Healthcare Coverage May Come With Estate Recovery Potential

June 25, 2015 | Kristine A. Tidgren

Overview

Recent announcements of proposed rate hikes by Iowa insurers likely mean that premiums for many individual insurance policies will rise substantially in 2016. Because of these increases, thousands of Iowans who have traditionally purchased health insurance policies from a broker on the individual market may instead decide to shop for policies offered through the Affordable Care Act’s (ACA)[i] online healthcare exchange (the Marketplace). Iowans with lower incomes—including some farmers with high dollar farmland or other assets—may be caught off guard by their limited choices. They may also not understand how their healthcare coverage decisions today could impact their assets after they die.

Background

Most enrollees in Marketplace policies are eligible to receive Premium Tax Credits (PTCs) to subsidize the price of their coverage. These PTCs are generally available to Americans earning between 100 percent and 400 percent of the federal poverty level (FPL) if those Americans live in a state that has not implemented Medicaid expansion. In states that have implemented Medicaid expansion, the PTC is not available to individuals eligible for Medicaid. In Iowa, for example, these PTCs are available only to those individuals with incomes between 133 and 400 percent of the FPL.[ii] Iowans with incomes at 133 percent of the FPL and below are not eligible for PTCs. If they attempt to purchase a standard Marketplace policy, they would have to pay full value for that policy, something they would likely be unable to do. Those Iowans would instead be required to enroll in a Medicaid policy if they wish to obtain affordable healthcare coverage.

Although enacted in 2010, many of the ACA’s most significant provisions were not implemented until last year. One such provision was the expansion of Medicaid coverage for adults ages 19 – 64 with incomes up to 133[iii] percent of the FPL. Although the ACA mandated that states expand Medicaid coverage to include this group of people beginning January 1, 2014, the U.S. Supreme Court essentially eliminated that requirement in June of 2012[iv] The Court ruled that the Federal Government could not constitutionally enforce the Medicaid expansion requirement by withholding other Medicaid funds from noncomplying states. The Court found that such enforcement would unconstitutionally expand Congress’s power under the Spending Clause of the United States Constitution[v].

This 2012 ruling effectively rendered ACA’s Medicaid expansion voluntary for states. Nonetheless, 29 states,[vi] including Iowa, agreed to expand Medicaid as contemplated by the ACA. This means that beginning in 2014, Iowans seeking to purchase insurance policies through the Marketplace are not eligible for PTCs if their incomes fall below 134 percent of the FPL. Options for these Iowans (who do not receive insurance from their employers) include:

  • enrolling in Medicaid
  • purchasing insurance through the Marketplace without the benefit of a PTC
  • purchasing insurance through a broker on the private market 
  • foregoing insurance and paying a shared responsibility payment since health care coverage is mandated for most by the ACA[vii]

Purchasing unsubsidized insurance is an unrealistic possibility for most. Consequently, Medicaid numbers will likely continue to rise as premiums rise and more low-income Iowans are unable to afford coverage on their own. In 2014, twenty-two percent of Iowa’s population was enrolled in Medicaid.

Iowa’s Medicaid Expansion Program

Iowa’s Medicaid expansion program, generally called the Iowa Health and Wellness Plan, comprises the following two programs:

Iowa Wellness Plan

The Iowa Wellness Plan covers adults under the age of 65 who have income at or below 100 percent of the Federal Poverty Level. Members choose providers from a network and receive local care.

Iowa Marketplace Choice Plan

The Iowa Marketplace Choice Plan covers adults under the age of 65 who have income from 101 percent through 133 percent of the FPL. These members receive coverage from insurers offering plans on the Health Insurance Marketplace. Medicaid, however, pays the premiums and any cost-sharing required under the Plan.

Adult Iowans enrolling in Medicaid are placed in one of these two programs. Because enrollment in the Marketplace Choice Plan is handled in a similar way as enrollment in non-Medicaid Marketplace plans, Iowans enrolling in these plans may not realize they are signing up to receive Medicaid benefits. They may also not realize that these Medicaid-expansion plans are subject to the same estate recovery rules as long term care Medicaid benefits. This is, of course, not the case for plans where PTCs are offered to moderate income Americans enrolling in a Marketplace plan. Although enrollees may be receiving their policies from the same source as non-Medicaid recipients, the Iowa Health and Wellness Plan enrollees—because they are receiving Medicaid benefits—face very different potential consequences.

