As we wrap up 2023, it’s important to be introspective and think about what’s on the horizon for 2024. If your brain associated “2024” with “the November 2024 US presidential election”, don’t worry. I’m not going to be discussing that because I don’t want to go down that rabbit hole and I’m in a good mood today.
What I do want your mind to associate “2024” with is the positive change to Medi-Cal in 2024 where Medi-Cal is getting rid of its asset-limit testing altogether. This will help more Californians gain access to health coverage that they may have been priced out of just based on their assets.
Why is this change to Medi-Cal important? We’ve made thousands of financial plans for clients and participants and the only expense that almost unwaveringly increases year-to-year is healthcare. If more people have access to affordable healthcare, that means more successful financial plans. More successful financial plans mean more people can potentially meet their long-term financial goals and not have their retirement plans burdened by an unexpected health event they couldn’t afford because of either inadequate health insurance or no health insurance at all. To articulate why these changes are impactful, it’s important to discuss what Medi-Cal is.
What is Medi-Cal?
Medi-Cal is California’s Medicaid program that helps lower-income families gain access to either free or low-cost affordable healthcare. Before 2022, it used to have asset-based testing where you couldn’t have more than $2,000 in assets for an individual or $3,000 in assets for a married couple to qualify for Medi-Cal. There was also an income-eligibility test based on the federal poverty level guidelines (typically having your income be 138% or less of the federal poverty line for a household of 2). In July 2022, that limit increased to $130,000 in assets for an individual or $195,000 for a married couple while still meeting that same income-eligibility test.
What is changing?
2024 is significant because even though the same income-eligibility test is still in effect, asset-based testing has been eliminated. For reference, below is a chart for the federal poverty level guidelines for the program:
The state of California is also expanding the program to include substance abuse treatment, stronger mental health support, and improved access to care in remote areas.
All of this means that starting in 2024, you could theoretically have a $1M home, and a $1.5M investment portfolio, and still qualify for Medi-Cal as long as your income was under the federal poverty level for your household. Planning around this each year is key since the number they use to calculate your income for eligibility is Modified Adjusted Gross Income (MAGI).
Your MAGI is defined as your gross income (wages, dividends/interest/capital gains earned on bank accounts or investment accounts, or distributions from retirement accounts) minus any adjustments to income (such as contributions to a retirement plan, student loan interest, or moving expenses) with a couple of deductions that needed to be added back. To those non-accountant readers out there, I know that may have come across as a word salad. Therefore, I feel that dressing up some of this technical jargon in an example to drive home the fact that Medi-Cal coverage (or any state’s Medicare program) is very good, and it would behoove you to try and qualify for it if possible.
Example
Maggie Adams and Gene Ingram (both aged 60) live in Orange County, CA, and have the following assets:
- A $1M condo, fully paid off.
- Maggie has a $200,000 IRA.
- Gene has a $50,000 IRA.
- A $250,000 brokerage account earning $10,000 per year in qualified dividends with no unrealized capital gains.
- A $20,000 checking account that earns no interest.
The investments earn 0% per year and have no other taxable sources of income. They need $50,000 per year from their investments to live on because they are both retired, but they want to qualify for Medi-Cal coverage. Is it possible for them to qualify for Medi-Cal coverage?
Answer: It depends on where they take the $50,000 from.
Scenario 1: Take the $50,000 from their brokerage account.
Since the $50,000 they withdrew from the brokerage account was not subject to capital gains because there were no capital gains in the account, they could qualify for Medi-Cal coverage because Maggie and Gene’s MAGI of $10,000 is below 138% of the federal poverty line for a household of two ($27,214). There is also no longer an asset-based test, so the amount of assets that Maggie and Gene have is irrelevant.
Scenario 2: Take the $50,000 from Maggie’s IRA.
Since Maggie and Gene’s MAGI is $60,000 ($50,000 IRA withdrawal plus the $10,000 of qualified dividends earned on the brokerage account), it is greater than 138% of the federal poverty line for a household of two ($27,214), they most likely would not qualify for Medi-Cal coverage.
They most likely will have to go to the open marketplace to find a comparable plan to Medi-Cal based on their income. I have provided an example comparable plan based on their income.
This means adding on a potential added expense of $431.31/m ($5,175.72/yr.) on top of their estimated combined tax bill of $2,080 ($2,236 for federal income taxes and $407 for California income taxes, assuming the 2024 standard deduction of $29,200) vs. $0 for medical insurance and a $0 tax bill in scenario 1.
There are premium tax credits that are potentially available through the Affordable Care Act (ACA), but the purpose of this example and article is to illustrate the impact comprehensive cash flow planning can have and how it relates to the positive changes to Medi-Cal coverage eligibility.
Conclusion
With the world seeming to be in a state of constant strife, it’s important to only worry about things that are under your control. 2024 will have its share of obnoxious, terrifying, and sensational headlines that may or may not be true because news outlets know that sensation sells. All I want you to buy into is the idea of focusing on the positive changes that will happen in 2024 (like the updates to the Medi-Cal program), and plan for them accordingly because planning for what will happen is in your control. As I illustrated in the example earlier, you can control your tax situation to some degree and may also have some control over how much your medical expenses will be. If there isn’t anything you can do to control your tax situation, it’s important to do that planning in advance so you aren’t met with any surprises when you go to file your taxes.
If thinking about 2024 has you feeling anxious about your medical insurance, the rising costs of healthcare, and/or your tax bill, we understand. However, if that anxiety around your finances makes you prone to procrastination and has you thinking to yourself, “Why do today what you can put off until tomorrow?”, I offer you a quote from the great sage Mr. Krabs1, “What is today, but yesterday’s tomorrow?”. Our job is to take that stress of uncertainty with your financial plan on for you and put your mind at ease by creating a comprehensive financial plan for you. Give us a call at 714-282-1566 or email us at financialplanning@bfsg.com to plan for tomorrow, today.
Sources:
- https://www.coveredca.com/pdfs/FPL-chart.pdf
- https://www.chcf.org/wp-content/uploads/2023/06/MediCalExplained2024MediCalMCPlansCounty.pdf
- https://healthy.kaiserpermanente.org/northern-california/shop-plans/medicaid/medi-cal/medi-cal-2024
- https://cahealthadvocates.org/california-approved-to-eliminate-asset-tests-for-medi-cal-programs-1-1-24/
- https://apply.coveredca.com/static/lw-enrollment/anon/shop-plan/health/mv3b4-crA1WNYbNJUcPwLDqtWs_ztcbuX0B33KDZMw4
Footnotes:
- Mr. Krabs from the T.V. show SpongeBob SquarePants with one of my favorite life quotes. The quote before it is from Squidward in the same episode.
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