How Obamacare is creating new pathways to retirement

CHICAGO Thu Feb 6, 2014 3:02pm EST

CHICAGO (Reuters) - Is President Obama's health reform law a job killer? Republicans seized on a new high-profile analysis of the Affordable Care Act this week to ram home that oft-repeated talking point.

But the report, issued this week by the Congressional Budget Office, actually says something quite different: Jobs won't be destroyed, but more Americans will choose to work fewer hours because of the ACA's structure, which subsidizes the cost of health insurance for households with low- and middle-range incomes.

The upshot is likely to be something I've suspected all along: The ACA will create work options for people over age 50 as they move toward retirement, because it creates opportunities to get health insurance outside the workplace.

The CBO projects the total number of hours Americans work will drop by the equivalent of 2 million full-time jobs in 2017. The CBO is the final word on legislative analysis in Washington, and this study immediately set off a political firestorm. House Speaker John Boehner (R-Ohio) jumped on it quickly.

"For years, Republicans have said that the president's healthcare law creates uncertainty for small businesses, hurts take-home pay and makes it harder to invest in new workers," Boehner said in a statement on Tuesday. "The middle class is getting squeezed in this economy, and this CBO report confirms that Obamacare is making it worse."

Meanwhile, many news headlines and cable pundits spun the study, stating that the ACA will push 2 million workers out of the labor market (conveniently omitting the words "equivalent of").

Pretty shameless, considering that the CBO report also knocks down two other baseless attacks on the ACA - that insurance premiums are skyrocketing, and that employers will shift more workers to part-time status to avoid including them in group coverage.

On the first charge, the CBO says premiums on the health exchanges are 15 percent lower than forecast. On the second, it says there's "no compelling evidence" this is occurring.

Nonetheless, the "job killer" cudgel will be used by Republicans to beat up Democrats in this year's midterm elections.

So, what did the CBO really say?

First, it's important to note that the report's findings

aren't just about older workers - the CBO also reports that low-income workers may strive to keep earnings down to qualify for Medicaid coverage under the ACA. But it does specifically cite older workers as one of the key groups likely to cut back on work.

The ACA guarantees that you can get insurance outside your employer's group policy. Before health reform, people over age 50 often found themselves blocked from obtaining coverage of any sort because of preexisting conditions; that is prohibited under the ACA.

We all know people who have hung on to jobs by their fingernails just to keep health insurance while they wait to become eligible for Medicare at age 65. Research by the Center for Retirement Research at Boston College confirms this, showing a marked spike in retirement (as measured by Social Security claiming decisions) at age 65. In effect, the ACA means these fingernail hangers can let go.

"We're already seeing it in some of our client conversations," says Michael Kitces, partner and director of research for Maryland-based Pinnacle Advisory Group. "We'll ask, 'If access to health insurance wasn't an issue, would you still be doing what you're doing now, and working where you work?' The answer in a lot of cases is, 'Actually, no.' "

NEW MATH

Although insurance companies can set premiums up to three times higher if you're over age 50, the overall cost will be held down for many by cost-sharing subsidies and advanceable, refundable tax credits on premiums.

The cost offsets depend on your income - and that's why CBO is forecasting that some people will reduce their working hours. The tax credits are available to families with income between 100 percent and 400 percent of the federally defined poverty guideline. At 400 percent, families aren't required to spend more than 9.5 percent of their income on premiums.

This year the subsidies are available for individuals with annual income between $11,490 and $45,960, and from $23,550 to $94,320 for a family of four. The definition of income is modified adjusted gross income (MAGI), which includes wages, salary, foreign income, interest, dividends and Social Security benefits.

The subsidies are creating new math that anyone getting close to retirement age should heed.

They create incentives for households to carefully manage income to stay within premium assistance brackets. Limiting the number of working hours is one way to do that; another is to reduce taxable income by maximizing contributions to a 401(k) or health savings account at work.

Kitces also thinks we'll see increased use of deferred annuities as an income-management tool. For example, a 60-year-old individual earning $40,000 qualifies for a subsidy, but income from a portfolio could put her over the top.

"Let's say she has a $300,000 portfolio kicking off $10,000 a year in income, and that income puts her over the limit for a premium credit," he says. "She could put that inside a deferred annuity, deferring all that income until she turns 65 and enrolls in Medicare. At that point, she's no longer worried about the premium credits, so she can liquidate the annuity."

But separating work from health insurance opens up a wide range of work opportunities for older workers, especially those struggling with long-term unemployment ever since the Great Recession. It will be easier for small businesses to hire workers who bring along their own insurance.(Companies with fewer than 50 employees are exempt from the ACA's employer mandate.) Consulting work, side gigs and sole practitioner startups get easier to do.

"It does create a lot of flexibility," says Kitces. "A lot of people aren't going to be dependent on employers to get health insurance anymore."

For more from Mark Miller, see link.reuters.com/qyk97s

(Follow us @ReutersMoney or here. Editing by Douglas Royalty)

(The opinions expressed here are those of the author, a columnist for Reuters.)

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