Hello folks! Hope all is well. I usually write this intro paragraph after I’ve already written the post…and today I must forewarn you…I get a little opinionated and lippy. Bear with me as I let my opinions fly and feel free to shoot yours right back at me in the comments below, whether in agreement or otherwise!
Public Service Announcement –
Healthcare does not Cause Job Lock (for early retirees)
What is Job Lock?
According to our good friends at Wikipedia,
“the term job lock is used to describe the inability of an employee to freely leave a job because doing so will result in the loss of employee benefits (usually health or retirement related).”
The Affordable Care Act (ACA or Obamacare) has often been touted as a means to reduce job lock – making it easier for employees to switch employment, become self-employed, or even retire early.
This was recently the subject in an article I came across in the NY Times titled If Obamacare Exits, Some May Need to Rethink Early Retirement. The title was undoubtedly catchy to me, but unfortunately I thought it was a bit ridiculous and not very insightful.
My bottom line is that you are working off a flawed premise if healthcare is putting you in job lock – restricting your ability to retire early. If ACA is what led you to consider early retirement, than you shouldn’t be retiring early yet.
Background on the Article
Personally, I didn’t think the article had anything substantive in it. Feel free to read for yourself, but I found it simply referencing countless studies – a study by the US Government Accountability Office (GAO), a study by several health economists, studies from scholars, studies overseas, a study on job lock’s impact on spouses, and studies conflicting all previously mentioned studies. Like I said, it was ridiculous and meaningless.
Of course the ACA reduces job lock, you don’t need a study to confirm that! You are moving the burden of the cost of healthcare off an individual and their employer to subsidized (basically free) coverage on the insurance exchanges with the tab picked up by the government (well actually paid for by the taxes from still working and productive adults…).
Most of us can’t up and leave work right now to pursue self-employment or early retirement because our employers are paying us for our healthcare costs. Without traditional employment WE WOULD NEED TO PAY FOR IT ourselves. The way it actually works as an employee (or the way you should think about it) is that we are taking a lower salary as a trade-off to our employers picking up a piece of the tab of our health insurance plans.
We are paying for the full cost of our health insurance plans one way or another. You take that so called “job lock” away when the government offers to pay those costs instead. Although when the government pays for our health insurance they aren’t getting a productive employee like our company is, they’re getting a loafer – a drain on our country’s tax dollars, a taker instead of a contributor. Why should the government give early retirees something for free?
Employer Provided Coverage Isn’t Free
You know employer provided coverage isn’t free, you don’t need me to tell you that. You see the premium increases each year as well as the increase in deductible and max-out-of-pocket limitations.
But it is actually more expensive than just this. Your employer is likely picking up a piece of the tab too.
How much? Well, first check your pay stub. How much is your medical premium? In 2016, the cost of health coverage for me alone (my wife and kiddo were on a plan through her employer) was about $28 on a bi-weekly basis. That’s $728 annually ($28 X 26 pay-periods). That’s just my cost – how much did my employer pay?
In recent years employers have been required to provide this information. Check your year-end W2 statement. Look for box coded 12 DD – that is where employers are now required to report the total cost of employer provided health coverage. This includes the total of the employee and employer contributions to the cost of your medical plan.
For me, in 2016, box 12 DD reported a total cost of my health plan to be $5,205. This may seem like a small sum in total, but one thing to consider is that the plan is a high deductible plan; meaning low premiums are offset by the fact I would bear the full cost of healthcare expenses for the first few thousand dollars.
What this also means though is that my employment is worth that cost to my employer. All things equal, assuming they stopped offering healthcare plans, I should expect a $4,477 raise in salary ($5,205 – $728).
For the record, my wife and kiddo’s insurance cost Lucy $5,980 in premiums in 2016. This was not a high deductible plan, so instead premiums were high. Per box 12 DD on her W2, this insurance plan had a total cost of $12,419. Her employer payed $6,439 ($12,419 – $5,980).
In 2015, Lucy, Jr. and I were all on my high-deductible plan. Our premium costs were $2,321. Box 12 DD reported the total cost of $13,825.
My point is, healthcare isn’t free. Combined, Lucy and I are paying for it with reduced salaries of $10,916 along with our share of the premium costs of $6,708. A total cost of $17,624 in 2016! The way I look at it, that’s cash out of our pockets for our health insurance.
