588 | Navigating the Evolving Health Insurance Landscape

15:45Brad Barrett:And they might have caps based on what type of coverage that you need. So again, it's one of those things where like, if you truly need to know that this is the max all pay, you know, in terms of health insurance this year, the ACA, the Affordable Care Act, the marketplace has been kind of the go-to of saying, I might pay a little bit more here, you know, even if I'm healthy, but at least I know that I'm going to be 100 % covered once I hit this number, which in most examples for, you know, individual might be around$10 ,000 a year and for a married couple around 21 ,000 a year. So just knowing that you have that max out of pocket might make people stay on the marketplace plan, pay a little bit more, even without a premium tax credit.

16:22Jonathan Mendonsa:Cody, quick question about private insurance. And I'm not sure that you would know this necessarily. But so you said there is medical underwriting to get on the plan. But now, let's say hypothetically, you do get cancer in the end of 2026. Can they toss you off for 2027? Or once you're approved, is it insurer by insurer? Do you have any sense of that? Yeah.

16:43Brad Barrett:So you really have to look at the details of like the preexisting conditions that are excluded. So even, you know, you go under medical underwriting, you're healthy. The plan could still include exclusions along the way. With that said, on average, I'll just say, you know, not as a health insurance expert that, you know, this is usually done on an annual basis during open enrollment period that, you know, once you're on a plan that you're covered through that period. But you definitely need to make sure whether it's the sharing ministries or private insurance that you read the small print of what's excluded.

17:09Brad Barrett:Another one that's really popular to be excluded in private insurance is mental, right? Like mental health type of things, whether it's going to see a mental health professional. So looking at your network, which medical providers, which prescriptions, right? There are lots of little things that you can kind of dig into the details of. But just keep in mind that if you have a pre-existing condition or you expect, hey, I have asthma, there's a certain medicine I take, et cetera, you definitely want to talk to a broker who can really dig down and say, hey, based on your exact health background, etc., this is the best plan for you moving forward.

17:41Cody Garrett:Okay, that is a great overview of our options. I really like that. So, Cody, where do we go from here as far as so I know you set up, you did all this research. Where did you go next?

17:53Brad Barrett:Sure. So this family says, hey, we're going to check out the ACA, you know, Affordable Care Act also called the health insurance marketplace. Thankfully, even though there are like dozens of different health insurance marketplace websites, because some states have their own network, you can go to healthcare.gov forward slash C dash plans. That's S-E-E dash plans. I'm sure we'll have Brad and Jonathan put that in the show notes for us. So yeah, healthcare.gov is the place to start. So this married couple, they simply type in their zip code to start. That says, okay, you're in this county. We want to make sure you're looking at the right marketplace, right?

18:24Brad Barrett:You think about kind of going to your local marketplace, your local farmer's market. This is the health insurance market based on where you live. They type in their zip code. They type in the number of household members and their ages. So again, this is a married couple, just two people, both age 60. Then you type in your tobacco usage, which may or may not apply to you. You might filter by medical providers, prescription drugs, the things we mentioned before, things that are specific to you. But most importantly in this conversation today, I am not a health insurance professional, but I love the tax planning around this, which is the cost of health insurance in the marketplace is based on, yes, your county, yes, your number of household members, your ages, but most importantly, it's based on your household income.

19:06Brad Barrett:So this has been kind of, you know, people throw this around, like it's crazy that millionaires can pay nothing for healthcare. So the health insurance marketplace, these plan prices are not based on your assets. They're solely based on your income. And the definition of that income is your modified adjusted gross income. So your modified adjusted gross income for simplicity, if you look at your tax return from last year, your AGI, your adjusted gross income, but then you're going to add, which doesn't necessarily apply to most people, but your foreign earned income tax exempt interest, maybe you have municipal bonds and your taxable brokerage account, that interest will be included.

19:40Brad Barrett:And also very important, the non taxable portion of social security benefits. So if you are claiming social security between age 62, you know, between age 62, and when you're enrolled in Medicare, you need to make sure that 100 % of your social security benefits are included in that income number. Most within the FI community are probably going to wait until 67 or 70 to claim Social Security. But just keep in mind that that modified part of AGI is really important. So when they type in their county, members, ages, household income, the next page on that website is going to say what your estimated premium tax credit is.

20:15Brad Barrett:So the premium tax credit is a refundable federal income tax credit, refundable meaning that even if you owe no taxes, you could still actually receive a premium tax credit. So you can actually owe like kind of negative, have a negative tax liability for the year, assuming that you're eligible for this premium tax credit.

20:32Cody Garrett:Okay, wait, talk me through that as far as how the refundable would work. Because my assumption would be you get a tax credit. Let's say your potential premium tax credit is$2 ,000 a month. And you sign up for a plan that costs$1 ,700 a month.

20:48Brad Barrett:Right.

20:48Cody Garrett:I would assume it would just wipe that down to zero. Are you saying you actually would get a refund of the difference?

20:53Brad Barrett:So they're only going to cover you up to the cost of the health insurance. So if you sign up for the health insurance that costs$1 ,700, they're going to give you what's called an advanced premium tax credit. So you can say, I'm going to use$1 ,700 a month toward my health insurance. So what this really means is let's say that you're eligible for a premium tax credit of $2 ,000 a month, and you sign up for the one that's worth$1 ,700, but you end up telling them that you only want to use$1 ,000 of the$1 ,700 toward your advanced credit, which means that's paid every month toward your health insurance.