Iowa Medicaid Estate Recovery Program

The Iowa Medicaid Estate Recovery Program (ERP) is an often-overlooked companion to the Iowa Medicaid expansion program. The ERP exists to recover assets from the estates of certain decedents to recoup the cost of the Medicaid benefits they received during their lifetimes. Although estate recovery is mandated by federal law, each state is free to implement its own program as long as it abides by the mandatory federal guidelines. Iowa’s program—as established by the Iowa Legislature[viii]—is more expansive than that dictated by federal standards.

Iowa’s ERP applies to Medicaid recipients over the age of 55 and to Medicaid recipients of any age who are in long term care with no reasonable expectation of returning home. This means that the Iowa ERP applies to benefits provided to Iowa Health and Wellness Plan (Medicaid) enrollees over the age of 55.

As stated by the Iowa ERP, “Estate recovery application to the Iowa Health and Wellness Plan, which is part of Iowa Medicaid Program, is required under the law.”[ix] The policy behind the ERP is that “Iowans get comprehensive, low-cost health care without having to sell off/liquidate their assets (house, cars, retirement plans) while they are alive to pay for their medical expenses.”[x]

For purposes of the ERP, Medicaid recipients accrue a “debt” during their lifetimes equal to the amount of Medicaid benefits paid on their behalf. As explained above, these benefits include all Medicaid payments expended on behalf of enrollees in an Iowa Health and Wellness Plan.

The Iowa ERP does not begin to collect Medicaid “debt” until after the death of the Medicaid recipient. At that time, repayment is based on the estate’s ability to pay. For insolvent estates, ERP obtains no recovery. ERP cannot seek repayment of the debt from relatives or other interested persons. If there are assets in the estate, however, ERP recovers as much of the “debt” as possible from funds remaining once funeral, legal, tax, and final medical expenses have been paid. If the decedent leaves a surviving spouse or an adult disabled child, the ERP will waive recovery until after the death of the survivors.

Iowa ERP reports that it opens and closes approximately 9,000 cases annually. Of those, only 506 Medicaid claims are repaid in full.  It also states that “to the extent assets exist for a citizen whose healthcare was covered through taxes on others, those assets should be rightly subject to recovery at the time of death to the extent allowed by law.”[xi]

This all means that without appropriate planning, personal and family business assets (such as farmland and operational assets) can be subject to the state’s post-death estate recovery claim.

Conclusion

Because of the ACA, many low-income Iowans 55 and older (who are not yet eligible for Medicare) are now eligible to receive taxpayer-funded healthcare benefits. In Iowa, these benefits are dispensed in much the same way as other health care benefits offered through the ACA’s Marketplace. For this reason, some enrollees may not fully understand that they are receiving Medicaid benefits. While these benefits are a huge help to many, it is important for Iowans to know that they do come with strings attached. If recipients have assets when they die, ERP will, in most cases, be required to recover them from the recipients’ estates to settle the Medicaid “debt.” This may come as a surprise to some and could impact their healthcare coverage decisions.

 

[i] Patient Protection and Affordable Care Act of 2010, 124 Stat. 119.

[ii] The viability of these PTCs in states like Iowa where a federally-facilitated Marketplace is employed was just affirmed by the United States Supreme Court. King v. Burwell, 759 F.3d 358 (4 th Cir. 2014), cert. granted, 135 S. Ct. 475 (2014), affirmed June 25, 2015: http://www.supremecourt.gov/opinions/14pdf/14-114_qol1.pdf.

[iii] 42 U.S.C. § 1396a(a)(10)(A)(i)(VIII). Because the federal guidelines require the states to use Modified Adjusted Gross Income in calculating Medicaid eligibility determinations, the expansion could more accurately be said to include Americans at or below around 138 percent of the FPL.

[iv] Nat'l Fed'n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012).

[v] U.S. Const. Art. I, §8, Clause 1.

[vi] The District of Columbia is included in this count.

[vii] Those individuals who can prove hardship are exempt from making the shared responsibility payment, which in 2015 is $325 per person per year or 2 percent of yearly household income, whichever is more. However, persons eligible for Medicaid coverage are not exempt from the penalty (unless they qualify for another exemption such as income below the income tax return filing requirement).

[viii] Iowa Code § 249A.5(2).

[x] Id.

[xi] Id.