Without healthcare subsidies, healthcare in America is extremely expensive. For example, my family of four is paying $2,500 a month for a Gold plan because we are receiving no healthcare subsidies. We would get a Platinum plan, but it's simply too expensive.
If we reduced our income to be no greater than 400% the Federal Poverty Limit, we could start receiving healthcare subsidies as multimillionaires. However, that would entail selling off income-producing assets, higher tax liabilities, and more.
This post will discuss how you can receive healthcare subsidies as an early retiree, a freelance worker, and even as a multimillionaire. It sounds like one is gaming the system, and it is. But it's a legal strategy I've noticed many multimillionaire retirees adopt within the rules.
As someone who kickstarted the modern-day FIRE movement in 2009, I believe it's better to retire early than to retire rich. If you retire early, you will inevitably wonder how you plan to pay for expensive health insurance. The answer is by getting your income low enough where you can get healthcare subsidies.
If you can qualify for healthcare subsidies, life gets easier. You won't have to worry as much about medical bankruptcies as well. Healthcare costs in this country are simply out of control!
The Huge Rise In Healthcare Costs
Before the birth of our son in 2017, our unsubsidized healthcare premiums were roughly $1,625 a month. Each year our premiums went up by about 7% until where we are today. They say the average healthcare premium increase is closer to 10%, so we are by comparison, “fortunate” to only pay a 7% increase.
But if you think about it, paying 7% – 10% more in healthcare cost each year means you need to build a bigger net worth before you retire or lower your safe withdrawal rate in retirement. People who think withdrawing 4% in retirement are fooling themselves partly due to lower structural returns in risk assets, but also due to fast-increasing healthcare costs.
If you have no desire to work longer, accumulate more wealth, or lower your safe withdrawal rate in retirement, then the only solution is to get healthcare subsidies.
Whether you think this is morally right to do, especially if you are a millionaire, only you can decide. Just be careful as receiving healthcare subsidies as an early retiree might make you stingy and less charitable as well. We should focus more on giving than taking.
Today, in 2024, we pay $2,500 a month in unsubsidized healthcare premiums for a family of four. It's so painful, but at least it's a business expenses.
How To Get Healthcare Subsidies
In order to be eligible for healthcare subsidies under the Affordable Care Act, you must earn no more than 400% of the Federal Poverty Limit (FPL) by household size. Each year, these limits will go up by ~2% to account for inflation.
In the chart below, you will see the latest FPL limits under the 100% column. The 400% column shows the maximum amount you're able to make per household size until you no longer qualify for healthcare subsidies.
If you make less than 100 percent of the FPL, you also don't qualify for the Affordable Care Act. You qualify for Medicaid. In some states, the income percentage is up to 139 percent of the FPL, so make sure to check.
The amount of healthcare subsidy you will receive will depend on how much over the FPL your household income is and the type of healthcare plan you want e.g. deductible amount, bronze, silver, gold, platinum etc.
The chart below shows how much of your household income you are expected to contribute to your healthcare plan. The percentages are caps.
Healthcare Subsidies Example
Using my household of three as an example, we're allowed to earn up to $83,120 and still be eligible for the Affordable Care Act.
We would be expected to pay $83,120 X 9.86% = $8,196 a year in healthcare premiums at most. That's a nice $12,804 in subsidies compared to our current cost.
$683 a month in healthcare premiums seems much more reasonable for a healthy family of three. Unfortunately, due to drug price gouging, soaring liability insurance, general mismanagement, and a growing percentage of the population being overweight or obese, Americans who do not qualify for subsidies must pay much more.
If our three-person household somehow managed to only earn $41,560, or 200% of the FPL limit, then we would only have to pay $41,560 X 6.54% = $2,718 a year in healthcare premiums for our same plan thanks to $18,282 in subsidies. Paying only $226 a month is truly an affordable healthcare plan.
Unfortunately, we will have a difficult time making ends meet on only $41,560 a year in San Francisco or Honolulu. Income under $117,000 a year for a family of four in San Francisco is considered “low income” according to the Department of Housing and Development.
Living A Middle Class Life In Retirement
Given we can't survive comfortably off of $41,560 (200% of FPL), let's focus on 400% of FPL for a family of three.
