Early retirement, qualifying for ACA subsidy

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quango
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Re: Early retirement, qualifying for ACA subsidy

Post by quango »

retired@50 wrote: Wed Nov 30, 2022 10:03 am Keep in mind that AGI isn't what is actually used for ACA policy qualification. It's modified adjusted gross income, MAGI, which includes tax-exempt interest on municipal bonds.

Source: https://www.healthcare.gov/income-and-h ... come/#magi

Regards,
Understood, thanks for pointing it out. Once I retire to the planned LCOL area, the muni bond funds I'm currently holding won't make sense anymore (not least because it's a different state), and I don't expect that my MAGI would be significantly different from my AGI.
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samsoes
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Re: Early retirement, qualifying for ACA subsidy

Post by samsoes »

billaster wrote: Wed Nov 30, 2022 12:51 pm
sc9182 wrote: Wed Nov 30, 2022 12:09 pm You prolly don't want to be on Medicaid by choice. As someone pointed out earlier - Medicaid can/may come after your assets/estate at a later date.
Estate recovery applies to people in long term care or nursing home situations. Medicaid expansion has been around since 2014 and no state has applied estate recovery to normal Medicaid healthcare coverage.
Incorrect. Connecticut does it - claws back ACA Medicaid benefits - in the event the Medicaid recipient wins a lawsuit or inherits money. Could be years after he/she is off Medicaid. One is warned of that fact when applying for Medicaid ACA in the great state of Connecticut.
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quango
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Re: Early retirement, qualifying for ACA subsidy

Post by quango »

Elle_N wrote: Wed Nov 30, 2022 11:14 am I referred to 138% of the Federal Poverty Limit above. Others spoke of 133%. Here's the explanation: Per the ACA, the MAGI income limit is 133% plus a 5% income disregard.

I think the $700k the OP has in the 401(k) account just begs for conversion to a Roth IRA here. When the OP is retired, and towards the end of each calendar year, he should know his income from bond interest and other sources pretty well. As needed, it seems to me he should then convert as much of the $700k as will keep him from paying anything for his ACA health insurance. It appears to be a double win: He likely will pay no taxes at all on the conversion (due to having such low income). Plus he pays nothing for his marketplace health insurance. It's possibly a triple win if the 401(k) has poor fund choices (read: high expense ratios and/or possibly loads) or admin fees.

I hope the OP gives more thought to asset allocation. Bonds alone do not keep up with inflation. AFAIC, and to say the least, this site can be an excellent resource on asset allocation and why it is important, especially for a person who has a long timeline (decades).
Thanks for the detailed post. As mentioned above, I'm not really thinking of Medicaid as a viable option, and these details about paying it back etc just confirm that.

Totally agree about asset allocation, I have too much in short term, both in my taxable and 401k accounts. I intend to fix that, mainly in my 401k. For the taxable account I'd like to play it as safe as possible and avoid being at the mercy of the market when I need a big chunk of money. My 401k plan's fund choices probably aren't the best, and the plan has a small quarterly fee ($30 or so) which irritates me. As I mentioned earlier I've avoided Roths in the past because they seem to be the opposite of what I need (why would I pay income tax now, in a high-tax locale, instead of paying it during retirement, in a low-tax locale?), and I think my income has always been just past the edge of being eligible to have a Roth, but I think the Roth conversion would happen in retirement so that makes more sense. Any thoughts on the relative pros and cons of Roth conversion and SEPP withdrawals?
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quango
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Re: Early retirement, qualifying for ACA subsidy

Post by quango »

printer86 wrote: Wed Nov 30, 2022 3:00 pm I’m reading this thread on my phone, so I apologize if I misunderstood the op’s point. But Medicare starts at age 65. Therefore the op will need to manage their income past age 59 and until turning 65 if seeking ACA subsidies.

