Little-known provision in health insurance expansion allows state to recoup certain medical costs after death, including via liens
February 5, 2014
More than 200,000 low-income Illinoisans have applied for new coverage under Medicaid, the state-federal health insurance that was expanded in Illinois and several other states as part of the Affordable Care Act.
But for certain members of that group, the new coverage could come with strings attached.
A little-known wrinkle in the federal health insurance expansion could put at risk the house and other assets of those ages 55 to 64 should they require substantial and expensive health care treatments.
The issue arises because of a provision in the long-standing laws governing Medicaid that compel states to recoup certain medical costs after a person dies, either via liens placed on an individual's home or claims on their assets.
Before implementation of the health care law, colloquially known as Obamacare, only pregnant women, children and those with disabilities qualified for Medicaid.
Further, the asset-clawback provision typically was applied only to people with disabilities older than 55, or those in long-term care, like in nursing homes or other assisted living facilities.
Because Illinois opted to expand eligibility of its Medicaid program to all individuals who make less than about $15,800 a year, a cross-section of relatively healthy early retirees and older workers who unexpectedly lost their jobs and who are too young for Medicare is in danger of getting snagged.
The potential issue applies only to those ages 55 to 64 and newly enrolled in Medicaid, the free coverage paid for almost entirely by the federal government. Those who signed up for private coverage on state-based insurance exchanges are not affected.
Although complaints are mounting from consumers and advocacy groups about ambiguity over how or whether elements of the clawback provision will be enforced, neither the state nor the federal government has provided any clarity, leaving consumers to deal with uncertainty.
"As it stands now, it's hard to say how big of an issue it is, because there are so many unknowns," said Elaine Ryan, a vice president with AARP.
The resulting uncertainty has deterred some people older than 55 from signing up, while others who are enrolled are second-guessing their decision.
"We really hoped for (the government) to clarify this earlier. The concern is that people are hearing these things, like their home might be seized, and they don't go on Medicaid because of that," Ryan said. "The best thing we can say now is, if consumers have concerns, (they should) find out about how your state applies estate recovery."
Even without knowing full answers, policy experts say it's unlikely the states, even cash-strapped Illinois, will go after the assets of Medicaid patients who became newly eligible under the expansion, citing the costs associated with pursuing those assets and the potential political fallout of such a move.
The asset-recovery provision came long before the health care law. It was enacted in 1993 by a Congress worried about rising costs to administer the Medicaid program.
Under the change, states were mandated to try to recover costs from the estates of the deceased who used the program for long-term care, which can cost up to $8,000 a month. States also were given the option to recover other health care expenses, including those for routine medical care.
Several states took that route, including Illinois, which reserved the right to recoup any cash or cost of medical assistance from the estates of those enrolled in the Aid to the Aged, Blind, or Disabled program, a branch of Medicaid.
While Illinois officials said the state does not seize or repossess property from Medicaid patients, it collected $151.5 million from their estates from 2009 to 2014.
Patricia Rosato, of the Rogers Park neighborhood, a 62-year-old retiree with a limited income, was eager to apply for Medicaid when she signed up in December.
After retiring in 2009 from a career as an art professor, she has lived off a meager pension and interest on her savings, making the $557 a month she paid for health insurance a major expense.
Soon after submitting her application, she learned from friends of the possibility that the state may place a lien on her property for any health care costs she accrues during her time on the program.
She was aghast.
"If it's true, then why isn't it part of our public conversation?" Rosato asked. "It's suspicious that this information would not be visible and accessible to the public."
Because she has no known health problems and rarely sees a doctor, the free coverage offered under the program would act as a safety net of sorts, allowing her to stretch her savings longer into retirement.
But now she said she will opt out of Medicaid if the state decides to pursue her estate, in part because she'd like to bequeath her condominium and other assets to her daughter, and in part because she's not happy about what she said was a lack of transparency on behalf of the government.
