Friday, November 1, 2013

Obama Care and the Entrepreneur/Early Retiree

Mr. Money Mustache has an interesting post on the effects of Obama Care on his budget.  Setting aside whether you think Obama Care is right or wrong you have to admit that if you are considering taking a financial risk as an entrepreneur or considering starting retirement early you are going to be pleased.  MMM retired at 30 on an income of about $25K/yr which he's able to draw from his savings using what is known as the 4% rule.  If you draw no more than 4% of your savings it is expected the money would last you forever.  If you think you'd need $25K you'd need to save $625K.  He gave himself a bit of a cushion and saved $800K.  He'd eliminated his mortgage debt, so that's a big help towards a goal of lower income needs.  And with more time available he's able to cook, ride his bike, and do other things the time strapped sometimes struggle with and this allows him to survive on little.

He had a high deductible health care plan prior to Obama Care.  But now if he had continued to have an income of $25K/yr in Colorado his plan would be completely subsidized.  Turns out he's making money from his website and other things, so he's earning too much to qualify for a subsidy, but others that plan to retire early in the way he did when he was 30 would be all set.

This is a truly freedom enhancing prospect for a lot of people.  Years back I'd mentioned in a comment that I always thought it would be kind of cool to hike the Appalachian Trail.  But that's a several month long project.  You'd have to either go without health insurance or buy a plan yourself, which of course is expensive.  And if you had a hard time getting another job after finishing you could deplete the savings.  It wouldn't have been impossible for a guy like me, but this makes it easier.

As some commentators might point out, you can hike the Appalachian Trail and work for yourself.  While that is true starting out in that way though is financially risky.  If it works out and you're making plenty of money, then great.  If not then you now have to deal with the insurance problem once again.  Obama Care basically says that if your business venture fails you still have health care without breaking the bank.  That's pretty cool.

I suppose you don't want to be residing in any of the 26 states that are refusing Medicaid expansion.  So if you early retire choose your place of residence carefully.


Chad said...

JC - I was trying to follow the math. They pay $460 month plus have a $5K deductible - is that correct? Meaning the cost of that families healthcare is $5,520 + $5,000 deductible so $10,520 is what they pay each year in health care assuming they go to the doctors or need that much care then after the deductible is fulfilled they get 'free' healthcare?

Did I follow that correctly?

Where does the subsidy come in exactly here - what do they get back?

Jon said...

Take a look at that chart that shows "Annual Insurance Cost After Subsidy." He's looking only at the monthly premium cost. $460/month is $5520/yr. None of that is covered if the income is high but as he gets closer to an income of $25K it drops to zero.

You're right though that you're still on the hook for the deductible, so you'd pay nothing if no doctor visits were required, but if they were you'd pay the first $5K/individual $10K/family.