21:23Brad Barrett:Okay. Whenever you file your taxes, you know, the next spring, for example, you know, there's a reconciliation of what you actually should have received for a premium tax credit versus what you used throughout the year. And the difference you can actually get paid back in a refundable tax credit. If you choose a cheaper plan, you don't just get paid extra for not taking advantage of the credit.

21:44Cody Garrett:I'm thinking of like a housing allowance or something for a military member. I'll just pocket the difference. But actually, this is very important because I suspect this is going to be really critical in the next 20 minutes is now that we have this cliff, as far as that 400 % of the federal poverty level, this is potentially catastrophic.

22:02Jonathan Mendonsa:So what you just said was you can actually elect to take a smaller advance. So I'm thinking of a scenario where I'm someone who has assets. I'm assuming my income is going to be under the 400%. But just to be safe, I don't want to take an advance. I just choose to take zero, let's just say. I'm assuming that's possible. But in my hypothetical, I'll just pay the$1 ,700 out of pocket.

22:26Cody Garrett:And then when the time comes to file my tax return, assuming that I'm under that federal poverty cliff, then I would get the$20 ,400, which is just$1 ,700 times 12. I would get that refunded on my tax return. So for me, in terms of my safety brain and also someone who has assets, that's probably how I would do it rather than having to pay back the$20 ,400 if I was a dollar over.

22:51Jonathan Mendonsa:but is that a way to i know you're going to get into this in greater detail but is that a way to

22:56Brad Barrett:think about this well here's what's challenging though let's say that instead of taking the advance credit you're going to pay out of pocket 1700 bucks a month well then you have to say okay well how do i get access to that 1700 bucks a month and how does that impact my my income because if i'm going to have to take that money out by selling securities or taking money out of a retirement account so yeah most people will say i'm going to take the advance credit based on my estimated income. And then like, let's say that my income ends up being a little over a little under, you know, there's a reconciliation.

23:25Brad Barrett:But here's the really important part. Let's just dive right into the details here. So this family, this is the fascinating part. So they don't know how this works, right? This family just goes on to the marketplace. And what they say is, okay, we expect our income based on you know, we're going to do some maybe some tax gain harvesting, maybe we'll do a little Roth conversion, I've got a little, you know, income that's coming from over here, my income from the year for 2026, we expect our income as a household to be$84 ,000. Okay. So they type that into the marketplace website and it says, Hey, based on an income of$84 ,000, you can receive up to$3 ,900 a month toward your health insurance.

24:04Brad Barrett:And they're like, wow, that's amazing. And they go, you know, they say, how much of that would you like to elect? And they say, okay, well, let's just take the whole 3 ,900 based on that income of 84 ,000. then it shows them the plans. And now the plans, it says, hey, wow, like with that premium tax credit of$3 ,900 a month, we have a lot of options. Like we can even sign up for a bronze plan for no monthly premium, for$0 premium, because that advanced credit is paying it directly toward the provider. And I pay nothing out of pocket every month. And this could be a family, for example, you know, our income is$84 ,000 a year, but we're millionaires on paper, right?

24:36Brad Barrett:Our assets are in the millions. But we just saw that with this premium tax credit, we can pay zero a month for health insurance.

24:43Cody Garrett:Sounds pretty good.

24:44Brad Barrett:So here is where this is why this whole episode happened. You know, now you're maybe 20 minutes into the episode.

24:49Cody Garrett:Yeah, I definitely want to want to keep going on. So why why are we starting this episode? But I wonder, actually, so that's an interesting

24:56Jonathan Mendonsa:one where they would get up to thirty nine hundred. That might actually depending on where they're

25:01Cody Garrett:located, like if they were located where I live in Henrico County, Virginia, a family of four plan for bronze is dramatically less than$3 ,900 a month.

25:11Jonathan Mendonsa:So I actually, in that case, if I'm like, oh, wow, you mean I get premiums for free up to$3 ,900, I would go for the gold plan in that case. So I would actually, it would change my selection, which in essence, the way that the gold plans work as far as the way that I think about it, and it might be counter to how some people think, but in essence, on most of these gold plans, your deductible is dramatically less. So in essence, you are prepaying in a sense. By paying more in premium, you're prepaying some of the deductible. So if you're telling me, okay, this premium tax credit is going to help me cover my entire premium, even up to a gold plan.

25:48Jonathan Mendonsa:And therefore my deductible is dramatically lower than it would be on a bronze plan, like a bronze plan. It could be$17 ,000 and change on a gold plan, Cody, I imagine it can be as low as a couple thousand dollars. So it might actually change the behavior of what we pick, which makes this potentially even more catastrophic. 100%. Yeah.

26:08Brad Barrett:So this family says, hey, if we're going to get$3 ,900 a month based on our income, our anticipated income of$84 ,000, let's get a much better plan for$4 ,000 a month. They're going to cover$3 ,900 and we only have to pay$100 a month. That's great, right? So here's the fun part. Fun in quotes. Yes.

26:25Jonathan Mendonsa:Dripping in sarcasm in air quotes.