One can generate taxable income without employment income through a combination of Interest, dividends, capital gains and Roth conversions during the pre-Medicare years.
Yes, there are two periods I'm trying to plan for:
  • Retirement age to 59.5, in this period I need to get my AGI/MAGI to ~133% of the FPL, say $20k annually, in order to qualify for ACA subsidies. Getting this $20k annually in a reliable way for those 5 or 6 years is my main concern, but there seem to be some good options in the thread.
  • Age 59.5 to age 65, in this period I'm able to freely withdraw from my 401k account, so it will be (I hope) easy for me to get myself to $20k annually
Topic Author
quango
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Re: Early retirement, qualifying for ACA subsidy

Post by quango »

retired@50 wrote: Wed Nov 30, 2022 8:28 pm FYI, Roth IRA conversions have absolutely nothing to do with "mega backdoor". They are two completely different things.

Regards,
Got it, thanks. I won't worry about being audited/hauled away/whatever.
sc9182
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Re: Early retirement, qualifying for ACA subsidy

Post by sc9182 »

quango wrote: Wed Nov 30, 2022 8:31 pm
Wannaretireearly wrote: Wed Nov 30, 2022 12:51 am Well written. Have you thought about non-US healthcare or non-US residence options? Just asking. You have this down.

Executing Backdoor Roths past 10 years plus, and mega backdoor Roths ( 1-2 years) are the most impactful things I would have not done without BH support/guidance. Follow if possible
Thanks. I haven't considered non-US options, it's not really my kind of thing. I hate travel (which will help me keep my retirement expenses down, incidentally). As for the Roth, as I mentioned earlier the mega-backdoor seems to have an aura of illicitness, which is probably totally wrong-headed of me. I will look into it again in spite of my reluctance.
Either you mis-understand Mega-backdoor Roth (MBR, or also called after-tax/post-tax contributions to Retirement plans) Vs. Roth-Conversion or, confusing this conversation a bit. Both are SOOO different.
quango wrote: Wed Nov 30, 2022 8:54 pm ..
Got it, thanks. I won't worry about being audited/hauled away/whatever.
MBR has since been blessed by IRS Notice - there is a good Kitches blog-topic on this topic (along with multitude of other threads on BH). And, yes Major companies/some-public-sector retirement plans allow MBR contributions during working years; suppose they have a clue/tax-understanding -- more than mere mortals: Here is Kitches blog-post on MBR: https://www.kitces.com/blog/irs-notice- ... qus_thread

Backdoor-Roth Contribution -- individual has to manage on their own -- and there is this funky Pro-rata rule .. if not followed (or not able to follow) correctly, it could leave good bit of mess to clean-up. And one prolly don't want to possibly mess-up retirement plan much.. keep it steady .. (I understand some BH posters who religiously follow rules, and do this Back-door Roths over decade+ years -- Kudos .. hope those $60K+ extra total contributions over last 10+ years have made big impact on portfolio size..)
https://www.thinkadvisor.com/2022/04/18 ... rata-rule/

As for Roth-Conversion -- you seem to be aware ..

What is the question !?
Last edited by sc9182 on Wed Nov 30, 2022 9:01 pm, edited 1 time in total.
billaster
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Re: Early retirement, qualifying for ACA subsidy

Post by billaster »

quango wrote: Wed Nov 30, 2022 8:34 pm About Medicaid, I believe the asset test or means test is for people taking Medicaid via disability, and not for people taking it via low income (but if that's correct, I don't really know why it's the case). I'm not really considering Medicaid as an option for various reasons. Maybe a real last-ditch kind of thing only.
The confusion on Medicaid eligibility comes about because some states have ACA expanded Medicaid and some do not. So first you need to find out which applies to your state. You can check that here:
https://www.kff.org/medicaid/issue-brie ... ctive-map/

1. If in a Medicaid expansion state then if you are below the income level for ACA subsidies, then you automatically become eligible for Medicaid. All of your health care expenses are paid by Medicaid other than possibly some token co-pays like $5 for a doctors appointment or a prescription drug.

