Tag Archives: freelance

ACA Healthcare Subsidy – Why Earning $100 More Could Cost You $5,000 or More

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The USA healthcare system is a mess. This mess has been created by those we have elected for decades. It isn’t a short term problem, simple problem or small problem. Healthcare costs are a huge burden on the USA economy and the financial costs and extreme burdens (worry, fighting with insurance companies, forgoing needed healthcare…) are huge burdens on all those stuck with the system that is in place.

Update 2021: in 2021 the Biden administration updated the law so that this extreme drop-off no longer occurs. Now it is a much more sensible gradual reduction in the subsidy as you earn more money. The previous subsidy rules, discussed in this post, may return in 2023 (the current changes to the more sensible subsidy amounts only cover 2021 and 2022).

One of the benefits of the Affordable Healthcare Act (ACA) is that health insurance costs are subsidized for those earning less than 400% of poverty level income. The way that this has been designed you could get $5,000 (or more, or less) in subsidies if you earn just below the 400% level and $0 if you earn just above. Most such income limits are phased in so that there is nothing like the huge faced by those earning just a few more dollars.

If you are close to the 400% poverty level income and are paying for an ACA healthcare plan (self employed, retired, entrepreneur…) then it is wise to pay close attention to what your reported income will be.

Here are several examples, using the Kasier Family Foundations’s subsidy tool:

  • 60 year old in Virginia earning $48,200 would receive $7,073 in subsidies (60% of the cost*). Earning $48,300 would mean receiving $0 in subsidies (for this and also examples, the examples shown are for a single individual, you can use the tool to try different scenarios).
  • 60 year old in Virginia earning $38,000 would receive $8,029 in subsidies (69% of the cost).
  • 34 year old in Virginia earning $48,200 would receive $608 in subsidies (12% of the cost).
  • 50 year old in California earning $48,200 would receive $4,255 in subsidies (48% of the cost).
  • 34 year old in North Carolina earning $48,200 would receive $1,636 in subsidies (26% of the cost).
  • 64 year old in Virginia earning $48,200 would receive $8,283 in subsidies (64% of the cost*).
  • Family of 4 (ages 46, 42, 12 and 10) earning $40,000 in Colorado would receive $13,799 in subsidies. I do not believe the subsidy calculator (in the link) is properly calculating the income limits for families. It is showing the same limits for single people when I try it now. I believe for a family of 4 the income level that no longer qualifies for subsidy would be $98,400 (400% of poverty level – the poverty level would be $24,600 according to that link). But I may be wrong about this?

* The subsidy is calculated using the average silver plan costs (this results in a $ subsidy amount for you – based on your income and the silver plan costs in your area). But you can select whatever plan you want. So if you selected a bronze plan it could be your subsidy percentage is higher, or you could select a gold plan and your subsidy percentage would be lower. The subsidy values will differ in the state depending on what health plans are available specifically in your location.

As you can see the subsidy is based on the hardship the health care premiums would place on the individual. If you have a fairly low cost plan and earn $48,200 your subsidy will be low. Since the costs are largely based on age (smokers also face an increased cost) this means that the subsidy increases a great deal as the costs skyrocket for those aged 50 to 64 (at 65 you can qualify for medicare and escape the huge costs of health insurance at that age.

I think many people would be surprised at how high your income can be and yet you still qualify for a subsidy, especially if you are a family.

The subsidy levels for those with very high health insurance costs (especially those over 50 years old, or with a family) are very large. If you are close to the subsidy cutoff level the costs of going over can be huge, costing you $5,000 or even over $10,000 just by making an extra $100.

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The Continued Failure of the USA Health Care System and Our Politicians

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Providing a health care is extremely costly everywhere. Rich countries nearly universally provide a health care system that allows all citizens to get needed health care. Nowhere is it perfect and nowhere is it cheap. And nowhere is it more of a mess than in the USA.

