RETIREMENT RESEARCH March 2018, Number 18-5 HOW MEDICAID HELPS OLDER AMERICANS By Steven A. Sass* Introduction Medicaid and Retirees Medicaid is generally not the first program that comes Medicaid is a means-tested medical insurance pro- to mind when discussing government health care for gram jointly operated and funded by the federal and older Americans. Its counterpart, Medicare, is the state governments. The federal government specifies primary health insurance program for seniors of all mandatory and optional beneficiaries and services. income levels, while Medicaid’s beneficiaries span The states operate individual Medicaid programs a broad age range and typically have low incomes. and decide which, if any, of the optional beneficiaries However, Medicaid does offer critical benefits to and services to cover. The federal government then many retirees and those approaching retirement. For matches state expenditures. The match is dollar-for- eligible retirees, Medicaid provides insurance directly dollar for states with per-capita income at or above the or pays their Medicare premiums and co-pays. It is national average, and up to three dollars-for-one in also the single largest source of long-term care sup- the poorest states. In 2016, the federal government port for the elderly, covering about half of total spend- covered an estimated 63 percent of total Medicaid ing on these services. Finally, in states that adopted expenditures.2 the Medicaid expansion under the Affordable Care The federal government created Medicaid in 1965 Act, the program insures about one out of six Ameri- as a complement to its existing welfare programs. cans approaching retirement.1 Medicaid covered recipients of Aid to Families with This brief offers a primer on the role of Medicaid Dependent Children, the cash benefit program for for retirees and near-retirees. The discussion pro- low-income children and their parents or caretak- ceeds as follows. The first section reviews Medicaid ers. It also offered states federal money to insure benefits for the elderly, ages 65 and over. The second recipients of what became Supplemental Security section reviews benefits for those approaching retire- Income (SSI), the cash benefit program for disabled ment, ages 50-64. The third section discusses how and elderly individuals with low incomes. Given ris- these groups, particularly those 65 and over, fit within ing medical costs and variability in the need for care, the context of the larger Medicaid program. The final Medicaid coverage assured a basic level of well-being section concludes that the need for Medicaid benefits far more effectively than an increase in monthly cash by older Americans will rise as the population ages benefits. Medicaid also absorbed an existing federal- and medical costs continue to increase faster than state program – Medical Assistance to the Aged – that household incomes. Whether Medicaid meets this covered the health costs of “medically needy” elderly need depends on the outcome of the ongoing policy and disabled individuals, who would be impoverished debate over the size and scope of the program. if they had to pay those bills themselves.3 * Steven A. Sass is a research fellow at the Center for Retirement Research at Boston College. 2 Center for Retirement Research In response to the continuing rise in health care to the poverty line, Medicare and Medicaid combined costs since Medicaid’s creation, Congress allowed provide much the same benefits and income protec- the states to extend Medicaid benefits to a broader tion as full Medicaid coverage for SSI recipients. range of the population.4 Among the elderly, only SSI By far Medicaid’s largest expenditures for the recipients get full Medicaid insurance coverage. But elderly are on long-term care. Medicare essentially state Medicaid programs can cover certain Medicare does not cover long-term care.7 But Medicaid does. out-of-pocket costs for two types of individuals: “quali- Given the high cost of care – $46,000 a year on aver- fied” and “qualifying” beneficiaries. For qualified age for home-based care and $82,000 a year for a beneficiaries, who have incomes up to the federal nursing home – many middle-income and even well- poverty level, Medicaid can pay their Part B premi- to-do elderly Americans exhaust their assets, become ums, co-pays, and most out-of-pocket drug costs. For “medically needy,” and rely on Medicaid to pay the qualifying beneficiaries, who have incomes up to 135 bills.8 As a result, over 60 percent of all nursing home percent of the poverty level; Medicaid can pay their residents are Medicaid beneficiaries. With respect to Part B premiums (see Table 1).5 all long-term care services for the elderly, Medicaid is also the dominant payer, covering close to half of total costs (see Figure 1). Table 1. Monthly Income Limits for Elderly Medicaid Eligibility by Type of Benefit, 2018 Part B Figure 1. Medicaid’s Role in the Provision of Medicaid Part B premiums insurance premiums Long-term Care for Individuals Ages 65+, 2012 & co-pays (SSI) (Qualifying) (Qualified) Private insurance, 11% Individual $750 $1,032 $1,386 Couple 1,125 1,392 1,872 Note: See endnote 6. Sources: U.S. Social Security Administration (2017, 2018); Medicaid, and author’s calculations from Centers for Medicare & Med- 45% Out-of-pocket, icaid Services (CMS) (2017b). 