Anne Cornwell considered two drastic strategies in her quest to get affordable health insurance premiums last year for herself and her retired husband.
One was divorce. Another was taking a 30 percent pay cut. She chose the latter.
That maneuver slashed the Chattanooga, Tenn., couple’s premiums from exorbitant to economical. Instead of $2,100 a month — the amount she had been quoted for 2017 — their premiums are just $87 monthly, her lost income more than compensated for by qualifying for insurance subsides.
Cornwell’s solution — completely legal — reflects how a growing number of Americans are incorporating strategies for affording health insurance into financial planning, adapting money and salaries to yield better choices — much as people place money into 401(k) plans to save for retirement while reducing their taxable income.
Her solution and others like it may resonate with other Americans who are now buying 2018 health plans on the individual market, through the Affordable Care Act’s online marketplaces or outside them. Double-digit premium price hikes are forecast for many plans, a trend that has accelerated since President Donald Trump announced his administration would not pay some ACA subsidies to insurers.
Open enrollment in the 39 states using the federal marketplace started Nov. 1 and ends Dec. 15 for coverage that starts Jan. 1. Enrollment dates vary in other states.
The vast majority of enrollees in Obamacare plans will not pay the higher premiums, since modest incomes make them eligible for another type of government-paid subsidy that will hold their premiums flat or close to it.
But upper-middle-class people like Cornwell and her husband are expected to pay full price, feeling the blunt force of what experts and health economists agree are unbearable escalations.
Some people may qualify for ACA subsidies through less extreme measures than those taken by Cornwell, such as shifting money into tax-preferred savings account, such as a 401(k), and lowering their taxable incomes, said Frank Caccavale, an accountant from Staten Island, N.Y. But when that is not sufficient, he counsels clients to do what Cornwell did: “This is your only option. You have to take a pay decrease.”
Cornwell hit upon her solution on her own after a month of poring over spreadsheets.
“When I saw what the premium was going to be in 2017, I had to sit down. I was shocked,” Cornwell said of the $2,100-a-month figure — for a plan that didn’t even cover care until they’d each spent a $6,500 deductible. The couple simply couldn’t afford it.
Cornwell, 62, made $80,000 a year as a project manager for a small consulting firm that doesn’t offer health insurance. Her husband, Donald Donart, 63 and a cancer survivor, receives Social Security and a small pension, bringing their pretax household income to $92,000. Finding insurance required radical action.
Between 5 and 7 percent of Americans with insurance — about 17.6 million — buy it on the individual market. Of those, 7.5 million, or nearly half, don’t get subsidies, according to insurance industry consultant Robert Laszewski. Many in this latter group are professionals who work for small companies or have jobs where they work solo, for themselves.
When Cornwell saw that premiums for 2017 would rise by hundreds of dollars a month — double what they’d paid in 2015 — the couple looked hard at the options:
Should they get divorced and file taxes separately so Donart’s lower income would qualify him for cheaper insurance? Too impractical because of Tennessee’s legal requirements, Cornwell decided.
Should they form a business that paid Cornwell a lower salary than she was making? That would have taken too long.
Donart was ready to go without insurance for a year until they could figure out something else. But Cornwell worried about his cancer history, and both have chronic health conditions.
Under Obamacare, subsidies are available for people whose annual incomes are from 100 percent to about 400 percent of the federal poverty line. For 2017, that was $16,020 to $64,080 for a family of two.
So, Cornwell sat down to figure out how to reduce their income to qualify.
Four spreadsheets later, Cornwell asked her boss to reduce her hours by 30 percent, dropping her pay by $24,000 a year. She became a part-time hourly employee — at $56,000 a year. The couple now qualified for a $27,000 subsidy that made up for Cornwell’s lost income.
Their subsidized premium was so low that they upgraded to a better silver-level plan, which carried a lower deductible than the bronze plan they had passed up.
Katy Votava, president of goodcare.com, a consulting firm that advises people about health care costs, suggests people use a financial planner for taxes and health care. “The anxiety, the uncertainty and the culture is so high, it gets in the way of people making solid decisions,” she said.
She generally doesn’t recommend the radical approach of drastically cutting salaries, although that may work in some cases. Instead, she tells clients to contribute as much pretax money as the IRS allows — and as they can afford — each year into tax-advantaged retirement and health savings accounts. That reduces taxable income, which determines whether someone qualifies for a subsidy and how much.
In 2018, people can contribute up to $18,500 a year to a 401(k) retirement account. If they are older than 50, they can put in $6,000 more — a total of $24,500 annually. Health savings accounts, which can be used to pay eligible medical and dental expenses, provide a similar tax break. Neither was an option for Cornwell, whose small employer doesn’t offer those kinds of benefits.
Cornwell and her husband were satisfied with the subsidized plan they had this year. But she is deeply frustrated by the system and the somersaults she had to turn to make it financially viable. “This is when I should be maximizing income and putting it away … but we’re going the other way,” Cornwell said.
She said that she and her husband are looking ahead, running down the clock until they turn 65 and qualify for Medicare.
They intend to keep the same health plan in 2018 and are approaching this year’s open-enrollment event with anticipation instead of dread. Their insurer has told them to expect much higher premiums. But, according to healthcare.gov’s calculator, they’ll also get a much higher subsidy.
That will drop their monthly premium to zero.