26:27Brad Barrett:Yeah. Here's the scary part. I'm not trying to drive fear, but this is why you need to, even though you probably already enrolled in a plan, et cetera, you need to be very careful about what that advanced credit is. You can change the advanced credit, by the way. After this episode, you're like, oh, we better be more careful. You can go in and change the monthly amount that they pay.

26:43Jonathan Mendonsa:Month by month, you can change that?

26:45Brad Barrett:Yeah, you can change your advanced payment month by month. You just can't change your plan. You can't change. Open enrollment ended, but that doesn't mean you can't change how much per month is paid directly to the provider for you.

26:56Jonathan Mendonsa:Now, would you do that through the healthcare.gov website or through like, you know, Cigna or Anthem or whoever you had your insurance through?

27:03Brad Barrett:You'd go right back to healthcare.gov and click on your 2026 application and you can change the advance credit amount.

27:09Cody Garrett:Okay, wonderful. And now again, that doesn't mean you're not getting it if you are under that cliff because you'll get it on your tax return April of next year.

27:18Brad Barrett:Yeah. And the fascinating part about this is this is based on your income for the whole year, regardless of what happens month to month. So here's a crazy example. So they assumed their income was going to be$84 ,000. Then at the end of the year, they heard this ChooseFI episode about tax gain harvesting. And they were like, oh, I can harvest some capital gains at the 0 % long-term capital gains tax bracket. That's so exciting. And I'm sure put in the show notes that episode. But that's kind of why I come back today is saying, hey, their income was at$84 ,000 and they decided to do some tax gain harvesting.

27:49Brad Barrett:And now their household income instead of$84 ,000 is now$85 ,000. So they added$1 ,000 of long-term capital gains taxed at the 0 % long-term capital gains tax bracket. But by doing that, they just knocked themselves from 400 % of the federal poverty level to 401 % of the federal poverty level, which means they are no longer eligible for the premium tax credit at all. So their premium tax credit eligibility went from $3 ,900 a month to zero by their income actually going over literally by$1 over$8 ,600. But now when they file their tax return, if they took that full advance credit of$3 ,900 a month, they're going to have a federal income tax liability, probably unexpectedly of$47 ,000, even though their income for the year was only$85 ,000.

28:41Wow.

28:42Cody Garrett:Okay. That is unbelievable.

28:45Jonathan Mendonsa:That is absolutely... Okay. And this cliff now, Now, Cody, this came about with the, hard to say the name out loud, One Big Beautiful Bill. That's a mouthful.

28:55Cody Garrett:That was changed recently, right?

28:57Brad Barrett:So yeah, it wasn't in the One Big Beautiful Bill, but the cliff was expected to come back. Oh, that's what it was.

29:04Cody Garrett:That's what it was. Yes.

29:04Brad Barrett:What they had done previously, so affordability in 2021 to 2025, that was based on the 100 % to 400 % of the federal poverty level. But it was intended for that applicable, what they call the second lowest cost silver plan. So based on your household size, where you live, etc., the second lowest cost silver plan is kind of the benchmark for affordability. And from 2021 to 2025, it was intended for that number to never exceed 8.5 % of household income, even if your income went above the 400 % federal poverty level. So they just took away that cliff temporarily, but it was already expected to come back in 2026.

29:44Brad Barrett:And they simply didn't extend that waiver moving forward.

29:47Cody Garrett:That makes perfect sense.

29:48Brad Barrett:So now in 2026, the 400 % federal poverty level cliff is back based on your household size. And this year, if you're at 400%, it's intended not to exceed 9.96%. You can think about 10 % of household income. But you can see in that example that that's if you're right at the top of the cliff. If you're at the 400%, you're not expected to spend about more than 10 % of your income toward your health insurance premiums. But even if you go$1 over that cliff, that intention just goes away. So rather than spending maybe 10 % of your income toward health insurance, now this family, in this example, if I type in how much they had to pay back, they're paying back$47 ,000.

30:28Brad Barrett:So in this case, they just paid about 56 % of their household income toward health insurance, just being unaware of the implications of one, assuming the premium tax credits, and two, choosing a plan based on how much they were receiving in eligible advanced credits.

30:45Jonathan Mendonsa:Cody, is there a listed figure for that 400 % of federal poverty level for household size?

30:52Brad Barrett:Yeah, so I'll go ahead and share. If you go to measuretwicemoney.com forward slash choose fi all under caps, I'll put a little chart there. But I will just say briefly that a household of one, so an individual, 100 % is 15 ,650 and And 400 % is 62 ,600. For a household of two, you can effectively add 5 ,500 on the low side, and times four is 22 ,000 on the high side. So I'll put a chart on the website there. But you can see that 400 % of the federal poverty level, 400 % sounds like a large number. But for an individual, that's 62 ,600. For a family of two, 84 ,600. For a family of three, 106 ,600.

31:31Brad Barrett:So you can see that that cliff is a pretty low number. You know, if you compare that to kind of the wealth that we see in the shoes of five community, right?

31:39Jonathan Mendonsa:Are the premium tax credits, does the amount that you're eligible for vary depending on your income? If you are still below the 400%. So let's say

31:50Cody Garrett:your, your income, if you're a family of two, your income is$40 ,000.

31:55Jonathan Mendonsa:Now we know the 400 % of the federal poverty level is up to$84 ,600. But do you get a larger premium tax credit if your income is$50 ,000 as opposed to$84 ,599?

