Impact of early retirees eligible for Medicaid could be small

Several million middle class people making up to $64,000 will potentially be eligible for Medicaid in 2014, according to the Affordable Care Act (ACA).
For over 20 years, tax law has generally excluded a portion of Social Security benefits from income for federal tax purposes, notes Chris Stenrud, deputy assistant secretary for public affairs at the U.S. Department of Health & Human Services (HHS).

This exclusion phases down for higher-income taxpayers, has been reduced in scope over time, and benefits recipients of Social Security disability and survivor benefits, as well as retirees, says Mr. Stenrud. "The income definition used in the health care law to determine Medicaid eligibility and to compute tax credits continues this exclusion," he says.

Although excluding a portion of Social Security income when determining Medicaid eligibility results in more people appearing eligible for Medicaid, adds Mr. Stenrud, the number of people actually expected to enroll in Medicaid is far lower.

"HHS estimates that more than 70% of people affected by this policy are already enrolled in employer-sponsored private insurance or Medicare," says Mr. Stenrud, adding that these individuals enrolled in Medicare are not eligible for Medicaid under the ACA expansion of Medicaid coverage to low-income adults.

HHS estimates that only a small percentage of people with Social Security income would enroll in Medicaid, according to Mr. Stenrud. Most are people who have retired before age 65 and decided to receive reduced Social Security payments, he explains, and others include people with disabilities who are not yet eligible for Medicare because of the two-year waiting period and children whose parents are deceased or disabled, as well as widows and widowers.

Mr. Stenrud says that HHS has worked with states to keep Medicaid costs down and sustain coverage in the program as the economy is recovering. "However, we are concerned about state budgets," he says. "We are exploring options to address this issue, so that we can use taxpayer dollars responsibly while ensuring that all Americans have access to affordable, high-quality health insurance coverage."

Enrollment not compulsory

The issue is the treatment of Social Security benefits under the income calculation methodology, says George Washington University law professor Sara Rosenbaum, JD.

"Potentially, the number of persons who qualify for Medicaid once the new income methodology is applied to their Social Security payments may be large, " says Ms. Rosenbaum. "But I question how many of them ever would turn into Medicaid beneficiaries."

First, an individual would have to have income below 133% of FPL to qualify, says Ms. Rosenbaum. "There obviously may be some people who would qualify on a spend down basis, if their Social Security benefits are exempt, but the 133% rule does not apply to spend down applicants, and is not applicable to Medicare beneficiaries. That is one limiting factor," she says.

It's possible that if an individual with a disability is receiving Social Security and doesn't have Medicare yet, he or she could be eligible for Medicaid once Social Security payments are disregarded, whereas without the disregard the applicant's income would be over the 133% FPL, says Ms. Rosenbaum.

"The question is, how many of them would apply for Medicaid? The number may seem large, but when you think about how it would translate into actual enrollment in the program, my guess, for a number of reasons, is that the number is very small," says Ms. Rosenbaum.

Another issue is that it's not a compulsory enrollment requirement, notes Ms. Rosenbaum, and the number of low-income Medicare beneficiaries who are able to get social security benefits who enroll in Medicaid is low.

"This is an aspect of the law that people hadn't really focused on until now," says Ms. Rosenbaum. "But once you look at the limitations of who the new MAGI [Modified Adjusted Gross Income] methodology applies to, and the voluntary nature of the program, the actual effect of this may be pretty small."

Contact Ms. Rosenbaum at (202) 994-4230 or Sara.Rosenbaum@gwumc.edu.