Earning $83,120 a year for a household of three is a healthy middle-class lifestyle. If we apply a 15% effective tax rate, we're left with $70,652 a year after tax.
Being able to spend $5,888 a month is 55% more than the average spending for a 65+-year-old-household at $3,800 a month.
Here's how we might spend $5,888 a month after paying off our mortgage.
$1,500: Food and entertainment
$1,700: Our son (tuition, lessons, toys, clothes, shoes)
$1,500: House expenses (property tax, maintenance, utilities)
$600: Personal care and miscellaneous
$588: Transportation and travel
In order to earn $83,120 in gross passive income a year, we would need to have $1,662,400 in capital earning 5% a year, $2,078,000 in capital earning 4% a year, $2,770,666 in capital earning 3% a year, or $4,156,000 in capital earning 2% a year.
Having $1,662,400 – $4,156,000 in capital should be plenty to draw down from if our household expenses exceed $83,120 gross / $70,652 net for whatever reason. We would just need to be careful to not draw down too much given we've got 20 years of expenses to pay for our son. Check out the proper safe withdrawal rate for more on how much to withdraw in retirement.
Solution To Getting Healthcare Subsidies After Making Too Much
Given we earn more than $83,120 a year in passive income from our investments, we would have to sell off roughly 65% of our income generating investments and reinvest the proceeds in non-income generating investments.
Some non-income investment ideas include: buying a property and not renting it out, buying a property and not earning a profit due to depreciation and other expenses, buying growth stocks that don't pay dividends, making a private equity investment, and paying down debt.
To receive healthcare subsidies based on your own situation, you would simply:
- Earn a modified gross income (MAGI) up to 400% of the FPL based on your household income size
- Restructure your investments so they produce less income
- Stop working full-time or find a lower paying job
- Throttle down your freelance income or entrepreneurial income
- Be ineligible for health insurance coverage through an employer or government plan
- Not file a Married Filing Separately tax return (unless you meet the criteria in section 1.36B-2T(b)(2) of the Temporary Income Tax Regulations)
- Can’t be claimed as a dependent
- Apply for the Affordable Care Act at Healthcare.gov
Just know that even with a $5 million net worth, I've shown that it may be barely enough to retire early on comfortably with a family if you remain in a high cost of living location.
Therefore, to even think about reducing your income to receive healthcare subsidies might be like the tail wagging the dog.
The Maximum And Average Healthcare Subsidy Amount
Based on the contribution chart, the poorest households (sizes 1-6) must pay a minimum of $253 – $702 a year in healthcare premiums under the ACA. The richest of households (sizes 1-6) that still qualify for ACA must pay $4,788 – $13,307 a year in healthcare premiums.
In other words, the maximum healthcare subsidy per person is about $7,000 depending on plan, household size, and household income.
The average healthcare subsidy per person is around $5,000 depending on the same variables.
In our three-person household's case, we would receive a $4,268 per person subsidy if we earn 400% of FPL. But losing out on $150,000 a year in passive income to receive $12,804 a year in healthcare subsidies doesn't seem like a great trade.
Note: If you become a business owner, you can deduct the premiums you pay for your employees.
Related: The Cost Of Calling An Ambulance Is Absurd
Is It Morally Right To Take Healthcare Subsidies?
Everybody has the right to the Affordable Care Act if they legally qualify. But is it morally right to accept healthcare subsidies, especially if you are a multi-millionaire who is not in the best of health due to your own lack of discipline?
This moral dilemma is something I struggle with despite paying a fortune in annual healthcare premiums and forking over millions of dollars in taxes over the past 20 years. When I die, there's a possibility I will have to pay even more taxes to the government due to the estate tax.
I feel it is my duty to help subsidize the less healthy and less wealthy through higher healthcare premiums and higher taxes. That's what being a good American citizen is all about.
However, as I get older, I no longer have the desire to work and workout as much. Instead, I'd rather focus more of my time on family in my mid-40s and beyond.
If the average number of hours an American works a week is 40, I feel like I've already worked a 35 – 40-year career given I've regularly worked between 70-80 hours a week for the past 20 years.
Healthcare Incentives To Reduce Cost
Perhaps instead of charging more to those who've worked a lot, saved a lot, paid a lot of taxes, and stayed in shape through vigorous exercise and healthy eating habits, the government might charge less or incentivize the general population instead.