32:06Brad Barrett:Yeah. So as long as you're under the 400 % federally, the calculation of the premium tax credit is based on your household income, your family size, the federal poverty level, again, federally, and then the second lowest cost silver plan in your area. So that's the part that if you're within 100 % to 400%, Some states, by the way, they have Medicaid expansion all the way to 138. So kind of on average, you can kind of think 138 to 400 in most states. You're going to be eligible, period, from a federal level. But then based on where you live, household size, and the plans in your area, that's where it can be significantly higher or lower.

32:41Brad Barrett:And you can't just base it on the federal level.

32:44Cody Garrett:Okay. But for most of those people, and I'm sorry to keep asking clarifying questions. I think this is important. So, right, the 100 or the 138%, that's on the lower side because, yeah, you might get onto Medicaid, correct? Yes, that's right. But then as long as you're within that 100 or 138 to 400, depending on your state, that's second lowest silver.

33:04Jonathan Mendonsa:Now, does virtually everyone, I know there's no absolutes, so I never want to set it up, but does virtually everyone get a premium tax credit equal to the entire premium for the second lowest silver plan?

33:16Brad Barrett:So the way it's set up is that the second lowest cost silver plan based on your household size in your area based on your county should not exceed 9.96 % of household income after the credit. So even after the credit, you could still be paying out of pocket depending on which plan you choose.

33:33Cody Garrett:Okay, that makes sense. So I think I could continue asking further clarifying, but I think I'm going to bog us down. So let's keep moving forward.

33:41Brad Barrett:So, you know, you can see here that, you know, it's really based on which county you're at. I had an example here that if that family moves from Charleston, West Virginia, to Richmond, Virginia, to hang out with maybe Jonathan and Brad over there, you know, if they don't have a premium tax credit, they could be potentially paying, you know, 1200 bucks a month less for health insurance for a comparable plan. So it's hard to make absolutes in these episodes because this is a county by county, household by household decision. But just know that the 400 % federal poverty level cliff is a federal income tax rule law.

34:13Brad Barrett:But your actual coverage and cost is based on where you live county by county. So it's a combination of federal, state, and local decisions that you have to be considering here.

34:22Cody Garrett:To add further complications to everything. Yeah. As we're talking here, I went to that healthcare.gov slash C dash plans. And yeah, they asked you to put in your zip code. And then it's, okay, that's not good enough. Because in my case, that zip code crosses two counties. So I have to actually select my particular county, not the neighboring county. So we're talking 50 states, probably literally thousands of counties across the country. I mean, that's the complexity we're talking about here.

34:49Brad Barrett:And it makes me to think about people who own multiple doors in real estate, and they say, oh, I'm going to like, maybe I'll live in this one this year. I'll live in this one this year. Maybe which rental property you turn into your primary could be based on where you want to live from a county perspective for your health insurance. So again, not that we're just going to make decisions based on that. But so there are just a few extra little add-ons I want to mention today that the cost of health insurance, period, especially through the marketplace, is based on your age, right? So I can see an example here.

35:15Brad Barrett:I look at one example in Richmond here that the cheapest plan at age 50 for an individual is$475 a month, but at age 60 is$720 a month. So you might be thinking kind of, okay, well, how should I think about the cost of coverage every year as I get older? let's say I retire age 50, how might it increase in cost? So there's kind of two factors. One is age. On average, every year you're older is going to increase your premiums by about four to five percent. Every year? And then you, every year, every year you get older is going to add like four to five percent just based on age. Then you have to add kind of the premium growth increase based on inflation for medical costs.

35:54Brad Barrett:So kind of on average, what I'm seeing here is like, we should assume about 7 % to 8 % increase per year between age 50 and 64. Wow.

36:02Cody Garrett:Okay.

36:03Brad Barrett:Without a premium tax credit, of course.

36:05Cody Garrett:Right, right. And 64 is important because it's 65, Medicare kicks in.

36:09Brad Barrett:Yeah, that's right. So you might be asking, okay, if I'm in a place where I have to be very careful about keeping income low, because I definitely don't want to cross over above the 400 % federal poverty level, there are a few ways to keep household income low. A lot of these things we've talked about in the tax planning to enter early retirement episode. First is, hey, If you ask yourself, how do I keep my income low? First is maybe I'm going to live off of my checking and savings accounts first. So when you take money out of your checking, your bank account, there's no income added to your taxes there.

36:37Brad Barrett:Once you're out of cash from your checking and savings accounts, then you might go into a taxable brokerage account and use what we call specific identification, spec ID, which is a way to choose the specific lots. So whenever you have securities, VTI, VXUX, whatever you own, you can go in there and say, I want to sell this specific lot that has the lowest unrealized capital gain. So maybe I look at all the different purchases I've made and look at how much realized gain or loss I have in there as a percentage. And I'm going to specifically sell the lots with a lower realized gain. And of course, tax loss harvesting is great too, because that would reduce your income.

37:14Brad Barrett:The next is saying, okay, I'm going to reduce the amount of investment income in my accounts by implementing what we call asset location. So if you're getting a lot of interest income, right, in dividends from maybe some bond, mutual funds, ETFs, maybe you have CDs, you might consider, again, be careful about selling them because you might end up, you know, incurring capital gains by selling them. But maybe moving forward, maybe you're moving toward early retirement or planning to go on the ACA, you start moving your assets around kind of mentally by saying, okay, I'm going to keep my bonds, for example, in my pre-tax retirement accounts, and I'm going to keep my equities, my stocks that don't pay high dividends, right, in my taxable brokerage account so that when I retire early, I have more control over my income without being hit by a lot of my dividends, interest, and capital gain distributions throughout the year.

