How We Signed Up for Health Insurance through the Affordable Care Act
Healthcare is no longer tied to your job in the United States. Anyone can get healthcare in our country and you don’t have to go through an employer to do so. This hasn’t always been the case and I, for one, rejoice in the system that makes this possible.
This is a system that goes by many names: the Affordable Care Act, the ACA, Obamacare, the Health Insurance Marketplace, a dream come true, etc. I’m going to use the acronym ACA throughout this article, but know that all those other names mean the same thing. Prior to the passage of the ACA, folks in the US were pretty much out of luck if their employer didn’t offer health insurance.
Now, folks are very much in luck if their employer doesn’t offer health insurance: they can sign-up for affordable heath care through the ACA. Hooray!!!! The ACA is/was a boon to the FIRE (financial independence/early retirement) movement as it enables many of us frugal weirdos to leave our jobs and venture out on our own: to full early retirement or part-time work or meaningful, independent ventures.
The ACA enables entrepreneurs to start their own businesses, work for themselves, or pursue creative outlets without the fear of not having health insurance. Thanks to the ACA, everyone can have health insurance. Yay!
Our Journey to the ACA
When my husband (Nate/Mr. FW/all-around nice guy) retired from his job, one of the biggest shifts was to our health insurance. Previously, we relied on the insurance his employer provided for our family. Thanks to the ACA, we knew we’d be able to find insurance for ourselves out on the market after he left his job. I continue to work for myself as a writer because I love what I do, but as a solopreneur, I do not have employer-sponsored health insurance.
When our employer-sponsored health insurance ceased at the end of calendar year 2021, you all clamored for a write-up on the ACA.
And so, here it is. The challenge with this write-up (and any individual account of navigating the ACA) is that signing up for the ACA varies by state. Yep. Every single state has a different website, different costs, different plans, different calculations, and different health insurance. So while I can write about our experience here in Vermont, to say that your mileage will vary is putting it rather mildly.
Your experience with the ACA will be impacted by:
- Where you live
- Your age
- Your dependents
- Your income
Given all of that, unless your situation miraculously mirrors mine here in rural Vermont, you’re not going to be able to follow my exact steps. You’re going to have to do your own research in your state for your own circumstances. But all is not lost! There’s a lot we can learn together about how the ACA operates at the federal level. So let’s go on an ACA journey together!
How To Sign Up for Health Insurance through the ACA
Step 1: Figure out your MAGI
Not to be confused with the Magi of frankincense and myrrh, MAGI stands for Modified Adjusted Gross Income (you can see why they stick with the acronym… ). Your MAGI determines how much you’re going to pay for insurance through the ACA and whether or not you’re eligible for subsidies. MAGI can be challenging to calculate because it’s predicated on the “expected household income for the year you want coverage, not last year’s income” (healthcare.gov).
If you have stable, predictable income that’s unlikely to change year to year, your MAGI is easy to figure out: it’s going to be the same number it was in the last tax year. On the other hand, if you work for yourself or in a field with variable income (that’s me!), it’s a lot harder to calculate your MAGI because what you made in the last tax year may not be anywhere close to what you’ll make in the next tax year. If you’re in that position, you’re going to have to figure out a reasonable estimate of your MAGI since you can’t be certain what you’ll earn in the next tax year.
Healthcare.gov is the government website for the ACA and they have an entire section dedicated to determining your MAGI. They also offer this yearly income calculator. Another good source is Investopedia’s overview of what MAGI is and how to calculate it.
My family’s 2022 income stems from two sources:
- My part-time writing work (hi! I’m doing it right now!)
- Our rental property (in Cambridge, MA)
Based on our income and expenses from previous years, we calculate these two sources will cover our monthly expenses. However, it’s not a problem if they don’t. In that scenario, we’ll dip into our liquid savings, after which we’ll enact a very low percentage drawdown from our taxable investments. This is standard operating procedure for funding a stable, longterm early retirement—in other words, to ensure you don’t run out of money before you die. Wondering if you’ll run out of money before you die? Check out this nifty calculator.
Did anyone note that I mentioned tracking expenses? I KNOW I DID! You all are so tired of hearing me say it, but you’ve got to know what you spend. I use and highly recommend the free expense tracker (and other money organization tools) from Personal Capital (affiliate link). But I digress…
Q: What if (after all that number crunching) I miscalculate my MAGI?
A: It’ll all be sorted out at the next year’s tax time.