29% Removing Medicare premiums and co-pays from the budgets of low-income households is a substantial benefit. For example, Medicare Part B premiums for Other public and private, most beneficiaries are $134 a month in 2018. Even 15% for households at the Medicaid eligibility ceiling, this Source: Author’s calculations based on CMS (2012). amount represents 10-19 percent of their incomes (see Table 2). By eliminating co-pays and most out- of-pocket drug costs for households with incomes up Medicaid and Near-Retirees Table 2. Medicare Part B Premiums as a Percentage Before the Affordable Care Act (ACA) went into effect, of Household Income for Beneficiaries at the in 2014, working-age adults were largely excluded Income Limit, 2018 from Medicaid, unless they were disabled. In most states, either Medicaid or the closely related Chil- Qualified Qualifying dren’s Health Insurance Program (CHIP) insured beneficiary beneficiary children in families with incomes up to 250 percent Individual 13% 10% of the poverty line. But eligibility requirements for their parents remained quite stringent: the median Couple 19 14 income limit was 64 percent of the poverty line for Sources: Author’s calculations from CMS data (2017b, 2018). working parents, or $1,100 a month (in 2017 dollars) for a family of three.9 Issue in Brief 3 The aim of the ACA was universal coverage.10 The Figure 2. Medical Insurance Cost Index by Age elderly and nearly all children were already insured.11 and Gender, 2010 But about one in five working-age adults lacked insur- 5 ance, and the share was rising.12 So the ACA aimed Men to cover working-age adults, using two distinct initia- Women 4 tives: • An expansion of Medicaid. The expansion 3 covers non-elderly adults with incomes up to 138 percent of poverty (similar to the income limits 2 for qualifying Medicare beneficiaries in Table 1). The federal government covered the entire 1 cost of these “newly eligible” Medicaid beneficia- ries through 2016, with the federal contribution 0 declining to 90 percent by 2020. The Supreme 20 30 40 50 60 Court in 2012 ruled that the ACA Medicaid Age expansion is voluntary. But by the first quarter of Note: Cost at age 20 = 1. 2017, 31 states and the District of Columbia had Source: Yamamato (2013). expanded their Medicaid programs to cover over 11 million newly eligible beneficiaries.13 In 2017, congressional proposals to repeal and replace the The share of Americans ages 50-64 without insur- ACA would have significantly scaled back federal ance fell by 6.4 percentage points between 2012 (pre- funds for the Medicaid expansion, but no such ACA) and 2016 – from 15.5 percent to 9.1 percent – legislation was approved. due at least in part to increased Medicaid enrollment in the expansion states.17 Early evidence indicates • A restructuring of the insurance market. The that Medicaid expansion has led to greater use of changes to the market include mandates, subsi- preventive services, more treatment for chronic condi- dies, regulations, outreach efforts, and an online tions, and improvements in self-reported health.18 marketplace for those with incomes above the However, most experts agree that it is too early to Medicaid limits.14 Unlike the Medicaid expan- identify long-term effects on health or medical costs.19 sion, the ACA’s insurance market reforms were introduced nationwide. The recent repeal of the ACA’s individual mandate and efforts to curtail The Bigger Picture insurer subsidies and regulations may affect the As discussed above, Medicaid provides critical ser- functioning of the ACA’s health insurance mar- vices to many older Americans. Older Americans ketplaces going forward, but the impact at this are nevertheless a small component of a much larger point is uncertain. Medicaid program. Of Medicaid’s four main groups of beneficiaries, the aged is the smallest in both en- Before the ACA went into effect, 15 percent of rollment and expenditures (see Figure 3, on the next adults ages 50-64 were uninsured. This percentage page). The aged group covers those 65 and over, so it was less than the share of prime-age and younger does not include adults approaching retirement who adults without coverage.15 But insurance is especially benefited from the Medicaid expansion. Expenditures valuable for those approaching retirement as the need on the aged could start to rise sharply when the first for care, and the cost of insurance, rise sharply after Boomers reach their 80s starting in 2026. Neverthe- age 50 (see Figure 2). Most uninsured adults ages 50- less, children and younger adults will likely remain 64 had low incomes and could not afford insurance.16 by far Medicaid’s largest beneficiary groups, and the Many had health impairments. And all were at risk disabled by far the largest recipients of Medicaid of incurring unaffordable medical bills or forgoing expenditures. needed treatment. Not receiving needed medical The Medicaid program has grown dramatically care can limit the ability to work and perhaps lead to since 1965. It was created because medical care premature retirement. It also allows impairments to was expensive and beyond the reach of low-income become more serious and more costly to treat when households. Medical care has since gotten increas- these individuals become eligible for Medicare at 65. 