Sadly those we elect in the USA have continued for the last few decades to keep the USA healthcare system the mess we have now. The Affordable Care Act took a relatively small step in addressing several of the most flawed aspects of the USA system. It left unaddressed many of the major flaws. Instead of taking where we are now and making improvements to address the problems left from decades of Democrat and Republican created and maintained USA health care policy all we have had are demands to “repeal Obamacare.”

This is exactly the type on avoiding improvements to maintain the existing (for the last few decades) broken healthcare system those in the USA must live with. Cutting hundreds of billions from the budget to provide health care to the elderly is not improving the health care system.

Making next to no attempts to actually improve healthcare outcomes in the USA shows how flawed the current process is. It continues the behavior of the Republicans and Democrats for the last few decades. It is sad we continue to elect people behaving so contrary to the interests of the country.

The exceedingly costly health care system in the USA is in need of a great deal of work to improve the government policy that results in the mess we have now. Some of the huge issues we face.

photo of the Capital building in Washington DC

photo of the Capital in Washington DC by John Hunter.

  • Pre-existing conditions – this has long been a huge problem with the USA healthcare system and one of 2 major things ACA dealt with well. ACA greatly improved the USA healthcare system in this area, something that Democrats and Republicans had failed to do for decades. Current attempts by the Republicans are to gut these improvements. This is a completely unacceptable area for all but the most extreme people to even be looking at. That the Republican house members approved this radical removal of health insurance coverage from tens of millions of people and the vast majority of Republican senators has not expressed outrage and such attempts to punish those who have been sick in the past is pitiful. The USA even with the ACA does a much worse job on this measure than any other rich country in the world.
  • Medical bankruptcy – due to the decades of poor leadership by the Republicans and Democrats the USA is the only rich country with this as a macro-economic factor. The ACA made small moves to improve this but much more is needed. Instead of improving the USA healthcare system to deal with this long term problem the current Republican efforts will great increase the number of medical bankruptcies in the USA if they succeed in their efforts.
  • Massive cost-tax on all economic activity due to the costs of the USA healthcare system. The USA healthcare system costs twice as much per person as other rich countries (there are few countries with costs that have costs which the USA “only” 50% or 75%… but overall it is twice as costly) with no better outcomes than other rich countries. ACA did nothing to improve this (certain aspects of the ACA did but other aspects balanced those out), the new plans are not going to do anything to improve this (in a minor way it is possible reducing medical care for the elderly could reduce costs by having people die much sooner but given the mess of the USA healthcare system for many reasons the huge reductions in Medicare and Medicaid are unlikely to actually result in cost savings that are material).
  • Tying health care to the employer – The USA is one of the few rich countries to do this. Combined with refusing or providing only inadequate coverage for those with pre-existing conditions this is a great barrier to small businesses and entrepreneurship. ACA didn’t address this directly by eliminating the pre-existing condition failure it did greatly reduce the harm this causes the USA economy and individuals in the USA. The current proposals don’t address the problem and exacerbate the issue by returning the huge problems the USA system has in dealing with pre-existing conditions (it would be slightly better than before the ACA but much worse than what we currently have with the ACA).
  • A huge burden on individuals of dealing with insurance company paperwork, fighting with the medical system and insurance companies… Neither ACA nor the current plans made any improvements in this area.
  • The USA pays much more for drugs than any other country. This is directly the result of decades of failure by Democrats and Republicans to create sensible healthcare system policies for the USA. Neither ACA or the current plans made any significant improvements in this area.
  • Of interest to the readers of this blog the current USA healthcare system doesn’t deal at all well with the reality that tens of millions of USA citizens travel and live overseas. This is a complicated issue but it has been unaddressed for decades. It is pitiful that ACA didn’t address it and the current plans don’t address it. Even things that would be able to save tens billions of dollars by allowing healthcare to be preformed overseas (at much lower costs) for say Medicare are not addressed. There are complexities in how to craft policy to save tens and hundreds of billions of dollars this way. So it isn’t something you can expect to be addressed in a year or two. But they have had well over a decade since the obvious huge savings potential has been apparent and nothing. When you are going to cut health care benefits of the elderly to save money and don’t bother using wise policy to save money without reducing the care people receive you are failing as policy makers. And we are failing by continuing to elect these people that decade after decade fail to make wise policy decisions and instead force us to suffer with a poor healthcare system.

