END OF 2018 OPEN ENROLLMENT PERIOD (41 states)

Time: D H M S

Return to East DieQuicklington: The Medicaid Gap Workaround Confirmed (with an unpleasant twist)

Hey, everyone, remember this from March?

If I'm reading this correctly, it looks like a whole lot of poor people in non-expansion states were effectively forced into padding their official income in order to qualify for federal tax credits due to their GOP overlords being jackasses. I'm not sure whether that's a problem legally (as opposed to deliberately cutting your official income), but it seems to me that this will only work for so long before it catches up with them recordkeeping-wise?

...here's a simplified example of how it works:

  • Let's say that you live in a non-expansion state; let's call it East DieQuicklington.
  • Let's say that in ED, you only qualify for traditional Medicaid if your household income is below $10,000.
  • Let's say that it's just you and your spouse, no kids. The Federal Poverty Level for 2 in a household in 2014 was $15,730, but let's call it $16,000 even for simplification.
  • Let's say that you and your spouse's combined 2014 income was $14,000 even.

IF ED had expanded Medicaid, you'd qualify for Medicaid because ACA expansion covers a household of 2 up to around $22,000 in income. However, East DieQuicklington's Governor and/or state legislators are Royal Assholes, so now you're screwed, because you make too much to qualify for Medicaid, but not enough to qualify for a federal tax credit via Healthcare.Gov (or your state-based exchange; believe it or not, there's actually 1 real state, Idaho, whichhas a state exchange but didn't expand Medicaid). This is the infamous "Medicaid Gap", and over 3.8 million people are stuck in it nationwide.

So, here's what these folks could do (theoretically, of course...I'm in no way advocating anyone doing this):

  • Go to the ACA exchange and apply. When it asks for what you estimate your 2015 income will be (or 2016 at this point), you enter $16,001.
  • That means you'll just barely qualify for the maximum federal tax credit, which you can use to enroll in a private Qualifying Health Plan via the exchange at a very low premium cost.
  • In addition, if you select a Silver plan, you'll also just barely qualify for the maximum Cost Sharing Reduction program, which will reduce your deductible and co-pays substantially.
  • The following year, when you file your taxes, it turns out that your actual household income turned out to be around $14,000 after all.
  • IN THEORY, you would have to pay back the full amount of the federal tax credits (which would be something like $7,000 or so...or a whopping 50% of your total income for the year)
  • However, the IRS is saying that they're not gonna go after you for this since a) there's no way in hell that they'd ever be able to collect (anyone with that low an income isn't gonna have 2 pennies to rub together, much less over $5K sitting around), and b) because the Treasury Dept. personnel have souls, unlike the Republicans running non-expansion states.

While this may sound like a "scam", bear in mind that even with a massive federal tax credit and cost sharing reductions, this will still almost certainly end up costing the enrollee far more than actual Medicaid would.

At the time, I was presenting this as pure theory (and it turns out that Kaiser Health News reporter Phil Galewitz had written a whole story about this quirk way back in 2013 anyway). I figured it was both an interesting thinking exercise which might help explain some of the seemingly-odd income percentage breakdowns in non-expansion states as well as being a repudiation of the states which have refued to expand Medicaid for very little good reason.

In fact, I even included this disclaimer at the top:

CLARIFICATION 3/15/15: No, I don't have any hard proof that anyone has done this or that anyone will do so. For all I know, not a single person has done this. I'm just saying that it's a) easy to do, b) perfectly legal (how do you know for certain what your expected income will be in the future?) and furthermore, c) not unethical, as you'd have to be in pretty dire straits to do this, as shown below.

However, it now appears that the bold-faced part above is no longer the case...and the "not unethical" part needs a serious caveat:

Huggins, who was sleeping on a friend’s floor, says she handed the man her Social Security and ID cards and he filled out a form.

Her form, along with 600 others from across the Carolinas, went to Charlotte insurance agent Will Kennedy. Almost all the applications he submitted had an estimated annual income of $11,700, and many of the addresses were the Urban Ministry Center and other homeless help centers, according to a complaint filed with the N.C. Department of Insurance.

Hmmmm...that sounds awfully familiar...and sure enough:

...Kennedy, 43, a tax accountant turned insurance agent, says he found a legal, risk-free way to work around that. He encourages the homeless to estimate income from barter, panhandling and “street hustling” at $11,700 a year, which, he says, can get the federal government to foot the entire bill for high-deductible insurance. It’s not ideal, he says, but it’s better than having no insurance.

“What I have done, and what I make no apology for, is to work diligently to inform low-income individuals about their rights under the ACA and to help those who qualify obtain the health insurance for which they are eligible,” Kennedy said.

Kennedy is certainly making the case that what he's doing isn't unethical because hey, he's just helping out the poor folks stuck in the Medicaid gap, and this is still better than nothing.

HOWEVER, there's a big difference between someone in truly dire straits "overestimating" their income (wink, wink) themselves out of desperation, and an insurance broker doing so on their behalf (aggressively so). That difference is this:

The CoventryOne plans Kennedy sold cost the federal government between about $2,500 and more than $7,000 a year, depending on the customer’s age and smoking status. Those payments go directly to the insurance company, which is owned by Aetna, and Kennedy gets a monthly commission on each policy. Kennedy and Aetna declined to say how much that commission is, but two agents familiar with Aetna’s commissions say it’s about $15 a month. For 600 policies, that would come to $9,000 a month.

Um...yeah, that's a wee bit different. In addition, as I noted in my original March piece, depending on where you live and the policy that you end up enrolling in, you might be worse off than not having any insurance at all, since you could end up with high deductibles and co-pays...when before, some organizations give free assistance if you're not insured:

Today Huggins is among dozens in Charlotte who are learning that their “free” coverage requires them to cover a $5,000 deductible and costs them eligibility for some of the free medical services they’ve relied on.

“We have people who really need their medicine, and we can’t give it to them,” said Susan Royster of Charlotte-based NC MedAssist, which provides free prescription drugs for the uninsured.

I don't know all the details here, of course; it's possible that Mr. Kennedy is being sincere when he says that he's doing this for purely altruistic reasons...but that $15/month commission per enrollee certainly makes his purity-of-purpose stance a bit harder to accept, especially if he's not explaining the full ramifications to the enrollees before going through the process.

Of course, all of this would be a moot point if the Carolinas (along with the other 18 states which still haven't expanded Medicaid under the ACA) would just go ahead and do so.

Postscript: The reporter in the above story happens to be one Ann Doss Helms, otherwise known around these parts as reporter who spawned "The Luis Lang Saga" last month.

UPDATE: Back in January 2014, KHN reporter Jenny Gold wrote a related story about a different insurance "navigator" who kind of/sort of did the same thing...except that in this case, the navigator appears to have fully informed the enrollees of what they were doing, b) encouraged them to legitimately scrap together enough income to actually squeak over the tax credit threshold, and c) as a navigator, doesn't earn any commissions for enrolling people anyway. In other words, in this case, the navigator's sole goal is to help the uninsured get covered legally, with no extra financial incentive to do so for any particular person. Night and day.