Can you imagine how much healthier our nation would be if the government gave a healthcare premium or tax credit to those who walked or ran 20 miles a week and never consumed sugar?
Not only would we as a nation be healthier, but our healthcare system would also be less costly because there would be less of a need to subsidize less healthy people.
Related: Going To The Emergency Room Is Like Getting Two Kicks To The Groin
Let's Not Abuse The System
At the moment, I draw the line at taking advantage of the Affordable Care Act if you are a millionaire and are physically and unfit. I'm not talking about millionaires who have some type of genetic disorder or disability that prevents them from staying healthy.
I'm talking about the millionaire who has all the ability and resources in the world to lead a healthy life, but for some reason does not.
Not only is the millionaire taking advantage of the system that was intended to help the financially vulnerable, the unhealthy millionaire is also burdening the system through his or her poor health.
If you are wealthy, it behooves you to get in the best shape as you can. You've won the lottery. Therefore, you might as well enjoy your luck for as long as possible.
To be rich and out of shape and then apply for the Affordable Care Act is a slap in the face to the American people.
To be a wealthy early retiree and brag to everybody you're a wealthy early retiree while receiving healthcare subsidies is also a slap to the American people.
May we all live long and never have to take advantage of the Affordable Care Act, even if Joe Biden plans to offer more healthcare subsidies. Let's let the people who are financially struggling the most get subsidies from those of us who can pay more.
Life Recommendation
After getting healthcare insurance, it's also important to get life insurance if you have dependents and/or debt. Check out PolicyGenius, the #1 marketplace for affordable term life insurance customized for your personal situation. My wife was able to get double the life insurance coverage for less money through PolicyGenius.
If we've learned anything during the pandemic, it's that tomorrow is not guaranteed. Getting life insurance is the responsible thing to do.
For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. Everything is written based off firsthand experience because our finances are too important to be left up to pontification.
I am searching for healthcare coverage for a person that is single and is making $30,000 a year. Does she just go to healthcare.gov for the ACA or is there another option? Also, she hasn’t had healthcare for more than 6 months.
I am assuming that these Income levels are Adjusted Gross Income amounts…
Great content. I likely left some $ on the table as I was unemployed and low income last year, took a bronze plan to save and co-pays were high….
Can I itemize my out of pocket medicals?
Long before Obamacare became the law of the land the state of Tennessee had something called Tenncare meant for uninsured low income families. As a physician I had a wealthy individual from Cincinnati who made an appointment for a costly medical procedure who arrived in a Bentley, bragged about how wealthy he was and was eligible for Tenncare merely by having a Tennessee address at a Mailboxes Etc. He was laughing at how easy it was to game the system and pay nothing. It was infuriating to my staff and myself but perfectly legal. This is an example of how America will gradually bankrupt itself. More and more people in the wagon and fewer and fewer people pulling it.
I’m surprised no one has posted (sorry if I missed it – I only skimmed the comments) that the basic point of this article was obsoleted at least for a 5 year period due to the 400% cap being lifted (initially for 2 years as COVID-19;relief, but extended for at least 3 more). ACA premium tax credits are actually quite substantial at well over the 400% cap due to the current 8.5% AGI max on health insurance premiums still applying (using a reference silver ACA plan).
Also, others have alluded to it, but health share ministries do *not* provide catastrophic coverage. They are not contractually obligated to pay. Rather, they provide a form of risk pooling, but without the fiscal requirements insurance companies have to carry to make sure they have sufficient funds to pay all valid claims.
Steak drenched in butter is one of the healthiest things you could possibly eat. Modern nutritional recommendations were promulgated by packaged food businesses. Eat like your ancestors did and your health will improve.
I’m 59, my wife 53, and it would be about $1150/mo. The subsidy covers all but $175. All this info is available to you from you states’ plan on line. This is for CA.
We make about 200% of the FPL and don’t qualify for subsidies at all due to the fact that the employee-only health plan and my husband’s work is considered affordable. However the family plan is around 12% of our income and we can’t afford it.
Very interesting reading. I for one would like to hear some ideas on how a single dad paying child support and needing to carry the insurance meets any of the ACA. Child support isn’t deductable, and ACA doesn’t allow dad to consider the children as dependents. so in order to meet guidelines and heart felt support a parent would have to make more than 65K if he has 3 kids. I really wish they had a way to figure the deductible on the non-custodial parent. Anyone here know of anything?