If you grossly underestimate your MAGI (as in, you end up making a lot MORE money than you anticipated), you may have to pay back any subsidies you received for your ACA insurance. And if you grossly overestimate your MAGI (as in, you end up making a lot LESS money than you anticipated), you might get money back in the form of a tax refund.
FIRE Side Note: Sculpting Income
For folks who are FIRE: you will want to exercise your ability to sculpt your income when determining your MAGI. To a certain extent, FIRE folks with investments (but without predicable income) can control how much income they realize in a year.
You’ll have to accurately calculate how much income you need to realize in order to have enough money to live on for the year. The basic principle still applies: the less money you spend in a year, the less income you’ll need to realize from your investments and the cheaper your health insurance will be.
If you decide to draw down a lot of money from your investments in a year, you’ll pay more for your insurance. If you decide to live on less and draw down less from your investments, you’ll pay less for your insurance. Justin over at Root of Good has this oldy but goody on how he calculated his family’s MAGI post-early retirement at age 35.
This also plays in (slightly) to our decision to pay off our mortgage prior to Mr. FW’s early retirement. Without a mortgage payment, our monthly expenses are lower. If we still had our mortgage payment, we’d have to draw more income from our assets in order to cover it, which would increase our overall MAGI. We had other reasons for paying off our mortgage–all outlined in this post–but MAGI in the context of health insurance is another one to consider for folks planning to FIRE.
Step 2: Create an Account on Your State’s ACA Portal
Now that you have your MAGI in hand (or on spreadsheet), it’s time to locate your state’s ACA website portal. Every state administers their own ACA system (thank you, federalism), so you’re going to have to find your state’s specific site. Healthcare.gov has this handy rundown of links to every state’s website.
Step 3: Find and Compare Health Insurance Plans and Subsidies
It’s time to retrieve the list of health insurance plans available in your state and their corresponding subsidies.
Subsidies through the ACA are, for the most part, calculated as a percentage of the FPL (federal poverty level), on a sliding scale.
The oversimplified rule of thumb with the ACA is that the more money you make, the more you’ll pay for health insurance. The less money you make, the less money you’ll pay for health insurance.
Again, remember that it’s based on the income you predict you’ll have for the year you’ll be covered by the ACA, not on your income for the previous year.
Plan comparison is probably the biggest pain in the eyeball in this whole process. Every state is different, every plan is different and they all have ridiculous acronym-riddled names that sound like sci fi characters. BUT, you can do this! You too can spend hours of time reading through plans to determine the best one for you and your family. Maybe bake yourself a cake after you’re done.
Before digging into specific plans, you’ll want to familiarize yourself with the vocab, all of which I have to google every time I interact with the health care system. Healthcare.gov knows that we are confused and so they have this helpful glossary of terms. I’ve copied and pasted the most germane items for our discussion below.
Health Insurance Glossary (copied from Healthcare.gov):
Copayment: A fixed amount ($20, for example) you pay for a covered health care service after you’ve paid your deductible.
Deductible: The amount you pay for covered health care services before your insurance plan starts to pay. With a $2,000 deductible, for example, you pay the first $2,000 of covered services yourself. After you pay your deductible, you usually pay only a copayment or coinsurance for covered services. Your insurance company pays the rest. All Marketplace health plans pay the full cost of certain preventive benefits even before you meet your deductible.
Out-of-pocket maximum: The most you have to spend for covered services in a year. After you reach this amount, the insurance company pays 100% for covered services.
Cost Sharing Reduction (CSR): A discount that lowers the amount you have to pay for deductibles, copayments, and coinsurance. In the Health Insurance Marketplace®, cost-sharing reductions are often called “extra savings.” If you qualify, you must enroll in a plan in the Silver category to get the extra savings.
Premium: The amount you pay for your health insurance every month. In addition to your premium, you usually have to pay other costs for your health care, including a deductible, copayments, and coinsurance. If you have a Marketplace health plan, you may be able to lower your costs with a premium tax credit
Coinsurance: The percentage of costs of a covered health care service you pay (20%, for example) after you’ve paid your deductible. Let’s say your health insurance plan’s allowed amount for an office visit is $100 and your coinsurance is 20%. If you’ve paid your deductible: You pay 20% of $100, or $20. The insurance company pays the rest.
If you haven’t met your deductible: You pay the full allowed amount, $100.
