food, family vacations and health club. Never cared about fancy cars, nightlife or fashion. Always viewed a house as a financial asset, nothing more or less.
These are the weaknesses and strengths I brought to the game of changing my ways and living full time in a fancy van on $60,000 a year, or less than half of what we used to spend.
By Tom Nichols
You’re probably wondering how a couple of 50-somethings are paying for their touring lifestyle. Sure looks like they’re having a good time in early retirement, but they’re probably headed for financial disaster in a few years!
After all, any financial planner will tell you that your retirement spending must be based on a 30-35-year horizon as life expectancies are hitting 85 and beyond. We agree. You’ll also be told to replace at least 70 percent of your pre-retirement income to enjoy a respectable Boomer life. On that one we respectfully disagree.