38:03Cody Garrett:Okay. That's very important. So that's thinking about your net worth and your investments holistically as opposed to... So for instance, let's say you want to have 20 % of your portfolio in bonds. All right. Well, like Cody's saying, bonds kick off a lot of income that is taxable in the current year. So if you can hold your bonds in retirement accounts, because right, Cody, it actually doesn't matter if it's pre-tax or a Roth account, that income, that interest income in that case would not be taxable in the current year. So that's something to consider. Again, looking in your portfolio holistically.

38:37Cody Garrett:So all things equal, if you can do that, like Cody said, now, naturally, if you're holding something that spits off income, that has unrealized capital

38:45Jonathan Mendonsa:gains, that by selling it in your taxable brokerage account, you're going to realize hundreds of thousands of dollars of gains. Okay, well, maybe that's not exactly, that's clearly not what Cody's saying. But if you can massage this at the margins, or you can make changes where there are not major tax ramifications for doing it,

39:01Cody Garrett:well, then you want to really think about the asset location for where interest and income bearing or generating securities and assets are held. I think that's really important.

39:13Brad Barrett:That's right. And the next part I'm going to say is something I really want the FI community to start thinking about. We often think about HSAs, those health savings accounts, and Roth IRAs is the last money I'll touch because we get really excited about this long-term tax-free growth, right? Roth IRA for any reason and the HSA for those qualified medical expenses that can be reimbursed tax-free in the future. But one great thing about using an HSA and a Roth IRA withdrawals in early retirement, assuming they're qualified, no penalty on them, is that they don't add income, right? They don't add income to your household.

39:45Brad Barrett:So let's say that I need an extra$10 ,000 this year. But if I sold my taxable brokerage investments, I would knock myself out of the above the 400 % federal poverty level. Maybe I take that$10 ,000 out of an HSA as a qualified reimbursement, or I take it out of my Roth IRA as just taking some of my contributions back tax and penalty free. By taking maybe a few thousand bucks out of those accounts that yes, they could have grown tax-free, but by taking just maybe a thousand or two out of that to avoid going over the cliff, you could be potentially saving yourself 10,$20 ,000 in health insurance premiums this year.

40:19Brad Barrett:So again, just keep in mind that your HSA and Roth IRA should be tactically used to control income, not necessarily just thought of as like the last spend and inherited by my grandkids someday money.

40:32Cody Garrett:I love that. Tactically used.

40:33Jonathan Mendonsa:That is a beautiful, beautiful phrase, Cody, because I think that's when people talk about having assets, having some diversity of their assets, having Roth accounts, having traditional accounts, having Roth contributions, having money sitting in taxable accounts that are even just interest bearing things, right? Like having HSA, it's because you can use this very tactically when it actually matters, right? Like, as you're saying, like the obvious advice is, okay, save those, the Roth, et cetera. Like to the end, that's the last dollar. You hear that pretty frequently, but we are now getting into the real granular aspects of how can we make a material difference, Cody, right?

41:16Jonathan Mendonsa:Like we're talking a material difference, 10, 20, 30 ,000 plus dollars in premium tax credits. If you were really smart about this. So yeah, like you referred to before, and it was episode five, 17, that we talked about capital gains, maximizing capital gains and capital gains, harvesting. That was a wonderful episode. Everybody should listen to it, but yeah, it sounds really alluring to capital gains harvest as much as you can, right? But it's really myopic to do that, especially at the margins. If it's just getting you over that premium tax credit cliff up to the max of where you can capital gains harvest, then we're only talking a couple thousand dollars of potential tax savings, but potentially losing 10, 20,$30 ,000 in premium tax credit.

41:58Jonathan Mendonsa:So that's incredibly short-sighted and myopic, but you have to know the rules.

42:03Cody Garrett:And again, And that's why you did this deep dive because everybody needs to know this. And now it's wonderful to put everything on autopilot, etc. We'd love a utopian world where we can do that. But we need to know the rules. And these are the rules. And we need to be aware of it. So, all right, Cody, this is awesome. Keep on rolling.

42:20Brad Barrett:Yeah. So we talked about taking money out of an HSA or Roth IRA. Another great opportunity is to contribute to an HSA. So we often hear about contributing to an IRA. When you contribute to an IRA, you need earned income. So you need earned income from a job, whether self-employed or W-2. But health savings accounts do not require earned income. Not only that, but all catastrophic and bronze ACA plans are HSA eligible starting in 2026. So here's a fun example. So that family, they assume their premium tax credits based on an income of$84 ,000. And then they did a little bit of tax gain harvesting that brought them up to$85 ,000.

42:56Brad Barrett:And they're like, oh my gosh, we're going to have to pay back your$47 ,000 of premium tax credits. But what's nice is they have until April 15th of the following year. So they're about to do their taxes. And it said, you're going to owe$47 ,000 in excess premium tax credits. And they go, wait a minute. We were on a bronze plan through the marketplace. We're going to contribute to an HSA. Let's say for that family, they could contribute$87 ,50. Actually, they could do$87 ,50 plus$1 ,000 per person age 55, whatever, all the catch-ups. But by making an HSA contribution, they didn't need earned income.