2. If you are in a non-expansion state, most likely you are eligible for nothing unless you are disabled or single parent with children at home, even if you have zero income and zero assets. Rules vary somewhat by state, but are generally very stringent and very limited on eligibility in non-expansion states.
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quango
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Re: Early retirement, qualifying for ACA subsidy

Post by quango »

sc9182 wrote: Wed Nov 30, 2022 8:55 pm What is the question !?
I would say it's just confusion on my part. Until this thread, I didn't realize that Roth conversion was a different thing from Roth mega backdoor. I've skimmed over all things "Roth" in the past as being inappropriate for my situation, but it looks like a Roth conversion from my 401k after retirement could be very appropriate. It's something I'll definitely look into.

Thanks!
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quango
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Re: Early retirement, qualifying for ACA subsidy

Post by quango »

billaster wrote: Wed Nov 30, 2022 8:58 pm
quango wrote: Wed Nov 30, 2022 8:34 pm About Medicaid, I believe the asset test or means test is for people taking Medicaid via disability, and not for people taking it via low income (but if that's correct, I don't really know why it's the case). I'm not really considering Medicaid as an option for various reasons. Maybe a real last-ditch kind of thing only.
The confusion on Medicaid eligibility comes about because some states have ACA expanded Medicaid and some do not. So first you need to find out which applies to your state. You can check that here:
https://www.kff.org/medicaid/issue-brie ... ctive-map/

1. If in a Medicaid expansion state then if you are below the income level for ACA subsidies, then you automatically become eligible for Medicaid. All of your health care expenses are paid by Medicaid other than possibly some token co-pays like $5 for a doctors appointment or a prescription drug.

2. If you are in a non-expansion state, most likely you are eligible for nothing unless you are disabled or single parent with children at home, even if you have zero income and zero assets. Rules vary somewhat by state, but are generally very stringent and very limited on eligibility in non-expansion states.
My planned retirement state (and my current state, incidentally) are both in the "Adopted and Implemented" category, so at least Medicaid will be an option. But I'd much rather go for the ACA plan + subsidy route if at all possible
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retired@50
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Re: Early retirement, qualifying for ACA subsidy

Post by retired@50 »

quango wrote: Wed Nov 30, 2022 8:54 pm
retired@50 wrote: Wed Nov 30, 2022 8:28 pm FYI, Roth IRA conversions have absolutely nothing to do with "mega backdoor". They are two completely different things.

Regards,
Got it, thanks. I won't worry about being audited/hauled away/whatever.
There's nothing immoral or unseemly about Roth IRA conversions. You're withdrawing un-taxed money from a traditional IRA, and instead of spending it, you're allowed to put it straight into a Roth IRA. Because the money you're withdrawing has never been taxed, it's seen as income by the IRS. It's really that simple.

Details here: https://www.bogleheads.org/wiki/Roth_IRA_conversion

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Elle_N
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Re: Early retirement, qualifying for ACA subsidy

Post by Elle_N »

quango wrote: Wed Nov 30, 2022 8:45 pm Any thoughts on the relative pros and cons of Roth conversion and SEPP withdrawals?
By doing SEPP withdrawals, one forfeits tax-protected investment growth of those assets that are withdrawn. This tax protection of investment growth is a big deal. Remember, if a diversified portfolio of index funds returns 5% a year in the next ten years, $100,000 grows to about $163,000 dollars. In addition to the original $100,000, now there's an extra $63,000 that you will never pay taxes on (assuming certain things, like you are over 59.5 and five years have passed since the conversion).

So far, I see no cons for converting your 401(k) to a Roth IRA per your early retirement plan. Statutes concerning conversion were designed specifically to help people minimize the payment of taxes (and so save more for retirement). As others pointed out, feel no compunction about doing such conversions. As you read more; run numbers; and things sink in math-wise and financial-planning-wise; I think you will see how common converting to a Roth is and why it's a no-brainer for someone doing what you propose. (And I think many do as you propose or similar.)