If we can’t afford this otherwise, I suppose you could call that job lock…
Of Course ACA Reduces Job Lock
Yes, the ACA reduces job lock. Like I said, and I don’t need a study to show it. Reducing job lock is all good and dandy, but the ACA did it through the wrong means. It did so by making healthcare heavily subsidized (i.e. government and tax-payers pick up the tab) rather than through reforming the way health insurance is provided in America holistically (i.e. the large reliance on employer provided care).
The way health insurance in America was initially formed was flawed. Corporations began offering health insurance to avoid paying higher salaries, as a perk, and as a means to help retain employees.
In essence, employers filled a void of providing health insurance coverage from our government, but for the wrong reasons with what has snowballed into huge implications today.
We are reliant on health coverage via employers rather than through the free market or the government. An alternative would be universal health coverage provided by government, but paid for through a special tax on everyone in their working years (similar to how FICA taxes work today to cover Social Security and Medicare).
If the burden is to now be placed on the government to help us pay for health insurance, than a correlated tax increase is justifiable. How else will the government be paying for our healthcare? Or conversely, keep the government out of it and require everyone to buy it on the free market. Although I’m skeptical such “mandated” coverage would work in this fashion.
Theoretically, on one hand we are all being paid less in salary today. That money is instead being used by our employers to pick up a piece of our health insurance tab.
On the other hand, we could be paying that amount (or more…) via a “Healthcare Tax” to the government. For instance, this is similar to how the U.K. does it. This could bridge us from the beginning of our working years through when Medicare is currently offered at age 65. Or combine this “Healthcare Tax” with the current Medicare tax and make it one universal system from cradle to grave.
Is Health Insurance causing Job Lock for Early Retirees?
No, we as EARLY retirees should be willing and able to pay for our own healthcare, nothing in life is free. The way our system is set up today, we as early retirees can’t expect a handout in the form of a healthcare subsidy.
Early retirees shouldn’t have a subsidy, that isn’t what they are intended for, and if you want you can go cry to your Mother about it…
Sorry, like I said earlier, I’m getting lippy today…
Don’t be Naive
As someone who is considering early retirement myself, am I naïve enough to think that over the course of my (hopefully) long 50+ year retirement that the ACA or, specifically, healthcare subsidies via the exchanges, or Medicare as it is today will remain unchanged (aka free and/ or heavily subsidized for an early retiree with a relatively high net worth)? Highly unlikely!
The insurance exchanges are obviously unstable. You can see that from the massive losses health insurers have recorded due to the exchanges. That’s why you also see them in the news for pulling out beginning in 2018 unless something changes. All the big insurers have come out and made these assertions, including UnitedHealth, Aetna, Anthem, Cigna is still considering it and in all likelihood will pull out…the list goes on and on.
The exchanges were flawed in many ways and the subsidies were really expensive – that was never going to last.
Medicare as it stands today isn’t viable either! So if you are considering early retirement, I wouldn’t be banking on that in its current form.
Health insurance costs money. You, as an early retiree, should expect to pay for it. You, as an early retiree, haven’t paid ahead those costs via a “Healthcare Tax” through your working years to justify subsidized insurance on the exchanges. And as you get older you should expect to pay more for healthcare…because odds are you will be a bigger consumer of healthcare services.
The Bottom Line
Bottom line, you aren’t in job lock if the ACA subsidies go away. You’re in job lock because you can’t afford to retire yet.
You can’t afford to replace that portion of your salary currently devoted to health insurance (via the benefit your employer offers by paying for that insurance). As shown above for our family in 2016, that amounted to over $17K (likely a similar or greater amount in 2017).
That’s not job lock for early retirees. If that’s job lock, than I’m also in job lock right now because I couldn’t afford food for my family if I retired now. Healthcare is a staple to life just like food. And as I discussed above, healthcare isn’t free, just like food.
Damn, that’s one hell of a rant. I guess after The Green Swan turned one year old I feel more privilege in letting some real opinions fly. But let me say “bottom line” one more time…
The bottom line is that you are working off a flawed premise if healthcare is putting you in job lock –restricting your ability to retire early. Healthcare is not free and it is not an entitlement…especially if you are wealthy enough to consider retiring early.
The Final Final Thought
If ACA is what led you to consider early retirement, than you shouldn’t be retiring early. This is just one man’s opinion. I’m not a public policy guru, but the logic makes sense to me. I’m sure I’m wrong somewhere throughout the article and you can feel free to let me know about it in the comments below. I won’t take it the wrong way. Let’s have some healthy debate!
Part 2 in Health Series: Understanding Retiree Benefits for Early Retirees.
Part 3 in Health Series: My Vegan Proclamation
Thanks for taking a look!
The Green Swan