43:33Brad Barrett:By making an HSA contribution by April 15th of the following year, because their plan was HSA eligible as a bronze plan, they now brought their income back down to like$80 ,000. And now they don't have to pay back the$47 ,000 of premium tax credits.

43:48Cody Garrett:And what's fascinating, right? In this scenario, we're saying they made the 85, right? And the cliff was at$84 ,600. So if we're using that as an assumption, they would have only had to made a$401 HSA contribution and then$47 ,000 in tax liability goes poof. It's gone. It's down to zero, which is remarkable. So now naturally they could, if they wanted to, put the extra amount in the HSA. That's all fine and dandy. But the nice thing we're saying here is this is very tactical. Yeah.

44:21Brad Barrett:And I would say too, this is the kind of the scary part to me is that if you're going to TurboTax, if you're hiring a tax preparer who just kind of takes what you give them, like they might not say, hey, I see an opportunity that you didn't make an HSA contribution. If you said, hey, you can make a$500 contribution to an HSA and wipe out this$47 ,000 tax liability. Most tax professionals simply aren't going to notice and you're not going to bring that up to you. And you're just going to be freaking out when you get that$47 ,000 bill for excess premium tax credit. So this is something that, again, I don't want you to be fearful, but I want you to be aware that throughout the year, you have to be thinking about how you control your income.

44:59Brad Barrett:And if you elected those advanced credits, maybe go back in there and maybe adjust your assumptions. Some people are saying, well, what if my income is lower? I'll just tell you, don't worry if your income is lower. As long as you're well-intentioned with your estimates, you're going to be okay. Again, that's kind of going to the actual legal language there in the IRS. But if your income is going to be higher than you expected, please be very careful. And I'll say, I'm not accepting financial planning clients, but I'll say, this is a case where hiring a financial planner for$250,$500 for a few hours of their time to save potentially$20 ,000,$30 ,000,$40 ,000 in tax liability is probably worth your money this year.

45:38Brad Barrett:So even if you're very anti-advisor, like I can do this all myself, it might be worth measuring twice by hiring somebody for a few hours of their time to make sure that you don't, you know, don't mess this up.

45:49Cody Garrett:Yeah, don't mess it up indeed. So right, a couple of just little actionable things you said in there. So starting in 2026, all bronze plans, and you said all

45:57Jonathan Mendonsa:catastrophic plans are HSA eligible. So you just quickly Google, what's the HSA max if you're single or if it's family, and you can put up to that amount in an HSA. I know many people in the community use if they don't have an HSA somewhere else. Fidelity is when I did my research, Fidelity seemed to be the lowest cost brokerage to have an HSA. So that is personally what I chose. I'm not giving advice, but that's based on my research at least a couple of years ago.

46:26Cody Garrett:That was a great option. So these are readily available. You can open an HSA at the major brokerages. Again, I found Fidelity to be the lowest cost. I know I saw a post in our community not a couple of weeks ago. And a lot of people suggested the same. So again, not advice, but that's something to certainly consider. So yeah, that's a really, really important one. And again, going back to the very beginning of the episode is, as you said, these advances on the premium tax credit, you can always go back in and basically say, okay, no, I want to lower that or okay, I want none of it. I'm just going to take it at the end.

46:58Cody Garrett:If there's some concern that you really are going to be over as opposed to paying it back. So just something to think about, but Cody, I wouldn't have known you could do that before we jumped on. So I just wanted to reiterate those. I know we're obviously not done yet, but I really, as you know, the actionable stuff, it just, it matters to people.

47:14Brad Barrett:Right, right. And one last note on that is that even though catastrophic plans are HSA eligible, I don't believe the premium tax credit applies toward catastrophic plans. Catastrophic plans were effectively created for people who are, you know, they added exceptions for this year, but most of you listening who are on a premium tax credit or receiving premium tax credit, you're most likely on a bronze, silver, gold, platinum plan. So just keep that in mind. The last thing I want to mention is that when you're filing your taxes, if you were covered by, let's say you're receiving all your tax forms in the mail right now, this will happen next year too, when you get your tax forms is you're going to get form 1095-A, which is your health insurance marketplace.

47:49Brad Barrett:So that's going to tell you how much premiums you paid, how much premium tax credit you received. And then that's going to be entered on form 8962. So if you received a premium tax credit, if you were covered by the marketplace plan, 2025 and you're doing your taxes in 2026, make sure that you got that 1095A and that you have form 8962, which is going to reconcile that premium tax credit to ensure whether you're going to receive an additional premium tax credit that you didn't take as an advanced credit or if you're going to have to pay back some excess credits after the fact. But we've got through a lot of material today, but is there anything that you want to cover before we head out today?

48:27Cody Garrett:Yeah, we've covered a lot. So this is almost just for sport more

48:31Jonathan Mendonsa:than anything just because it's so egregious, but you had written down a couple examples of the difference of a married couple, age 60 and age 55.

48:41Cody Garrett:So you would set up this Charleston, West Virginia, the zip code 25301, but then you, you compared them to Richmond, Virginia,

48:50Jonathan Mendonsa:zip code 23219. And it is absolutely striking how different the premium tax credits can be

48:57Cody Garrett:just living in these two capital cities five hours apart?