If I were you, I might rollover the 401(k) to a traditional IRA as soon as possible, to maximize fund choices. Then in retirement, I would start converting the traditional IRA to a Roth IRA.
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Elle_N
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Re: Early retirement, qualifying for ACA subsidy

Post by Elle_N »

samsoes wrote: Wed Nov 30, 2022 8:38 pm
billaster wrote: Wed Nov 30, 2022 12:51 pm
sc9182 wrote: Wed Nov 30, 2022 12:09 pm You prolly don't want to be on Medicaid by choice. As someone pointed out earlier - Medicaid can/may come after your assets/estate at a later date.
Estate recovery applies to people in long term care or nursing home situations. Medicaid expansion has been around since 2014 and no state has applied estate recovery to normal Medicaid healthcare coverage.
Incorrect. Connecticut does it - claws back ACA Medicaid benefits - in the event the Medicaid recipient wins a lawsuit or inherits money. Could be years after he/she is off Medicaid. One is warned of that fact when applying for Medicaid ACA in the great state of Connecticut.
Reinforcement of samsoes's and sc9182's point appears below. From googling on {horror story Medicaid estate recovery}, my summary is: In 1993, federal law was enacted that mandated that states seek Medicaid debt repayment from estates for long term care services. For all other Medicaid services, states had the option (but were not required) to seek debt repayment from estates. The courts time and again have ruled such recovery is consistent with statute and lawful. As of this writing my impression is that more than half of states pursue estate recovery for non-long term care services and support (non-LTSS).

From 2014, https://www.huffpost.com/entry/medicaid ... _n_4674277: "Currently, recovery programs vary from state to state, with some states taking back money from estates to cover the cost of all Medicaid services, while others recoup only money for long-term care and still others recouping costs for additional, specific items.")

From 2015, https://www.macpac.gov/wp-content/uploa ... covery.pdf:
Image

From 2019 https://medium.com/@RoseValerios/the-sc ... 6d39362f7f ("Every state in the United States try to recoup the money they spent on the Medicaid program on long-term care. However, some states also try to recoup money they spent on other types of healthcare expenses.")

From 2019, https://www.theatlantic.com/magazine/ar ... wn/596671/ ("The law gave states the option to expand their recovery efforts to include other medical expenses, and many did, collecting for every doctor’s visit, pharmaceutical drug, and surgery that Medicaid covered.")

From March, 2021 https://www.macpac.gov/wp-content/uploa ... Equity.pdf:
Image
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billaster
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Re: Early retirement, qualifying for ACA subsidy

Post by billaster »

Elle_N wrote: Thu Dec 01, 2022 11:30 am ]Reinforcement of samsoes's and sc9182's point appears below. From googling on {horror story Medicaid estate recovery}, my summary is: In 1993, federal law was enacted that mandated that states seek Medicaid debt repayment from estates for long term care services. For all other Medicaid services, states had the option (but were not required) to seek debt repayment from estates. The courts time and again have ruled such recovery is consistent with statute and lawful. As of this writing my impression is that more than half of states pursue estate recovery for non-long term care services and support (non-LTSS).

From 2014, https://www.huffpost.com/entry/medicaid ... _n_4674277: "Currently, recovery programs vary from state to state, with some states taking back money from estates to cover the cost of all Medicaid services, while others recoup only money for long-term care and still others recouping costs for additional, specific items.")

From 2015, https://www.macpac.gov/wp-content/uploa ... covery.pdf:


From 2019 https://medium.com/@RoseValerios/the-sc ... 6d39362f7f ("Every state in the United States try to recoup the money they spent on the Medicaid program on long-term care. However, some states also try to recoup money they spent on other types of healthcare expenses.")