Subsidized Coverage: Health coverage available at reduced or no cost for people with incomes below certain levels. Marketplace insurance plans with premium tax credits are sometimes known as subsidized coverage too. In states that have expanded Medicaid coverage, your household income must be below 138% of the federal poverty level (FPL) to qualify. In all states, your household income must be between 100% and 400% FPL to qualify for a premium tax credit that can lower your insurance costs.
You may notice that “400% FPL” shows up a lot in these definitions. The FPL (federal poverty level) is a metric set and utilized by the government. In this context, where your income falls on the FPL scale impacts the subsidies you receive. For example: in 2022, 400% FPL for the 48 contiguous states for a family of four is $111,000. What this means is that if you make under $111k per year, and are a family of four, you will likely be eligible for subsidies for your health coverage. The American Council on Aging has this helpful chart outlining FPL at various different percentages and family sizes.
Step 4: How Much Health Insurance Do You Need?
There are two ways to think about the type of plan you’ll need:
1) How much healthcare do you anticipate needing during the year in question?
This might sound impossible to answer and, to a large extent, it is. But there are things you can know about your situation that might help guide your selection:
- Do you (or anyone else on the plan) have a chronic/recurring condition that’s likely to require frequent health care?
- Do you (or anyone else on the plan) intend to become pregnant?
- Do you (or anyone else on the plan) have upcoming elective health care needs (for example a hip replacement)?
If you anticipate using a lot of health care in the coming year, you may want to select a plan with higher monthly premiums in order to reduce your out of pocket max.
2) Do you have the money in the bank to cover a high deductible plan?
If you do (and this applies largely to folks who are FIRE), selecting a high deductible plan could dramatically lower your monthly premium costs. You have to be 100% certain you can cover the deductible in cash (this is why I harp on the importance of emergency funds), but if you can, this can be a great way to save a ton of money every month on your premium.
Typically, if you select a plan with a high monthly cost (premium), your deductible will be low. Conversely, if you select a plan with a low monthly cost (premium), your deductible will be high. This is an oversimplification and there’s a lot of nuance within each plan, but this is often the basic formula for how you’ll pay.
Helpful resource: the Kaiser Family Foundation has this Health Insurance Marketplace Calculator with a robust “notes” section at the bottom.
What Plan Did We Choose?
We ended up selecting the BCBSVT Vermont Preferred Silver 87, which provides a subsidy for our monthly cost as well as our co-pays and deductibles. On this plan, we pay $52 a month for two adults. Coverage for children varies wildly by state and Vermont automatically covers all children for free if you are under 400% FPL (there’s no other option). In general, it seems that if your income is under 400% FPL, it will probably make sense to get a Silver CSR plan if you qualify.
Step 5: Give Yourself Plenty of Time to Research
Signing up for coverage through the ACA is more complicated than clicking a few buttons on a drop-down menu, so you want to give yourself plenty of time to read through the different plans offered by your state.
Mr. FW helmed this research project for us and he estimates it took him almost 3.5 weeks to fully read through, research and select a plan. But, our circumstances are particularly complicated due to our rental income from another state, our non-W2 variable income, and his early retirement. If you have a less complex financial profile, it should be much easier for you to navigate.
While it was complicated, we hope that most of this will be a one-time complication. Now that we’re set up in the system and have figured out all the things, renewing for the next year shouldn’t be much of a hassle (theoretically… ). And while it’s a hassle, it’s an amazing thing. There was a time not too long ago when you could not get decent health insurance for any price, let alone for a good price! Hooray for the ACA!
Step 6: Keep a Log of Interactions
Mr. FW found it immensely helpful (and necessary) to take careful notes and document each interaction he had with the system. He created a spreadsheet to log calls with representatives (date, time, reference number, their name) as well as any time he input information into a website. You are dealing with a ponderous bureaucracy and it’s wise to be your own advocate and record-keeper. He found a number of instances where having a record of interactions saved both time and money.
Summary of how to sign-up for healthcare through the ACA:
- Figure out your MAGI for the year in which you want healthcare coverage.
- Find your state’s ACA portal, create an account and plug in your numbers.
- Read through the plans and subsidies your state offers.
- Consider your financial picture and healthcare outlook to determine whether you’d rather pay more monthly (in premiums) or pay more to meet a high deductible.
- Take careful notes and keep a log of all your interactions with the system and customer service representatives.
- Give yourself plenty of time to do your research.
- Look for a healthcare navigator if you want assistance in selecting a plan.
- Bake yourself a cake to celebrate successfully signing up for health insurance!
Do you use the ACA? What advice do you have for people navigating it for the first time?
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