49:01Brad Barrett:Yeah. So just in this example, for the age 60 couple, the second lowest cost silver plan in Charleston, West Virginia was about$56 ,000 a year. Wow. And the second lowest cost silver plan in Richmond, Virginia was about$22 ,000. So that's why you'll see the big difference in premium tax credits because they're based on that second lowest cost silver plan. So if you have a cheaper lowest cost silver plan, you're going to have a lower premium tax credit. So just lastly, on this example, the cheapest plan that they could get on in Charleston, West Virginia without a premium tax credit was about$31 ,000 a year.

49:36Brad Barrett:The absolute cheapest plan they could sign up for. Whereas if they lived in Richmond, Virginia without a premium tax credit,$17 ,000 a year, right? So you're looking at potentially$1 ,200 a month difference just by living in a different county across different states.

49:50Cody Garrett:Okay, so we've long talked about geo arbitrage in terms of moving to lower cost countries. But frankly, people in FI might really need to consider geo arbitrage even within the US if if this is a material difference, obviously. So again, going back to what the premium tax credit covers. So in this example, this is the same married couple age 60 in Charleston, West Virginia. So I want to ask about this. So this is the example we use the entire episode, their premium tax credit is up to 3 ,900. $142 a month. That's a$47 ,304. You've referenced a number of times. So the second lowest cost silver plan is like you said, this astronomical$4 ,646 a month.

50:32Jonathan Mendonsa:So if they elected this, they would get the$39 ,42 a month, and then they would have to pay, it looks like$704

50:42Cody Garrett:out of pocket a month. Is that right?

50:44Brad Barrett:That's right.

50:45Cody Garrett:Okay.

50:46Brad Barrett:And that's at the 400 % federal poverty level.

50:48Cody Garrett:Exactly at the 84.6.

50:49Brad Barrett:Right. Yeah. So at the end of that, so after getting the 3942 and subtracting that from that plan, they chose 4646. Yeah. So they'll pay$704 out of pocket per month, which divided into their income of 84600 is about 10%. So that's where that like 9.96 % comes in earlier, that if they choose that plan, they'll be paying about 10 % of their income toward their premiums. Okay. One thing to keep in mind, and last thing on this is those are just the premiums. That plan that they're on has out-of-pocket maximums of$21 ,200, right? So that's just the premiums before they go to the doctor. So you can see that this is, again, we're not going to politicize any of this, but I'll just say that just keep in mind that health insurance, we always talk about the biggest expenses being housing, food, and transportation.

51:35Brad Barrett:We definitely need to add health insurance to that list starting in 2026, especially.

51:40Jonathan Mendonsa:Yeah. Yeah, that is a crazy number. Just one last clarifying question on this. So again, in this example, if they have that 84.6, they can get up to$3 ,942 of premium tax credit. But you said the cheapest bronze plan is$2 ,602. Now, since they qualify for this 39.42, they can elect to get that cheapest bronze plan, correct? And that would wipe that down to zero. And that would be their health insurance premium. Is that accurate?

52:09Brad Barrett:Right. Yeah. So they would pay zero for that plan, but they wouldn't get the$1 ,300 foregone. It just goes poof. Yeah, it just goes poof. So yeah, that's the case where I think that you mentioned earlier, it's some people see their available premium tax credit based on their estimates. And they're like, oh, well, let's just get the best plan we can get for free. Then they can get hit really hard if their income ends up being higher than they expected. So yeah, a conservative approach would say, maybe I'll just take enough to get the plan I actually needed to begin with versus getting the most expensive plan I can get for free.

52:42Yeah.

52:42Cody Garrett:Okay. All right. Yeah. This is, this is really important stuff and there's no question. And then, yeah, like you said, there's still that out of pocket maximum is still very important to consider. So if we're doing five plans, we need to consider worst case scenario.

52:56Jonathan Mendonsa:Now, how many years out of 10 are you going to get anywhere near your out of pocket maximum? Probably not that many, but that's considering that you're healthy and considering that, okay, barring something catastrophic, you're not going to get anywhere near that. But Cody, we know you don't plan for best case scenario, right? You have to plan for the understanding that there's some expected value. There's some mathematical possibility that you're going to get close to that amount in some years. Now, am I in my own five plan going to calculate$21 ,200 out of pocket maximum every single year? No, I'm not.

53:28Jonathan Mendonsa:But I need to consider that there are that it's not just the health insurance premiums that there are then healthcare costs that you need to factor into your fi. These are distinct, right? Like in America, these are completely distinct things. It's not like, Oh, look, I have health insurance. Therefore everything else is free. It doesn't work that way at all. Like in my particular case, I have a bronze plan and yeah, for me and my girls, I'm, I think I'm paying over a thousand dollars and that essentially, as far as I'm concerned, is just, that's just catastrophic insurance. Because if I go to the doctor, my health insurance company doesn't pay anything.