From 2019, https://www.theatlantic.com/magazine/ar ... wn/596671/ ("The law gave states the option to expand their recovery efforts to include other medical expenses, and many did, collecting for every doctor’s visit, pharmaceutical drug, and surgery that Medicaid covered.")

From March, 2021 https://www.macpac.gov/wp-content/uploa ... Equity.pdf:
You said there were "horror stories." So where is the horror story? Yes, states have the option but do you have a case in which anyone has had estate recovery for non-long term care and how much money was involved? Was it a horror?
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Re: Early retirement, qualifying for ACA subsidy

Post by sc9182 »

billaster wrote: Thu Dec 01, 2022 4:25 pm
Elle_N wrote: Thu Dec 01, 2022 11:30 am ]Reinforcement of samsoes's and sc9182's point appears below. From googling on {horror story Medicaid estate recovery}, my summary is: In 1993, federal law was enacted that mandated that states seek Medicaid debt repayment from estates for long term care services. For all other Medicaid services, states had the option (but were not required) to seek debt repayment from estates. The courts time and again have ruled such recovery is consistent with statute and lawful. As of this writing my impression is that more than half of states pursue estate recovery for non-long term care services and support (non-LTSS).

From 2014, https://www.huffpost.com/entry/medicaid ... _n_4674277: "Currently, recovery programs vary from state to state, with some states taking back money from estates to cover the cost of all Medicaid services, while others recoup only money for long-term care and still others recouping costs for additional, specific items.")

From 2015, https://www.macpac.gov/wp-content/uploa ... covery.pdf:


From 2019 https://medium.com/@RoseValerios/the-sc ... 6d39362f7f ("Every state in the United States try to recoup the money they spent on the Medicaid program on long-term care. However, some states also try to recoup money they spent on other types of healthcare expenses.")

From 2019, https://www.theatlantic.com/magazine/ar ... wn/596671/ ("The law gave states the option to expand their recovery efforts to include other medical expenses, and many did, collecting for every doctor’s visit, pharmaceutical drug, and surgery that Medicaid covered.")

From March, 2021 https://www.macpac.gov/wp-content/uploa ... Equity.pdf:
You said there were "horror stories." So where is the horror story? Yes, states have the option but do you have a case in which anyone has had estate recovery for non-long term care and how much money was involved? Was it a horror?
Sometimes Horror story will be revealed/released in future. It’s like Napster - many used it knowingly or unknowingly— but horror (is that $5k or $10k damage letters sent out !?) materialized much latter.

In this context - it’s prolly suffice to understand - try not to step-on or fall thru avoidable cracks falling into Medicaid - if one didn’t want to (or has good bit of assets to protect..). I am sure poster wasn’t trying to scare a really medicaid needing/eligible candidate. (at least that’s my lay-person understanding after reading thru the posts and details)..
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Re: Early retirement, qualifying for ACA subsidy

Post by billaster »

sc9182 wrote: Thu Dec 01, 2022 4:36 pm
billaster wrote: Thu Dec 01, 2022 4:25 pm
You said there were "horror stories." So where is the horror story? Yes, states have the option but do you have a case in which anyone has had estate recovery for non-long term care and how much money was involved? Was it a horror?
Sometimes Horror story will be revealed/released in future. It’s like Napster - many used it knowingly or unknowingly— but horror (is that $5k or $10k damage letters sent out !?) materialized much latter.

In this context - it’s prolly suffice to understand - try not to step-on or fall thru avoidable cracks falling into Medicaid - if one didn’t want to (or has good bit of assets to protect..). I am sure poster wasn’t trying to scare a really medicaid needing/eligible candidate. (at least that’s my lay-person understanding after reading thru the posts and details)..
But this whole "Horror Stories" about Medicaid estate recovery smells just like the "Horror Stories" about family farms lost to estate taxes some years back. Turns out that those people were unable to find even one case of a family farm in the entire country lost to estate taxes -- and those people were very highly motivated to find one to support their case.

