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Do the health insurance math

By Jennie L. Phipps · Bankrate.com
Sunday, June 1, 2014
Posted: 6 am ET

The Patient Protection and Affordable Care Act, or ACA, adds a new wrinkle to the retirement planning decision to take Social Security before full retirement age.

The decision to take Social Security before age 65, when Medicare is available, can be tricky and have both advantages and significant financial penalties under the new law, according to a recently released study by the Government Accountability Office.

The study examines when and why people choose to take Social Security before full retirement age. It concludes that of the 4.2 million people who claimed Social Security before they reached age 65 during the period studied, nearly 1 million lacked any kind of government or private health insurance. Of those:

  • Some 58 percent qualify to buy health insurance through the insurance exchanges and receive tax credits to help them pay for it.
  • Fourteen percent are potentially eligible for Medicaid in the 26 states and the District of Columbia that are expanding eligibility under the ACA.
  • Another 10 percent live in states that didn't expand Medicaid. People between the ages of 62 and 65 generally don't qualify for Medicaid in those states since they normally don't have children under 18. This puts them in an insurance black hole because they can't get reduced premiums under the ACA.
  • Nineteen percent can almost certainly buy private health insurance, but they make too much money to qualify for any tax credits and they'll have to pay the full freight, which can be expensive.

The average premium for a 62-year-old non-smoker in 2014 for the second-lowest cost average quality Silver plan was $583 a month before any tax credits. The state with the lowest premium was Minnesota at $347 per month, and the most costly state was Connecticut at $946 per month.

People with incomes between 100 percent and 400 percent of the federal poverty level would qualify for tax credits that reduce their total costs to between 2 percent and 9.5 percent of their income.

Bottom line: People who don't have insurance and who don't qualify for much of a tax credit should do the math before quitting a job that offers health insurance to claim Social Security early. They might end up spending a significant amount of their money on insurance premiums. This is especially true for smokers because under the ACA, smokers pay as much as 50 percent more than nonsmokers.

On the other hand, the availability of health insurance to people of all ages -- thanks to the ACA -- gives those who would like to quit working and claim Social Security early an insurance option that probably wasn't there before, says Charles Jeszeck, director of education, workforce and income security for the GAO.

"The decision to take Social Security is a complex one and it is going to be different for different people, depending on their own health situations and their employment situations," Jeszeck says. "This is something that people will have to give careful thought to."

Is Obamacare encouraging you to retire early?

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