You can get the tax deduction for your children even if you are the non-custodial parent. Then your children will be counted as your tax dependents for purposes of the ACA calculations. The custodial parent has to fill out a form and send it to the IRS giving you permission to claim your children as tax dependents. Otherwise, maybe the other parent should apply for the children’s insurance.
For people who make between 300% and 400% of the FPL, the subsidy is very little. So all of you people who make between that and think you are going to be saving a lot of money are in for a surprise.
Did you read the post and look at the analysis and charts? If not, give it a go.
Gotcha. Why do you think the subsidies are very low at 300% – 400% according to my example of a family of 3 at 400% FPL?
Not so in California. I fall at 395% of the max 400%, and it saves my wife and I, on a Bronze plan, $10,000 a year.
That is correct sir. I can claim $63000, just under the 64000 limit and save 10 grand.
I’m 59, my wife 53, and it would be about $1150/mo. The subsidy covers all but $175. All this info is available to you from you states’ plan on line. This is for CA.
There are additional ways to restructure your income to qualify under the ACA and not lose or forgo any money. If you have any type of Roth account and qualify to draw from that, Roth funds are not counted against you when figuring out your Modified Adjusted Gross Income (MAGI) for ACA subsidies. Other funds that do not count towards MAGI include any after-tax withdrawals from savings, gifts, or loans.
I retired at age 61 at the end of 2016. Through a combination of taxable income (counted for MAGI), ROTH and savings, we got Silver plans for $108 in 2017 and $124 in 2018, and (wife now on Medicare) I’m just paying $118 for a Bronze plan for myself for 2019.
I’m one of those who takes the subsidy without guilt and here’s why.
There are government dollars available in the form of tax deductions, tax credits, and subsidies for every income group, from poor to filthy rich. That government dollar is still 100 cents no matter what. So if your rich and taking breaks, you are taking money from the government just like me, the sorta rich guy who maniplates his AGI legally to get the subsidy.
You know for sure the rich are taking their breaks. It would be foolish for anyone not to take the government dollars that are legally available to them.
If one has $3mil in savings, and a taxable passive/active income of $45K, they not only deserve health care assistance by law, but are virtually guaranteed to get it. Why? Those who make the laws get a long term pension that would have to be judged back to present value, and they also get health care that most of us could never afford. My father is a retired Federal Employee who receives a monthly pension, and a health care plan that could only be called Triple Platinum, and has scraped $$millions out of the government. The majority of us in the Target Tax Class (cumulative effective rate 25-40%) get to live off only what we save, and buy only the health care we can afford. Not only do I want health care assistance, I want my free brick of cheese!!
Your income in retirement has bearing not only your health insurance costs (Medicare Parts B&D are subject to the IRMA adjustment) but also Social Security can become taxable.
The goal in retirement should NOT be reduced income but TAX EXEMPT income.
Properly structured a person can have UNLIMITED “income” with not only NO income tax due but without any income to report! This can be $100s of thousands of dollars in positive cash flow that is legally NEVER required to be reported to the IRS.
I believe that one of the largest risks retirees face is the impact of taxes on cash flow and how that impacts all of their other financial decisions.
What are some tax exempt income examples you’d like to share with readers? Cheers
Retiring at 57 and using the wrongful death structured settlement money I get every month to live off of and that counts as zero income to allows me to have medicaid or if I elect to pull some money from my 401k it still can give me a nice qualified subsidy. Correct?
No matter what one shouldn’t feel guilty about receiving subsidies. The fact of the matter is our current medical system is one of, if not the least efficient healthcare system on earth…and it creates less good outcomes than many less expensive systems. Over time we have become chronically unable to address any element of the structural inefficiencies in our econonomy. The market participants (ie insurance companies, doctors, the schools that educate them in this case) are able to maintain and expand their markets and profitabilty through lobbying that insulate them.
That said, the real genius of the healthcare exchange and it’s subsidies is that to the extend they increase the debt they also weaken the dollar…and who posesses dollars? Certainly not the vast majority of people whose retirement savings are anemic at best. So rather than solve the (in reality) unsolvable problem of the healthcare structural inefficiencies we simply as a society played it forward on the back of the dollars strength. So hoorah for that!
