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Tuesday, February 11, 2014

How Obamacare Raids the Assets of Low-Income Older Americans

One feature of Obamacare that Lambert has mentioned in passing in his posts is that individuals over 55 who are enrolled in Medicaid are subject to having expenses like being in a long-term care facility, home services, and related drugs and prescriptions clawed back from their estates. A must read post at Paul Craig Roberts details how pernicious and sneaky these provisions are.

The pilfering of assets of low-income Americans results from the interaction of several nasty features, and the article contends none of these were an accident (as in objections were made when the Affordable Care Act was being drafted and were ignored). 

The estate recovery feature of Medicaid is pre-existing, from the Omnibus Reconciliation Act of 1993. But it didn’t seem to have much practical effect when it was added because Medicaid had an assets test which meant that people with meaningful assets were not eligible. As the article explains:

OBRA 1993 requires all states that receive Medicaid funding to seek recovery from the estates of deceased Medicaid patients for medical services received in a nursing home or other long-term care institution, home- and community-based services and related hospital and prescription drug services regardless of age. It also allows, at state option, recovery for all services used in the Medicaid state plan at age 55 or older. At minimum, states must pursue recovery from the probate estate which includes property that passes to heirs under state probate law, but states can expand the definition of estate to allow recovery from property that bypasses probate. This means states can use procedures for direct recovery from bank accounts and other funds. The state keeps a running tally, and even if you have a will, your heirs are chopped liver. Estate recovery can be exempted or deferred in certain situations after your death, but the regulations for this are limited and complicated with multitudes of conditions.

Now consider the ACA changes. First is that Obamacare expanded Medicaid eligibility. The ACA ended the asset test.

Second is that enrollment in Medicaid is now mandatory. If you or your family make less that 138% of the Federal poverty level, which in the 48 states and Washington DC would be $16,105 for an individual and $32,913 for a family of four in 2014 you are enrolled unless you fit in a short list of categories, such as being in jail, being in a state that opted out of Medicaid expansion, or being a member of an Indian tribe. You cannot opt out of Medicaid because you object to the estate recovery. You have to pay the penalty if you want out. And there are many routes by which you can become enrolled: by applying on an exchange and having it determine your income is too low to qualify for private insurance; by being in the SNAP (food stamps) database; by having an Obamacare plan but having a fall in income that puts you in the Medicaid category.

So if you have low income (by virtue of unintended early retirement, or even bad performance on your investment portfolio) but a decent level of assets, you can be caught in these provisions and have assets you had hoped to leave to family members instead taken by the government. And before you try arguing that that’s somehow fair, consider that the estate tax exemption is now $5.34 million. As the article points out:

Some might think it fair that those who are enrolled in Medicaid pay back the benefits they received. However, under a mandate that requires all Americans to be covered by health insurance or pay a tax penalty to the IRS, estate recovery is unconscionable since Obamacare offers no other viable option for this income-segment of the population. It also discriminates by age since only Medicaid enrollees who use benefits in the state plan at age 55 and up are subject to estate recovery, but those who use benefits at age 54 or less are home free unless they receive long-term care. Under federal law, discrimination is not permitted on the basis of age, but, obviously, the U.S. government turns a blind eye to to its own law. Perhaps, when states need more money due to the Obamacare expansion of Medicaid, and as the jobless economy continues causing more people to be eligible, age discrimination will be broadened to 45 and up.