It seems irresponsible to put out unfounded scary stories that might deter people from getting health insurance. And this isn't just hypothetical harm. Health care official in several states have specifically cited scare stories about estate recovery as deterring people from getting Medicaid, so much that they have issued statements that they will not do estate recovery even if state law allows it. Turns out that Connecticut, cited above, is one of them.
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Re: Early retirement, qualifying for ACA subsidy

Post by marcopolo »

billaster wrote: Thu Dec 01, 2022 7:00 pm
sc9182 wrote: Thu Dec 01, 2022 4:36 pm
billaster wrote: Thu Dec 01, 2022 4:25 pm
You said there were "horror stories." So where is the horror story? Yes, states have the option but do you have a case in which anyone has had estate recovery for non-long term care and how much money was involved? Was it a horror?
Sometimes Horror story will be revealed/released in future. It’s like Napster - many used it knowingly or unknowingly— but horror (is that $5k or $10k damage letters sent out !?) materialized much latter.

In this context - it’s prolly suffice to understand - try not to step-on or fall thru avoidable cracks falling into Medicaid - if one didn’t want to (or has good bit of assets to protect..). I am sure poster wasn’t trying to scare a really medicaid needing/eligible candidate. (at least that’s my lay-person understanding after reading thru the posts and details)..
But this whole "Horror Stories" about Medicaid estate recovery smells just like the "Horror Stories" about family farms lost to estate taxes some years back. Turns out that those people were unable to find even one case of a family farm in the entire country lost to estate taxes -- and those people were very highly motivated to find one to support their case.

It seems irresponsible to put out unfounded scary stories that might deter people from getting health insurance. And this isn't just hypothetical harm. Health care official in several states have specifically cited scare stories about estate recovery as deterring people from getting Medicaid, so much that they have issued statements that they will not do estate recovery even if state law allows it. Turns out that Connecticut, cited above, is one of them.
+1

This kind of FUD seems all too common
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Early retirement, qualifying for ACA subsidy

Post by Elle_N »

billaster wrote: Thu Dec 01, 2022 4:25 pmYou said there were "horror stories." So where is the horror story?
In the context of non-LTSS Medicaid services, I posted that "I believe I have read at least one 'horror story' of a state going after an estate." Above I listed several sources that say certain states do go after money to reimburse non-LTSS Medicaid services. I have not produced the horror story (or a horrible enough story?) that I said I thought I read. So bad on me.

You posted:
billaster wrote: Wed Nov 30, 2022 12:51 pm Estate recovery applies to people in long term care or nursing home situations. Medicaid expansion has been around since 2014 and no state has applied estate recovery to normal Medicaid healthcare coverage.
Do you agree at least two of the sources I cited in my earlier post today contradict your assertion above?

Getting back on-topic:

If the OP resides in an ACA Medicaid-eligibility-expanded state, what is your advice to the OP on this subject? Should the OP just ignore the reports of states going after estates for re-payment for non-LTSS Medicaid services? Should the OP set up his income to just go on Medicaid from ages 55-64? After all, what one gets on the ACA marketplace is health insurance with deductibles. Medicaid health services have no deductible. Should the OP even bother to check to see if his state goes after estates to recoup the cost of non-LTSS Medicaid services?
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Re: Early retirement, qualifying for ACA subsidy

Post by SuzBanyan »

I will also point out that the OP is a single and childless, and while recovery from OPs estate for Medicare benefits in his 50’s and early 60s may not be ideal, he will be dead and is unlikely to care. Some people really like Medicaid because it is typically less complicated than ACA plus deductibles/co-pays. For some Medicaid, such as Kaiser, there is no difference in the treatment from ACA, just the cost. For those who have had a megacorp or similar PPO during their working years, the limited choice of doctors in Medicaid may be a big perceived drawback.
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