In a seperate vein – if you look at the cost of healthcare for a middle aged person you can be looking at around 1K per month in premiums, with 7.5k-10k deductable and Max out of pocket where your total come up on 17-20K per year after tax. The idea that we have a system which is so guilded as to be about 1/2 the average income of the people it serves is wrong prima facia.
If this whole line of thinking strikes you as being wrongheaded, as if you have somehow lost something as a function of the healthcare subisidies then consider at least you aren’t paying list price for the health care being rendered to those covered with insurance. Absent the coverage the list price is charged back to the game so to speak. Of course our alternative to dealing with the uninsured would be to deny them care when they need it… But when people have an emergency we will treat them…and with good reason. We aren’t animals.
So take stock in your healthcare exchange and subsides. If you are a millionaire like the article mentions you have paid in your fair share along the way. No reason to think the system has an inherent right to gouge you.
If you hired one employee and offered group insurance you can deduct 100% of the cost of the policy off your taxable income. The government is effectively subsidizing group health insurance just a different way.
If you want a take advantage of your good health buy a bronze plan and put the premium savings in a HSA account. HSA contributions are tax deductible, no capital gains and qualified distributions are tax free. After a couple years if you have a expensive health issue you do a HSA withdraw and switch to a gold plan at open enrollment.
I have paid hundreds of thousands of dollars in federal taxes over the working years so I have no issue benefiting from the ACA. It’s not gaming the system. Instead of criticizing ACA users, one should ask why healthcare in the US has been a debacle for decades. No, a cat bite should not cost $50,000 to treat.
Since the ACA cannot deny you for pre-existing conditions, it can be used as a catastrophic back up plan. All you have to do is wait until the next sign-up period, up to a year. There are other methods to get in early such a losing your existing insurance or moving. So really you have to only get coverage for 12 months. Consider a combination of Health Ministry, asset protection and self-pay. Read books on self-pay. Joshua Sheets on “Radical Personal Finance” has an excellent series of podcasts on Health Insurance.
Your sky high deductibles are chewed up by exorbitant Medical charges. Your Health Insurance company has no interest in saving you money or giving you value.
Excellent column, Sam. I’d like to share an experience I had this past fall. My wife and I visited California and while in Carmel we overheard a conversation one morning over breakfast from the table next to ours. One couple was boasting to the other how they had transferred all of the assets of a surviving parentwho is quite wealthy out of her estate into their assets so she would qualify as a Medicaid patient for nursing home care. They indicated the transfer must be done at least five years before care is needed (this is correct and the IRS checks this). As a retired hospital executive I struggled to contain myself from interrupting to shame them. There are only so many Medicaid beds in nursing homes for poor, elderly people; and when someone of means pulls this type of stunt to “game” the system is unconscionable. The wealthy mother took a Medicaid bed when she could well afford to pay for her care at the expense of someone who truly is poor and needed care. I didn’t say anything but I was dumbfounded that this couple actually boasted about it. BTW, I receive your weekly newsletter by email; how do I receive these other postings when come out? Thanks!
People who do this are limiting where they can receive care. Great, no she can live in a nursing home for the rest of her life.
Had she been proactive she could have easily funded a long term care insurance plan that would protect her and her assets. She then could get care at home, assisted living facility or a nursing home; wherever she chose.
Tongue in cheek ROG reference, I like It!
My spouse and I plan to retire next year at 57 and 60. We plan to use the ACA for our pre-Medicare healthcare and shouldn’t have any difficulty keeping our AGI below $65K per year even though we’ve earned much more than this prior to retiring. We’ve both worked, saved and paid a very high tax rate for the last 30 years. Do I feel guilty about this? Not even a little bit. In any other country affording healthcare would not be the only obstacle in retiring just a little bit early. Its ridiculous that its been made an obstacle here.
You are 100% correct. The Target Tax Class (25-40% cumulative rate) has not only paid its share, but most everyone else’s share. Giving up 1/3 of your earnings on a yearly basis entitles us to a heck of a lot more than a discount on below average health care…
If one qualifies for the Affordable Care Act or subsidized healthcare, regardless as a millionaire or not, why shouldn’t the person take full advantage of it? I don’t think the person needs to feel bad if everyone in the same circumstance can qualify for it as well.
