Wednesday, January 15, 2014

Social Security and Pensions in the Age of Obamacare

How does Obamacare change how we view Social Security?

In an earlier posting, I mentioned that, if you do the math, you end up collecting more from Uncle Sam, on average, if you collect Social Security at an earlier age than later.   Sure, you'll get a bigger check at age 70 than at age 62 - but you'll get fewer checks, if you live to an average age.

However, some things have changed since then, and one of them is Obamacare.  I am not against Obamacare and still hope that its worst parts can be fixed.   But it has a lot of problems, to be sure.

And one of them is the fact that it puts a lot of people in the USA who were formerly middle-class people, "on the dole" so to speak, in that they are now getting subsidies from Uncle Sugar to pay for their inflated Obamacare premiums.

Take Sam (not his real name) who makes $45,000 a year.   Not bad for a single man, considering median household income in the USA is $51,000 or so.  Sam lives comfortably and works, at age 62, but qualifies for Social Security.

His conundrum is that his employer just dumped their health care plan, which forced him to sign up for Obamacare.   He is not bitter about this, as the employer gave him a raise to compensate for the lost premiums.   And with the Obamacare subsidy, he comes out slightly ahead.

Problem is, if he starts collecting Social Security at this point, it would raise his income to the point where his subsidy might dry up.   At his current income, the cost of health insurance works out as follows:

Household income in 2014:   392% of poverty level
Maximum % of income you have to pay for the premium, if eligible for a subsidy:  9.5%
Health Insurance premium in 2014 (for a silver plan, before tax credit): $7,284 per year
You could receive a government tax credit subsidy of up to: $3,009 per year
(which covers 41% of the overall premium)
Amount you pay for the premium: $4,275 per year
(which equals 9.5% of your household income and covers 59% of the overall premium)

However, if he decides to collect Social Security (which for him, would be about $18,000 a year) his income would go up to $63,000 a year.  His health care costs would go up, as his subsidy goes to zero:

Household income in 2014: 548% of poverty level
Maximum % of income you have to pay for the premium, if eligible for a subsidy: None
Health Insurance premium in 2014 (for a silver plan, before tax credit): $7,284 per year
You could receive a government tax credit subsidy of up to:$0 per year
(which covers 0% of the overall premium)
Amount you pay for the premium: $7,284 per year
(which equals 11.56% of your household income and covers 100% of the overall premium)

Note that as a result, the amount he spends on healthcare increases, both in real terms and in terms of percentage of overall income.   If he doesn't really need to collect Social Security, he might be better off waiting until at least age 65 - when medicare kicks in - as he would get a bigger check from the Social Security Administration, and also pay less in health care costs overall.

This is an interesting conundrum, and illustrates another unintended consequence of government regulation, specifically, Obamacare.   I doubt anyone thought of this scenario when they were crunching the numbers on this.

He also has a small pension, but can opt to collect it at a later age.   Again, if he collects it now, it knocks his income up a notch (into a higher bracket) and knocks him out of Obamacare subsidies.  If he collects it later, he gets a larger pension check every month, and in the interim, gets a nice subsidy under Obamacare.  If he doesn't "need" the money now, it makes sense to collect it later - and live off the government for now.

This is the math we are forcing people to do.

One could make similar arguments for those further down the economic pyramid.   If you are among the working poor, you might be able to collect a full subsidy for Obamacare, as well as food stamps and other assistance programs.   Collecting Social Security "early" (at age 62) might jack up your overall income to the point where you no longer qualify for these programs.  If you can live on less, you get more swag from the government.  These are disincentives to earning money!

* * *

As a side note, you may be among the thousands of people getting cancellation notices on your old policy, or finding that BCBS has no record of your check for your first month's premium under a new Obamacare policy.  The health care companies are overwhelmed with new applicants, and are losing premiums and letters.   Expect to spend an hour on hold, just to talk to someone.   It is really a nightmare.

I have a "legacy" plan with BCBS that should not have been affected by Obamacare.  BCBS has been sending me "cancellation" notices saying I never paid my premium for December, when my bank account shows it was debited.  I called and was put on hold for 40 minutes - only to be told I needed to talk to billing.  I was on hold for 30 minutes before I gave up.

I tried using their messaging system on their website and it wasn't much help.  They claim my December premium was "reversed" (it was not - at least not to me) and that a new bill for the new higher amount will be sent.   No word on January's ACH debit.  The new BCBS computer system appears to have dumped the entire automated billing system data in the trash bin.

It is a freaking nightmare and they are at least 30 days behind in billing - but the computers keep kicking out cancellation notices.

My friend "Sam" above has paid his premium under Obamacare twice - first online and then with a physical check mailed on December 15th.   The check was finally cashed yesterday, but he still has no insurance cards - but a stack of nasty letters dunning him for the payment he has sent twice now.

Maybe it is time to look into Humana.  I dunno.  The whole thing is a mess - perhaps by design.

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