"Why would I be part of a program that's so devious?" she said. "I would step out just because it's a matter of principle. This is not how the health care system should be financed or operated."
With Rosato's limited income, Illinois' insurance exchange would automatically route her to Medicaid. Now, she and others like her face a choice: While she could continue to buy health insurance directly through her insurer, she would not be eligible for federal tax credits to help offset the cost of buying the private policy.
Under current state law, Illinois can file liens against a patient's real property that will be paid once the property is sold. The regulations also allow for exceptions in certain cases, including those where there is a surviving spouse, a minor child or if the home is a farm and a family member's employment depends on retaining the property.
The state also can file claims against the estate of people after they die, which includes property and other assets. The regulations apply to Medicaid members who were receiving benefits at the time of death, as well as those who moved off the program before dying.
Illinois has the power to recover the cost of all medical assistance, including routine care, paid after a Medicaid member reaches age 55. The state also can seek to recoup the costs associated with long-term care like nursing home stays, regardless of a patient's age.
Although Obamacare didn't modify the asset-recovery law, it made it mandatory for most Americans to carry health insurance and expanded the number of people ages 55 to 64 who are eligible for coverage.
In another twist, all new Medicaid patients in Illinois were placed into so-called managed-care programs, in which the state pays insurers on a per-member per-month basis. That means people like Rosato will be racking up health care costs even if they don't seek any medical care.
In theory, that money could all come out of their estates once they die.
"We're in some level of uncharted territory here," said Matt Salo, executive director of the National Association of Medicaid Directors. "For the most part, nonelderly adults didn't get into the program in the past unless they were very disabled or really sick, so the number of people for whom estate recovery was applied was very small."
But when the doors swung open Jan. 1 in Illinois, the calculus changed, and the various state and federal laws that govern estate recovery leave much unclear.
Nonetheless, Salo doesn't think states will place claims on the real property or assets of new Medicaid patients unless they rack up extraordinary bills, calling the process of asset recovery politically fraught and prohibitively expensive.
"Unless you're going to end up using a whole lot of resources — if you have an organ transplant or wind up in a nursing home — (states) are not coming after you," Salo said. "It's in nobody's interest, least of all the states, to go nickeling and diming people for $10,000 because they enrolled in Medicaid for a couple of years."
Some states, like Oregon and Washington, opted to tweak regulations to clarify that asset-recovery efforts would apply only to long-term care.
But others, like Illinois, have said little to nothing, opting to wait for the federal government to clarify its stance on how or whether states should act.
"We are in the process of reviewing our current policy in light of the Affordable Care Act, as well as existing state law and state rules," said Mike Claffey, a spokesman for the state of Illinois.
He said the state has been awaiting clarification from the federal government and plans to consult with the General Assembly. He did not provide a timetable.
Aaron Albright, a spokesman for the federal Centers for Medicare & Medicaid Services, said in a statement: "We recognize the importance of this issue and will provide states with additional guidance in this area soon."
That's little comfort to people like Richard Finkelstein.
Like many of the new Medicaid enrollees in their 50s and 60s, Finkelstein, 62, owns an apartment, in the Lakeview neighborhood, and has investments and savings. But after retiring as a consultant a few years ago, he doesn't make much money and lives off modest withdrawals from his savings.
He intended to purchase a new private insurance policy via the Illinois health insurance exchange with the help of a government subsidy. But his low annual income sent him to Medicaid.
He was hoping for it to be little more than a short-term bridge between his early retirement and Medicare. Now, he's not so sure.
Had he known about the asset-recovery provision before signing up, he said he would have purchased a private plan instead, with no strings attached.
"How do I know they're not putting a lien on my estate as we're talking right now?" Finkelstein said Tuesday. "No one told us about this. No one has any answers now, and whatever answer they give me today can change on a dime.
"I don't think anyone really thought this through, and to me, this is the biggest insurance scam ever."
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