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New International Banking Solution for Small Business and Digital Nomads

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One of the significant hassles of a the new digital economy is that national borders are largely irrelevant to digital businesses but the banking infrastructure is still stuck in the past. Dealing with international payments is a hassle and can be expensive.

Transferwise has been providing good service for years in helping people move money between currencies at transparent and reasonable rates and with good service. They have a very interesting new service: Borderless banking. They allow you to create an account based on many countries in Europe as well as in the USA (about 30 states so far).

This is a great service, as I have written: finding an international business bank as a digital nomad is challenging.

You may hold funds in your Borderless account in 15 different currencies at the this time. You may send money to someone else using 50 different currencies via Transferwise. With a Borderless account you will be able to accept payments as a local company from Europe, UK and the USA – those paying you can send electronic payments as they normally do using their bank (the process is seamless to them, they treat your bank account just like any other they make payments to).

image showing the currencies Transferwise allows

Transferwise allows you to hold Borderless balances in these 15 currencies.

The fees are mainly a fee to change currencies (often between .5 and 1%) which is very reasonable. So if you hold money in USD and want to pay someone in Mexican Pesos you pay 1% (reduced to .7% over $10,000). USD to Indian Rupee is .9% (reduced .7% over $10,000).

Importantly currency conversion takes place at the real mid-market rate for the currencies (many banks hide fees by giving you bad conversion rates).

In checking costs on their site I have noticed changing from USD to another currency is often higher than from another currency to USD. For example, Euro to USD is 1%, USD to Euro is .5%. USD to Singapore dollar is 1% (reduced to .5% at $5,000) while the reverse is .5%.

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Use FI/RE to Create a Better Life Not To Build a Nest Egg as Quickly as Possible

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To me FI/RE is about creating conditions that allow you to focus on what you value. Some people do focus too much on saving money quickly as though the goal is to save as much as quickly as possible. But that isn’t what FI/RE means. FI/RE doesn’t mean make yourself a slave to saving quickly in order to remove yourself from being a slave to a job until you are 65.

Any concept can be misapplied. Two posts on related ideas:

The aim should be the best life, not work v. life balance

โ€œI achieved my goal by not my aim. That happens a lot, we honestly translate aims to goals. And then we do stupid things in the name of the goal get it the way of the aim. We forget the aim sometimes and put the goal in its place.โ€ Mike Tveite

FI/RE should be about figuring out what you value and examining the tradeoffs between working, spending and what you really want to get out of life. For some people getting a large investment portfolio quickly is more important than time off, taking expensive vacations, having a job they really like… For some they are happy to have a job they really like even though it pays less and it will take 8 more years to reach FI and be able to retire. FIRE is a process to examine what you value and really think about savings versus spending (largely important because of all the emphasis in our culture to spend and worry about the consequences of debt you took out to spend later).

If you turn FI/RE into an accelerated treadmill of working and not living that isn’t of much value in my opinion (it does have a little bit of value in that you are likely to reach a point where you are free but this is not a good path). You should think about tradeoffs of what you value (healthy living, family, learning, fun…) and what short term versus long term tradeoffs you make. You don’t have to go to the extremes some people do in order to adopt FI/RE principles and create a better life for yourself.

For some people the tradeoffs for achieving financial independence and the ability to retire at 40 are worth great sacrifices up until 40. That is fine if that is what they want. Others would rather make choices from 25 to 40 (lower paying jobs, splurging occasionally…) that mean they won’t reach financial independence until 48. That is also fine.

To me what is most important about FI/RE is examining the choices you make and taking control of the decisions instead of just floating along as so many people do without considering the choices they make. Frankly, doing that and deciding to not even retire early is fine with me (though I do agree it is a bit at odds with the name). Essentially what I mean is even in that case you can apply FI/RE principles, you just do it is a way that make it FI/RR. Where you Retire Realistically instead of as the majority of people do today don’t even come close to adequately considering and planning for their retirement (even at 65 or 70).

