Thursday, October 23, 2008

Social Security COLA Increases and Coordination of Benefits. 
Dr. Helen has a blog post up on senior griping over the unintended consequences of raising the Social Security payout by 5.8% this year.

The comments are full of people who slam the entitlement mentality of some of those seniors who complain. But conservatives shouldn't be so quick to pooh-pooh those concerns. Here's why:

There is a branch of financial planning that specializes in special needs planning for the handicapped, and another that specializes specifically in Medicaid planning. There is a good deal of overlap in that Medicaid largely serves the elderly poor and the chronically handicapped, especially the indigent. Medicaid, as a matter of fact, is one of the largest if not the largest payors of nursing home care for the elderly.

Now, in order to qualify for Medicaid, recipients must meet some extremely draconian eligibility criteria. Specifics vary by state, but an individual cannot receive Medicaid unless he or she has an income at or below what amounts to the poverty level, AND does not have more than a certain amount of countable assets.*

Now, imagine a middle-class guy who's worked hard all his life, but who, 80 years old can't work anymore, and needs assistance in his day to day activities. He's been responsible, and has tried to put away a bit of a nest egg, which he has annuitized in order to guarantee him a subsistence-level income. Now, he may have done some planning before, and he's got Social Security coming in, in addition to a monthly payout from his annuity. He has already sold all of his other assets in order to pay for care. Let's assume he does not own a home, or if he did, he sold it to pay for nursing home care, too.

Under the old rules, his Social Security check and his annuity payout were low enough to keep him from being disqualified for Medicaid and being forced to pay for care out of his own pocket.

But what if, under the new rules, an unexpected 5.8% increase in his Social Security, combined with his annuity, put him over the Medicaid limit?

After all, under the current rules, there is no phaseout for medicaid eligibility (though maybe there should be.) If you go ONE DOLLAR over the allowable monthly income limit for Medicaid, you disqualify yourself from the whole kit and kaboodle.

Now, few people collecting Social Security alone will have checks large enough to bust the limit by themselves. But remember, this is a guy who saved something. Who did the right thing and tried to provide for his future. Now, he's disqualified for Medicaid - and unless rules change, he could be disqualified permanently, based on a sudden increase in Social Security payouts.

But he's got no other assets with which to pay for care. And his income is nowhere near sufficient to pay nursing home costs of 150 to 200 DOLLARS PER DAY. (The average daily cost of nursing home care in Florida is $236/day, and rising faster than inflation.

So if he's got no assets, his income doesn't get within spitting distance of the money he needs to raise, and no Medicaid eligibility, what do conservatives suggest we do with this man? And given that he's stuck with the Medicaid eligibility rules we have, not the rules we wish we had, how can we slam him for griping at losing his Medicaid eligibility?

The irony is that conservatives are oh-so-attuned to absurd incentives in the income tax code that reduce the marginal value of the next dollar of earned income, and are constantly on the lookout for situations where earning the next dollar could cause cause the taxpayer MORE than a dollar in a combination of lost credits and higher tax brackets.

Coordination of benefits is an absolutely legitimate concern, and it's serious business. I hope State Medicaid coordinators are on the ball with this one... and conservatives should take a chill pill rather than conduct knee-jerk attacks on seniors who could not have seen this coming, and like our hypothetical 80 year old, will wind up punished for doing the right thing.

After all, someone who had ZERO annuity income would not lose Medicaid eligibility from Social Security payments alone. It is only the one who saved something to provide for himself in later years who would take it on the chin....indeed, the consequences to a responsible man in our imaginary friend's position could be catastrophic.

Long Term Care insurance? Maybe he should have it. But hardly anyone was selling it 20 years ago, when he was 60. Suppose he tried to buy it, but was uninsurable by then?

Splash, out


* (Certain assets are considered non-countable under medicaid rules, including a certain amount of home equity if the applicant lives in or is expected to return to the home, one car, a burial plot, and certain annuities that meet specific criteria. Even then, the state generally becomes the first beneficiary of any such assets until it recovers its Medicaid expenditures on the Medcaid patient.)

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