White Coat Face Off: Obamacare

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This continues a series of posts looking critically at the always well thought out Whitecoat Investor’s (WCI) arguments against retiring early.

For the first two posts in this series, please see here, and here.

Today’s post is not entirely fair. After all, The White Coat Investor wrote his seminal article in 2011 before the affordable care act was even enacted.

But here we sit in 2014, and Obamacare is now the law of the land.

With that disclaimer, let’s proceed.

Here, then, is the first part of the Whitecoat Investor’s well reasoned argument against retiring early on the basis of healthcare costs.

Medicare doesn’t kick in until 65, and that age may go up as part of any kind of Medicare reform.  If you stop working at 50, that means you need to cover 15+ years of health insurance premiums, and at a time of life when the policies are more expensive, if you can get them at all.

This is an important point. By deciding to retire early, you are agreeing to pay for the cost of your own healthcare until you reach Medicare age. This is unavoidable. And this is true.

Of course in some sense you are already paying for the cost of your own healthcare.

Some of the cost is visible in terms of money that is deducted from your paycheck each month.

But most of the cost is invisible.

The money that your employer pays to cover you now is part of your total compensation. So if it were to cost less to your employer, your salary would likely be equivalently higher. (Which is another way of saying you’re paying for the cost of your health care now, whether you can see it on your paystub or not.)  And if your self employed, your health care costs are all too obvious already.

But I do think it is worth mentioning that this is a monthly cost that might not be reflected in your current spending and must be accounted for in your retirement planning when figuring out your income needs post-employment. (i.e. good point WCI.)

The Whitecoat Investor continues…

Plus, without the benefit of a group plan with an employer, you have to buy them on the more expensive individual market.  Ehealthinsurance.com quotes me policies of $231-$813 a month in my area.  Let’s average them out to $500 a month, and you’re looking at an extra $6000 a year that must either be saved before retirement, or cut from the retiree’s budget.

Here is where the calculus has really changed.

Obamacare forbids insurers from charging more for patients with pre-existing conditions. This means that having diabetes or asthma or a genetic heart disorder no longer disqualifies you from purchasing affordable healthcare insurance on the individual market.

Furthermore, while last year a 50 to 60-year-old individual was likely to spend 5 to 6 times as much on identical insurance premiums as a 20-year-old, under Obamacare this ratio is mandated to be less then 3:1. (A.k.a., insurance just got a hell of a lot cheaper for early retirees at the higher end of the pre-Medicare age spectrum.)

And this is before even considering the subsidies.

The hallmark of early retirement is learning to live well on less.

And by withdrawing less of your nest egg in retirement, your taxable income will become less.

And this is important because there are now federal subsidies to help individuals pay for healthcare premiums at up to 400% of the federal poverty level.

As an example, a married couple currently living on an opulent $62,000 a year in retirement income would be eligible for subsidies to lower their monthly Insurance premiums from $1140/month to $490/month.

Just as in the philosophy of  “never paying taxes again,” we can see that high net worth, low spending individuals, like the typical early retiree, get outsized benefits under our current tax code/entitlement system.

Once again Uncle Sam rewards our frugality with gifts of goodness.

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I want you to save more, live on less, and benefit from my subsidies…

Which is all another way of saying that Obamacare, like it or not, has vastly changed the calculus of early retirement.

Without a doubt, the uncertainty and cost of healthcare for early retirees has been drastically reduced by The Affordable Healthcare Act.

This may have not been the goal of the legislation, but nonetheless it affects the incentives that influence our individual decisions as to when it is safe to retire vis a vis health care costs, going forward.

And it’s obvious, regardless of your political philosophy, that now health care costs present much less of a barrier to retiring early in America then they ever have before.

As a result of this I predict that age 65 will no longer be the undisputed most popular age of retirement to such a degree (Because age 65 is the currently the first year of Medicare eligibility.)

Enlightened individuals, will increasingly become aware of the fact that it is feasible to retire much earlier than age 65. And this reflects the happy fact that individual goals will no longer be held hostage to the rational fears of uninsurability.

This is a meaningful step forward in terms of personal liberty in my book.

What say you?

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4 Responses to “White Coat Face Off: Obamacare”

  1. Robert April 5, 2014 at 5:29 am #

    I say it is a further step towards slavery, not liberty. There is no free lunch. Someone has to pay. The government doesn’t give gifts, as you put it. They forcibly take from someone who has earned it and give it, in this case, to someone who has not earned it and is retiring early on the dime of others.
    Just as you argue that employees are paying for their insurance even though they don’t see it on their paystub, so is someone paying for Obamacare. It will not lower costs. The “savings” have to come from doctors, hospitals, etc. or taxpayers.

  2. Miles Dividend M.D. April 5, 2014 at 8:48 am #

    Robert,

    As you might expect, I see it differently. But that is an ideological distinction.

    With any law there are winners and losers.

    The point here is that for early retirees, with high net worth and spending discipline, the law is very beneficial.

    You might say this is unfair. But isn’t it also unfair that early retirees can pay no taxes because of quirks in our tax code, while a minimum wage earner pays a higher effective tax rate than Mitt Romney.

    It’s a representative democracy. No law is written in stone. All are subject to change.

    The purpose here is merely to point out that Obamacare is a big win for early retirees.

    AZ

    • Dennis April 7, 2014 at 10:46 am #

      Since time is far more important than money, I agree with you that early retirement is important for those who do not want to continue to practice medicine. However, those years of financial freedom are less valuable if you have to pinch pennies and cut coupons just to get by. People in that situation would be better off continuing to work at least part-time so that they can enjoy a higher standard of living.

      Unless you have a quality recurrent retirement income that you cannot outlive, or a very large nest egg to draw from you’ll have to weigh early retirement versus lifestyle choices.

      • Miles Dividend M.D. April 7, 2014 at 11:39 am #

        Dennis,

        These are excellent points that you raise.

        My feeling is not so much that there is a correct savings rate or time horizon until retirement.

        What I advocate for is just the acknowledgment that money spent is in fact time spent. At some point money spent does yield significant additional happiness. And this point is different for each person.

        I think I know what my needs are, but I have no idea what yours are. As trite as it may sound, that’s for you to decide.

        Thanks for your comments,

        Alexi

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