Related: ACA Healthcare Subsidy โ€“ Why Earning $100 More Could Cost You $5,000 or More – Getting Started Early on FI/RE– USA Retirement Savings Contributions Tax Credit

Insurance as a Digital Entrepreneur

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Insurance is one of the important aspects entrepreneurs, even sole proprietors, must include in their business plans.

Insurance for freelancers
If you are starting a small business or simply going it alone, make sure you have insurance that will cover the unexpected. Many freelancers starting out believe their insurance needs are similar to those of any other individual, but there are business considerations that influence what kind of insurance freelancers should choose. It is important to be covered in case of lawsuits and unforeseen circumstances that could arise related to your business. You may need insurance in addition to the regular home, health and auto insurance that everyone needs (assuming you have an auto).

Indemnity and Liability Insurance
Indemnity insurance is a fundamental starting point for any business, including freelancers. Indemnity is also known as personal liability insurance and it provides protection cover in the case of lawsuits by clients and customers who allege negligence through error or omission. This is an example of how a simple mistake, even merely an alleged one, can land you in court and cost you a lot of money. Indemnity insurance covers cases brought in civil court but not a criminal court and operates on a similar principle to malpractice insurance. Even minor errors can end in lawsuits and can begin with a simple accusation of false claims or an allegation of misleading advice given by you as a consultant.

You may be familiar with liability insurance from your auto or home or rental coverage. Liability insurance could provide financial protection if someone is injured on your premises. If you feel you need guidance concerning whether liability insurance is for you, speak to local insurance agents if you have questions.

This coverage can often be purchase from the same company you purchased you homeowners insurance from. Often when you purchase multiple types of insurance from the same company you will get a discount. Still it is always wise to get several quotes from different insurers.

Check Your Existing Insurance Coverage
You may feel that your home, auto, and life insurance policy that you have now is sufficient to cover your needs as a freelancer. However, it is worth double checking whether your existing policies are sufficient if you change your situation (for example, open a side business or become a digital nomad). For instance, you may feel comfortable that your home office is covered, but make sure that all the contents of your office space are insured. If you use your car for driving clients around and marketing, make sure these work activities are covered under your current auto insurance plan.

Your life insurance policy, whether it is 10, 20 or 30 years, should reflect your income as a freelancer. If your income fluctuates, talk to an insurance agent about what kind of life insurance is right for you. As a freelancer, you should make sure you have your own health and dental insurance, and you may decide on plans designed especially for freelancers. In addition, disability insurance is a very important and often overlooked type of coverage.

Media Insurance
You may never have heard of media insurance, but it is becoming more popular in an environment in which a few bad reviews on social media can seriously harm a business. This type of insurance can protect you in defamation and libel suits which can involve expensive legal fees.

As you branch out with your career and decide to freelance, keep in mind that not only are your finances taxes different, but your insurance needs will change as well. Consult with an agent concerning the best insurance solutions for you and your family.

Making Money as a Nomad in the USA

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There are many posts about how to make money online as a nomad. Some ideas work pretty well for some people (freelance work – especially as a digital nomad, writer, bookkeeper, etc.). The biggest problem isn’t learning about these options (they are repeated all the time in many different places online) but actually making them work for you. It can be done and is actually easy for some people, for others it is a very hard (the biggest challenges are having the right skills, marketing and establishing a base of clients).

I have been paying much more attention lately to nomads in the USA which opens up income possibilities in addition to online income. More than I ever saw in digital nomads there are some people making a decent amount from YouTube (documenting the vanlife/RV-life and their travels) – still this is likely a crowded market and being successful will be hard (but aiming at providing a small bit of additional income may be an option for a larger group of people).

