Why Healthcare Before 65 Needs Tax Planning

0:00When you look for insurance, if you pay less, you're getting less, if you pay more, you're getting more, whether it's through Cobra, whether it's through Affordable Care Act, or even in Medicare. Welcome to the Retire on Time podcast. I'm Mike Decker with David Francer from Kedrick Wealth. As always, text your questions to 913-363-1234. And remember, this is not financial advice. We're here just having a conversation. Do your research, continue to explore. All of that is good. This show is about getting into the nitty gritty, though. So hopefully you enjoy, David. What have we got today? Hey, Mike, how do you plan for health care if you retire before 65? Yeah. So if you retire at six years old, the simple answer is like, well, maybe Cobra can take you through, not going to last long enough. Yeah. Cobra, 18 months, 18 months, and it's generally pretty pricey. Well, your employer's paying that. So say thank you to your employer for paying an armoured leg for health insurance, because health insurance continues to get more expensive. But no, so what you basically have is Affordable Care Act

1:03insurance, or the insurance alternatives, like, what's that Christian ministry's health care? It's not actual insurance. It's like their shout out to them. I guess they're not paying for us to say this. We don't accept endorsements or any sort of backend deals for this show. It's pure advice, not advice. It's pure commentary. It's our opinions. But but the their whole structure is saying it's traditional health care or what insurance was supposed to be and helping each other's burdens. So everyone's paying into a pool. And then what you do is you you have to send your medical costs to them and you can get reimbursed. So those who are retired, like, they have all their money, like, you need to have your money. Available to you so that that can work. A 20 year old who maybe can't pay out a pocket for their medical expenses and then submit a reimbursement, that might not be a good fit. Right. You know, everyone's going to be different. So I guess 20 year olds do catastrophic

2:06insurance anyway. So maybe they're just living on the edge. Yeah. When you're young like that, you can live on the edge more. But anyway, so retirement, you're really going to boil down to affordable correct insurance. You're trying to bridge a gap from age 60 to 65. Yeah. Or 55 or whenever you retire to 65 years old. So here is here's what I like to point out. One is if you want private insurance, great. You're going to pay for it. It's expensive. Affordable correct isn't necessarily supposed to be discount insurance. It is forced insurance. Just hear me out on this. Yeah. Yeah. Explain what you mean by that. So affordable correct. I don't think made insurance affordable. I think it made it to where the insurance companies had to figure out what can they offer and what can they not offer to be able to be to in this open marketplace where they can't deny you. They can't do back checks on any of it. It's either if you want the policy at

3:10that rate, they have to give it to you. And that's a tough situation because insurance is supposed to be that they can deny people because they're unhealthy. So any insurance company can have an arbitrary very expensive patient or client or policyholder. Yeah. So the pricing that is low, they're forced to try or they're supposed to try to make it affordable, causes them to have maybe less coverage, maybe not as good benefits and so on. So accepting that reality for just a moment. Yeah. Okay. It's it's going to be a disappointment. It probably maybe it's not a disappointment. I shouldn't just suggest that. But you might not be as happy with it. Sure. So and a lot of these major subsidies have gone away, which is also a problem for a lot of people. So whatever happens in the future, I don't know. But right now from 60, let's say to 65 years old, to bridge that gap. You want to make it as affordable as possible in tax planning. So

4:19if you're 55 years old and you're preparing to retire at 60 years old, you may want to make make sure that you've had enough saved into your brokerage account because if you can take your income from a brokerage account and keep your long-term capital gains low, they can qualify or get as close to the federal poverty line as possible based on your taxable income. So that you are getting still a discount. The subsidies still exist. They're just not as kind or not as generous as they used to be. So it's it's not about not having insurance or trying to find a workaround. There really isn't a workaround. I mean, people are going to make arguments. Well, you could do this. You could do that. Yeah. You could start a business and then have your business pay for it, but those are going to be expensive anyway. And you're basically on affordable care act anyway. You could try to work out some deal of part-time work and get, but you're still working now. So if you truly want to retire, you're going to be on affordable care act. That's kind of it. Unless you were like a partner of a firm and your pension is paid as a partner, like there

5:21are some exceptions to the rule. But generally speaking, it's a affordable care act. If you're on affordable care act, your tax planning between those years, not doing high rate or Rothkin versions, that's going to cause you to pay more in health care, not maybe taking Social Security on earlier because Social Security is taxable income. If you could do it through long-term complications, you're just going to you're more set up for a potentially better rate. Okay. So it's planning for it is understanding the gold, silver, and bronze plans. So it's kind of the different levels of what they are. It's understanding what services are offered and what services are not offered. It's understanding which doctors are still accepting it and which ones have gotten rid of it. A lot have gotten rid of it. And then it's understanding what will your taxes look like for your income during those years to then affect those premiums. Now you pay it. And there are some people who maybe out of the married couple only one of the two have retired. So if you're in a fortunate spot where I'm retired with my wife isn't maybe she can maybe

6:25you're just on her policy from work, right? Yeah. Or maybe you just skip around with work. Maybe you work for six months and then stay on their cobra for 18 months. All right. And then you get another job or re-employ with them as a consultant or some sort of contract work that you can negotiate maybe certain things. I mean, could you could you what if you had like a what if you'd been contributing to an HSA for a long time and you had a big balance in there. Could you sort of roll the dice and just live off that for five years? Like if you had a medical expense come up just swipe your HSA card or is that risky? I mean, you could you could pay the higher benefits or the higher premiums too from your HSA. But you still have to have some sort of health care. It's just understanding which ones are what. And insurance it's insurance is not evil. A lot of us want to believe that insurance companies are evil.