I equate it to paying taxes. Should a person (can be Jeff Bezos to all the way down on the wealth spectrum) feel bad for taking advantage of certain investor friendly tax provisions (usually used by the very rich) such as long term capital gain tax, 1031 exchanges, depreciation on rental properties, qualified dividends, capital treatment for carried interest, etc.
Warren Buffet has repeated many times he believes the rich should pay more in taxes. But yet he touts he pays a lower income tax rate than his secretary. He certainty, with his tens of billions, didn’t feel bad about taking advantage of the tax benefits offered him.
Therefore, the healthcare subsidies afforded to millionaires is only a pittance compared to the tax benefits for the billionaires.
Are these tiers state adjusted for income at all? $65,000 in a no-tax, low cost of living state is going to be so much different than your situation in SF.
Looking at how this number is calculated, it should be relatively easy for us to stay under $65k since this number only applies to capital gains and not the initial principle. The ethical side of this has always been a grey area for me too. On one hand, my wife and I are both 30s, healthy and rarely even use health care other than our usual checkups, so we’d likely still be paying more than we get from health care (at least for years when nothing goes cataphatically wrong). So for us, like many, paying for health care is more to prevent crazy high bills from emergencies than for typical use.
I’m hoping to see more high deductible plans become available without income limits. I think those have the potential to be a good option for people in situations like ours.
Only in America do we feel guilty about having access to healthcare and not breaking the bank to do it. Should I feel guilty that I went to the best public high school even if I didn’t pay the most property taxes? Do those on Medicare feel guilty? No.
Reread what Joseph Anderson said above. If you are healthy, there are much cheaper options available. I am 60 years old and pay $190 a month with a $500 deductible.
Wonderful. Please don’t keep your solution a secret and share!
solidarityhealthshare DOT org
My wife and I pay $299/month. Also annual $75 fee. Membership or administration, I forget. We face $1000 deductible (per family) each year. Basic wellness visit is covered 100%. I’m a 2 time cancer survivor – 20 years out. I have a monthly prescription ($50) that is not covered. (No Rx coverage).
Solidarity has an affiliation with my church.
There are anecdotal studies where $M are paid out.
I don’t believe some of those “sharing” plans are going to hold up if you ever get hit with something super catastrophic. I simply don’t believe their pockets are deep enough, and I’m not willing to risk that.
People need to understand what those plans really do. They are very profitable for the firms who offer it because of the time limit involved. If something catastrophic were to occur, they do NOT have to cover it on renewal. Most of these plans are, as the name implies, very short term in duration. They can deny you coverage on renewal which makes the plan pretty much a waste of money. Yes, the ACA plans are too expensive with absurd deductibles (I have a family of 4 and 3 of us are covered by a ACA plan – the other is on a much better plan offered by her University) but the downside to the short term plans can be horrific. Sorry, to post on this numerous times. People absolutely need to understand the risk they are taking with these types of arrangements.
I pay over $1400 a month for 6 people on a silver level HSA. This is currently my largest expense besides mortgage. Granted it helps that its a write off from a business owner’s perspective but that really only saves you about a third. I did the HSA for 3 reasons. 1. On the off chance we don’t actually spend it all I will have money left over to invest. 2. The “All In” price (deductibles, prescription, max OOP) between the gold and silver level plans was not significantly different. I tend to compare these at open enrollment by first assessing worst case scenarios. Finally #3. As a Business Owner only premiums are deductible. However, with an HSA you get to filter that money into a usable account for you deductibles and avoid paying taxes on it. With a non HSA plan its all money post tax money for deductible.
When I first started working for myself in 2012 my family health plan was $385/month and never once did I have to come out of pocket for anything that whole year. Its ridiculous, but I firmly believe Obamacare was designed to fail to get us on a single payer system. I think they were relying on the greed of industry to help them champion the single payer cause, and its working, I for one feel so ripped off by the ACA that I would welcome a medicare for all or some form of single payer, the main reason is fairness. Instead of ONLY non-subsidy people paying for others subsidies everyone will need to share the healthcare burden.
Anyone who feels guilty should simply give whatever funds they think they should pay to their favorite charity. I am a small government type, and I think that you doing the choosing for the charity will have a better result; atleast from your perspective.