In this video Kev provides a good recap of some of the nomadic and location dependant options: getting day jobs through craigslist and temp agencies. Another popular idea is workcamping. These are essentially temp jobs specifically targeted at nomads (campgrounds, farming help often at harvest time) and some that get lots of interest from workcapers Amazon… seasonal hiring, etc. These often don’t pay a large amount of money but for people that have very low fixed expenses (no “sticks and bricks” to pay for as they travel and live in the RV/van) it can work.

Another potential source of income for earning money providing services to other nomads (work on vehicles, install solar/electrical, haircuts, etc.).

Another idea that can work is an etsy store such as the one Driving and Vibing have earned most of their income from.

Kev also mentions a digital nomad income source in his video: human intelligence tasks (mechanical turk). Find some of the better options; though these usually don’t pay very little.

Related: Vanlife in the USA – Housing Savings When Living as a Nomad – Golden Rules for Making Money – Nomadic Businesses in the Age of the Internet

Health Insurance Considerations for Digital Nomads

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Health insurance is something that many young healthy people don’t think about. And many digital nomads are young healthy people, though not all of them are. And if you are from most rich countries you may not think about health insurance as your country makes it pretty easy to just be treated if you have health care needs, without a need to have bought health insurance.

But when you are traveling outside your country health insurance is important. I am not very familiar with the details of how health coverage works for all the different countries so you will have to figure it out for your own country. It wouldn’t amaze me if European countries set up some kind of reciprocal care agreements but I have no idea if they do (they should if they don’t).

In the USA we know what a nightmare health insurance is. The ludicrously expensive USA health care plans generally don’t provide any coverage when you are outside the USA (even inside the USA, but not in your own state there are severe limitations). There are many wonderful things about the USA but the health care system is a nightmare and has been for decades.

If you are going to fly off and become a digital nomad one of the critical items to consider (though many don’t give it the attention it needs) is health insurance. It is true that in many countries you can pay out of your own pocket for health care that would bankrupt you if you used the USA health care system and tried to pay out of your own pocket (tens of thousands of people go bankrupt in the USA due to health costs).

If you use good personal financial planning practices you should have at least 6 months of expenses in an emergency fund (and I would strongly suggest at least a year for any digital nomads). That emergency fund should be able to pay for routine medical visits in many countries (Malaysia, Thailand, India, Indonesia, Vietnam, Singapore… – I would imagine this is true in most countries, but certainly not the USA.) without a need for health insurance.

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Economics: Digital Nomads, Visas, Foreign Currency

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This is a slighted edited version of my comment to someone asking about countries that have laws specifically detailing digital nomads are allowed to work on tourist visas. My background is in economics and investing based on economic understanding.

The question of digital nomads working encompasses legal questions (do I need a special visa etc.), regulatory realities (regardless of what the law says how is it enforced at the ground level?) and economics (I am talking here about the benefits to the country economically from having digital nomads).

I like the economic thinking that should drive what the government’s wish to accomplish. The prohibition against work on tourist visas makes sense when work is defined as it was historically (being hired by a company in the country that otherwise would have hired a citizen). So when I am thinking about it I find thinking about the macroeconomic level view and how that is manifest in laws and policy. From a practical standpoint of being a digital nomad what really matters is how that all gets filtered down to the government employees on the ground making decisions.

Few laws say what is legal, they normally say what is not. I would imagine few countries specifically say it is legal to do work from another country (as a digital nomad, as a employee answering an business email on their vacation, as a private investor reading the news and using the internet to buy or sell a stock, as a writer writing a book that will be published back home, an entrepreneur refining ideas to launch a new business back home or whatever).

The laws usually are pretty clear you can’t apply for jobs and get hired by a company inside that country to do work in that country on a tourist visa.

“Thailand” has said it is ok to work as a digital nomad (work for some company outside the country) while on a tourist visa. But these pronouncements by officials don’t carry much weight with other officials so they are not worth much.

What is helpful is knowing the prohibitions against working are primarily about not having foreigners take jobs of the citizens. Digital nomads don’t do that. So they are not meant to be prohibited anymore than the other examples (an executive participating in a conference call from work while on vacation etc.).