7:27When you understand the financial mechanics and the risk management that they have to go through the actuarial predictability, it's not evil. It's probability. And you're not reduced down to a number because you have no value. You're reduced down to a number because they have to look at a lot of numbers. Yeah. A lot of individuals and then look at probability. It's not mean it's solvency. Right. They have to be profitable. You don't buy health insurance and then say, I plan to get cancer next year. I really want to have a brain tumor and have very expensive surgery. I would love to fall into a fire and burn my entire body. No one's planning for this. But when it happens, it's extremely expensive and it's a burden to the insurance company. So they're going to say, okay, well, how many of the, I don't know, let's say 100,000 people on this policy are likely to get third-degree burns all over their body. And then what's the average cost for that? And how do we price that in? How many people are going to get cancer and all the different

8:31types of cancer that are out there? Right. I mean, the Super Bowl had all these blood tests, screams you for cancer. And that was a one in six. Anyway, all these cancer statistics that are out there, it's just, it's nuts. They have to price that in because if more money leaves the insurance company that stays in, then everyone was buying something that was going to go belly up. Insurance has to stay solvent. And the comments would probably stay stuff like, yeah, but they're so profitable and there's this. And the CEOs are there making these massive paychecks. Yeah, they are. They're being compensated for the effectiveness of their job. Whether you agree with it or not, doesn't matter. And I'm not trying to be harsh about it. I'm acknowledging that a CEO of an insurance company has to make very tough decisions to keep that company profitable in a life for all of the policy owners that are there. And if you're complaining about it,

9:35chances are you don't know what you're talking about or don't know enough about it. And I, you know, you read the comments, you hear the stories. Well, they, they screw me over on this or that they're going to make mistakes. Insurance companies are absolutely going to make mistakes. And I'm not here defending insurance companies. I'm just explaining that it's that you're transferring risk to an insurance company. The odds are not in your favor. And if they are in your favor, they need to make sure that the payout is what they calculated in there that it meets certain criteria. It's not evil. It's just the definition of insurance, the transference of risk. Is that, am I crazy to say this? I think this is a good little dose of reality or sort of setting expectations or kind of, yeah, because the sentiment is though, yeah, that all insurance companies are evil. I would agree with that. Yeah, it's, but yeah, why? People don't like other people making lots of money. I think that's, if we boil it all down to, it's that we don't like CEOs to make multi-million dollar contracts and or multi-million dollar salaries and all these

10:39things because the average person is, is not. Yeah. But this is going to be, I'm just going to rip apart the comments on this. Like, you know, the Bible, okay, they have the parable of the talents. Yeah, I've heard of that. Yeah. I've never heard someone complain, okay, the one talent buries it and the person, what was it? The Lord and the examples like, you know, hey, you know, forget you, I gave you a talent and you did nothing with it. Yeah. And the person that had what, three talents, you know, two talents gets four or the five talents gets 10. Yeah. Why is he getting 10? Why don't you take the profits and distribute it evenly because the person had more talents got more back. And so they're given more talents to keep that growing. If you can walk into an office, any office place, and you're totally different conversation now than the original question, but hey, there you go. But if you walk into a certain place, okay, and you're able to multiply the effectiveness than anyone else, then you're going to move up

11:46the ranks. That's what those CEOs are. It's to multiply the effectiveness through their skill set. Right. So when, when, when you look at a healthcare CEO and you see their large payouts, instead of saying that's greed, and sometimes it could be greed. I'm not excusing them of some shady things that happen in healthcare. Yeah. I'm not excusing the shady things where they're using AI and how to cut out people's benefits. There are some shady things that happen. I do not disagree with that at all, and hopefully Congress can hold those situations and those companies accountable for those, those bets. But I would rather have a CEO of an insurance company make a lot of money and keep that company solvent than an inexperienced individual for less money. And they end up bankrupting that company for some poor decisions. Right. Yeah. So there's a reason why those CEOs are getting paid most of the time.

12:47The board is recruiting the person that's going to help them increase. And it's not just the publicly traded companies. The same thing happens to the mutual companies. The ones that are not publicly traded, but are still mutual insurance companies. The policy owners are the ones that technically own the company, and so on. So check yourself before you accuse. Yes, there are shady things that happen. Yes, greed is a human emotion, but it's not all bad. There's a reason why certain people are paying certain certain positions, certain amounts. Insurance is not necessarily evil, though there are evil things that happen. When you look for insurance, if you pay less, you're getting less. If you pay more, you're getting more, whether it's through cobra, whether it's through affordable care act or even in Medicare, Medicare gap plans or advantage plans, it's just money in and how much could you potentially receive hoping that never, never actually need it. Yeah. Do you think I missed anything there? Well, you covered it all there. That was a wide spectrum of commentary. Yeah. There you go. As always, retireontime.com

13:54is a nut bunch of resources for your retirement. Go there to enjoy that, and last but not least, appreciate your spending your time, your most precious asset with us today. We'll see in the next show. We'll see in the next show. We'll see in the next show. We'll see in the next show.