54:04Jonathan Mendonsa:They do all the paperwork and I might get a negotiated discount, which you can't say that's worth nothing. Now, naturally, if you went in and asked for the cash price, it might be pretty darn close to what that negotiated discount is. But putting that aside, you'll see an insurance adjustment. Now, that's not your insurance company paying anything. They're just they're doing the paperwork. This is the the amount that they've agreed upon to pay for this. But all of that is coming out of my pocket until I reach my

54:31Cody Garrett:deductible. And then after I get over my deductible, then there's some convoluted co-insurance and yada, yada, yada up to this out-of-pocket maximum. So Cody, of course,

54:42Jonathan Mendonsa:this is outside the scope of, of going into every little detail, but the more that we talk about this and the more that people understand generally how it works and that these terms, these terms mean something. They're not just on the sheet of paper, like, Oh, what's a deductible? What's co-insurance? What's out-of-pocket maximum? Like you need to have some sense of this. So if you're listening to this and you don't, I mean, not for nothing, but go to chat GPT and just start asking questions. Now, don't rely on it 100%. It's chat GPT, but it's pretty darn close. And that's a good way to start or just Google and just read up on this and just get some passing familiarity with it.

55:17Jonathan Mendonsa:Because as Cody has shown here, very starkly, this is really important and it's very material to our five plan.

55:25Brad Barrett:Yeah. And I'll just end here again, not with fear, but just saying that a lot of people haven't thought about health insurance as part of their FI number, right? They say you all probably get premium tax credits, etc. But assuming you don't get a premium tax credit, the range that I'm seeing about retiring between 45, 50, 60, that you should expect to pay between... This is a very wide range. They might be mad at me for this, but effectively, based on where you live, you should expect to pay between$500 a month and$1 ,500 a month per adult for health insurance without a premium tax credit, right?

55:57Brad Barrett:So in terms of kind of dollars and cents, that's$6 ,000 a year to$18 ,000 a year per adult covered through the marketplace. So that's why I come back to the very beginning that if you're not receiving a premium tax credit and you are healthy, I would definitely urge you to find a broker or an agent in your state to look at private individual coverage with medical underwriting. I think in the FI community, we're going to start thinking differently about the marketplace, assuming that that 400 % cliff remains for the coming future. Okay.

56:27Cody Garrett:So that's, that's eyeopening, right? This private insurance, it was not something that I considered at all. I'm still leery and dubious of the fact that there's no preexisting conditions. They can toss you off, et cetera, et cetera. But it is what it is, right? Like Cody, that it's fun to think of a utopian world where everything works, right? But that's not the world that we live in. We have to deal with the rules, right? And this is an option that I would not have suggested before an hour ago that people really consider. But I think the fact of the matter is we need to really think strongly about our options.

57:00Cody Garrett:So as always, Cody, you are incredibly impressive and such an absolute treasure for our community. I really, really appreciate everything you do.

57:08Brad Barrett:Well, I enjoy anybody who lasted this long on the episode. I appreciate you all. Anytime you see Deep Dive, you can either swipe to the next one or dig right in with us.

57:16Cody Garrett:I suspect there are a lot of people sticking around for the end of this. So, So, okay, Cody, everybody can reach you at measuretwicemoney.com.

57:22Jonathan Mendonsa:And also your book, Tax Planning to and Through Early Retirement with you and Sean Mulaney has become an absolute breakthrough success.

57:32Cody Garrett:It's remarkable to see.

57:33Jonathan Mendonsa:I love seeing you guys post how many copies you've sold. It's, I mean, in book terms, you guys are in certainly in the top 1 % of all books is my understanding. It's a remarkable thing.

57:44Brad Barrett:I love, yeah, we're definitely, we're bestsellers within the FI community. That's for sure.

57:48Jonathan Mendonsa:you certainly are but i mean listen for a topic such as tax planning to and through early retirement to sell over 10 000 copies is i mean that is you cannot i can't even describe how how absolutely mind i can't i don't even have the words it's mind-blowing it's truly mind-blowing so it's a

58:05Cody Garrett:testament to the work that you guys did this is a really important book guys if you are listening to this and you haven't read the book buy it on amazon grab it from your library it's really it's something very, very special. And I highly recommend it. So Cody, as always, thank you, my friend.

58:19Brad Barrett:And if you do read the book, check out chapter 13, health insurance before Medicare and the premium tax credit. We actually share step by step how the premium tax credit is calculated for both 2025 and 2026. So I appreciate you checking out the book. By the way, if you don't want to buy the book, check it out at your local library. Just give them the name of the book and they might order it for you. Chapter 13 on health insurance. We appreciate you.

58:40Cody Garrett:Love it. All right. until next time, everybody, this is really important stuff. This might be worth a re-listen. Frankly, if you made it to this point, I know when I, when I download this episode, when it comes out, I'm going to listen a couple of times because this is critical and it is a material difference.

58:55Jonathan Mendonsa:I know I've said that phrase 15 times already. This really matters. And Cody has done the work for us. This is something Cody, we might ask you back. I suspect there are going to be a lot of questions about this. So as always, everyone, if you have questions in our choose a by platform every week when the podcast comes out. You can comment specifically on this episode. Cody is going to be in there when this comes out answering questions. We're going to collate a lot of them and I suspect there's going to be a real clamor for a follow-up to this.

59:24Cody Garrett:So just go to choosabot.com slash log in. And if you don't have an account, you can create an account right there. But if not, when you log in, just right across the top, there's going to be a banner that says, basically this episode's title, just click on it and leave a comment

59:37Jonathan Mendonsa:and get in there and see what other people are asking. So, as always, thank you for being part of the Choose A Vibe community and for listening to the podcast.