But since it isn’t clear cut it can be confused by officials as something not allowed. It is much easier not to have to get low level officials to comprehend the intent of the laws. They think of it as tourists can’t work in the country and that is essentially true. But how “work” is defined is the issue; and digital nomad work doesn’t fit the description of work in that context.

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Should I Sell or Keep My House When I Become a Nomad?

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My friend Andrew published a post: So You Want to Travel The World But You Own a House (Or Apartment) which prompted me to add a comment and I figured I would share and expand on that comment here.

Owning rental property can be a wonderful way to help support your nomad, location independent lifestyle. Rental property can provide a source of regular income to supplement your earnings. Of course, getting a rental property into that state is usually something that takes time, or a huge downpayment.

I have found dealing with property management folks to be extremely annoying. First they charge ludicrous amounts (in my opinion), especially for places that have high rents (they normally charge a % of rent + huge amount to rent the place out). These costs greatly reduce the investment appeal of renting out your property. On top of paying them a huge amount they are not very customer focused (to me paying them, or to those seeking to find a place to live).

15 years ago I started renting out my first house and obviously created a web page for it. Nearly none of the expensive professionals did that back then. Only years later they finally were dragged into catching up. And still today, they post not nearly enough useful information.

Still it can be that even with these costs and frustration it makes sense as an investment (especially in the last few years when investment climate is so challenging).

Often the decision to rent out your home (versus selling it when you leave) is impacted by your long range plans. If you want to move back into your house in a year or two or five that limits your options. You may have to accept a bad investment to keep that option open. Especially if you are just going to go give the nomad idea a try for a year, selling may not be wise (unless you don’t want to return to your house even if the nomad idea doesn’t appeal to you once you try it).

photo of a house

Another consideration, even if you don’t care about moving back into the same house, but plan on moving back to the same city, is that if you sell and real estate values climb you could find yourself priced out of the market.

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Motivation and Delivering Solutions When You Work for Yourself

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When you work for a company you have clear expectations for performance. If you become your own boss, for example as a digital nomad, you operate in an system that doesn’t have the same structures to enforce you focus and deliver. In many ways this is exactly what people seeking the digital nomad life want, but it also can bring challenges.

If you find yourself having difficulty getting yourself to work without a boss what can you do?

Doing what you are passionate about is important. As an entrepreneur working for yourself, if you feel work is a chore that you want to avoid, you can easily to avoid it.

But it is likely it isn’t that you want to avoid work, you just don’t have the urgency to “deliver” working solutions quickly without some extrinsic pressure (boss or…).

To do lists work for some people. You focus yourself with specific targets. If that doesn’t work, a virtual assistant to track progress and serve as a personal re-enforcement mechanism can work, for some people. Publicly making a commitment can work for others (on your blog, or on fb or to your customer or to your spouse or parent…).

The virtual assistant is partially a combination of a to do list and a public commitment along with someone to enforce evaluating progress on the to do list.

Habits are a powerful influence on behavior. For some people all that is needed is creating the habit of working in the morning for 4 hours and then enjoying the rest of the day. They can then focus every day for a specific period of time and don’t waste time procrastinating or being distracted with other matters.

For some people setting up rewards for themselves can work. Once I achieve x then I can (get a new game, take a weekend trip to the beach…).

What is important is finding a solution that works for your psychology. Some digital nomads don’t need any of these tactics, but for some these tactics can be useful.

It is possible that the reason you have trouble focusing on work is that you just don’t care about what you are working on now, so you should look at the bigger picture and find something your are passionate about. But I think, in most cases, this type of issue with motivation or difficulty with procrastination is more likely to be a smaller matter of just creating a bit of urgency to deliver.

So the question is how do you do create an urgency to deliver in a way that works for you and leaves you with a situation you enjoy. Certain tactics would drive some people crazy. But what matters if not some perfect solution for everyone, but finding one that works for you.

Related: Finding an International Business Bank as a Digital Nomad – Supporting Virtual Workers – Statistics on Entrepreneurship – Delivering working software (Deming’s ideas on management)