4 Center for Retirement Research Figure 3. Medicaid/CHIP Enrollment and Medicaid’s cost and fiscal burden have made the Expenditures by Medicaid Enrollment Group, 2015 size and scope of the program a critical policy con- 50% cern. As underscored by recent debates, policymakers 46% could decide that the resources Medicaid spends to Children Adults 39% provide specific services to specific beneficiaries have Disabled better uses; or that the resources could be spent more 33% Aged efficiently or raised more equitably; or that there are limits to the redistribution of resources from higher- 25% 25% to lower-income households. Such decisions could 21% reduce the resources that Medicaid uses to insure 14% 15% low-income children, adults, and elderly and disabled SSI recipients; to cover the premiums and co-pays of 8% low-income elderly and disabled Medicare beneficia- ries; or to provide long-term care for elderly and dis- 0% abled individuals who cannot afford it. The outcome Share of enrollment Share of expenditures will clearly affect the well-being of older Americans. Note: Enrollment in person-year equivalents. Sources: CMS (2016, 2017c). Conclusion ingly expensive and beyond the reach of an increas- Medicaid covers medical services for older Ameri- ingly large share of the population. Medicaid now cans on a means-tested basis. The need for such provides benefits to roughly one in four Americans, at benefits will rise as the population ages, especially a cost of about 3 percent of GDP.20 Since Medicaid is with medical costs rising faster than the incomes of a means-tested program, its expenditures are redis- older households. The extent to which Medicaid will tributive transfers from high- and middle-income continue to fill this need depends on the outcome households to households with incomes below the of the ongoing debate over the size and scope of the Medicaid eligibility thresholds. And unlike Medicare, program. which is funded to a significant degree by earmarked payroll taxes and beneficiary premiums, Medicaid is funded by general government revenues at the federal and state levels. Issue in Brief 5 Endnotes 1 U.S. Census Bureau, Current Population Survey ing home of $50 a month, and $1,962 a month for (2017). those receiving community-based care in 2015 (Kaiser Commission on Medicaid and the Uninsured 2016a). 2 Centers for Medicare & Medicaid Services (CMS) (2016). The federal government generally covered 9 Kaiser Commission on Medicaid and the Unin- about 59 percent of Medicaid expenditures prior to sured (2013). the Affordable Care Act Medicaid expansion (Snyder and Rudowitz, 2015). 10 Gruber (2011). 3 For more on the origins and expansion of Medic- 11 Medicare (and Medicaid) covered the elderly. aid, see Cohen and Ball (1965), Klemm (2000), and Due largely to the expansion of Medicaid and CHIP, Moore and Smith (2005). which covered nearly 40 percent of U.S. children, only about 5 percent of children then lacked insurance. 4 Provost and Hughes (2000) and Klemm (2000). See Rosenbaum and Kenney (2014) and Hayes et al. (2017). 5 CMS (2016, 2017a, and 2017b). Medicaid monthly income eligibility thresholds are $20 above the pov- 12 Kaiser Family Foundation (2017b). erty line percentage amounts. Eligibility also includes an asset test – having financial assets (bank deposits, 13 Kaiser Family Foundation (2017c) and Kaiser stocks, bonds, or 401(k)/IRA balances) of less than Commission on Medicaid and the Uninsured (2016b). $2,000 for individuals and $3,000 for couples for SSI eligibility; and $7,390 for individuals and $11,090 14 These reforms removed a major impediment to for couples for Medicare premium and co-pay sup- the Medicaid expansion: by allowing individuals with port. Eligibility for individuals with incomes greater incomes somewhat above the Medicaid limits to pur- than 120 percent of poverty, plus $20, is subject to chase similar insurance at very low cost, it removed a the availability of funds. For more on eligibility for powerful work disincentive for Medicaid recipients, Medicaid benefits, see Schneider, Elias, and Garfield who would lose Medicaid coverage if they earned too (2003). much. 6 Income limits vary by state. Income limits can 15 The uninsured share was 20 percent for adults be higher if some income is from work. Financial ages 35-49 and 26 percent for adults ages 19-34 (Cour- asset limits for SSI: $2,000 for individuals and $3,000 temanche et al. 2017). for couples (in 2018); for Medicare supports: $7,390 for individuals and $11,090 for couples (in 2017). 16 Smolka, Multack, and Figueiredo (2013). Benefits for qualifying beneficiaries are provided if sufficient funds are available. 17 Author’s calculations from the U.S. Census Bu- reau’s Current Population Survey (2013, 2017). 7 Medicare covers up to 100 days of skilled nursing home care, but only after a hospital stay. It also pro- 18 Sommers et al. (2016) and Simon, Soni, and Caw- vides some coverage for certain home health services. ley (2017). 8 Kaiser Family Foundation (2017a). Access to Med- 19 For a review of the literature, see Antonisse et al. icaid long-term care benefits varies widely from state (2016) and Kaestner et al. (2017). to state. In general, “medically needy” beneficiaries must have: 1) financial assets below the SSI thresh- 20 The share of the U.S. population covered by Med- olds of $2,000 for individuals and $3,000 for couples; icaid uses CMS (2017c) for Medicaid enrollees and and 2) incomes net of the cost of care below specified U.S. Census data for total U.S. population. Medic- thresholds, with all income above a “personal needs aid spending as a share of GDP uses total Medicaid allowance” required to contribute to the cost of care, spending (federal and state) from CMS (2017c) and with the median state allowance for those in a nurs- GDP from the Federal Reserve Bank of St. Louis. 6 Center for Retirement Research References Antonisse, Larisa, Rachel Garfield, Robin Rudowitz, Kaestner, Robert, Bowen Garrett, Jiajia Chen, Anuj and Samantha Artiga. 2016. “The Effects of Med- Gangopadhyaya, and Caitlyn Fleming. 2017. icaid Expansion under the ACA: Findings from a “Effects of ACA Medicaid Expansions on Health Literature Review.” Menlo Park, CA: Kaiser Family Insurance Coverage and Labor Supply.” Journal of Foundation. Policy Analysis and Management 36(3): 608-642. Centers for Medicare & Medicaid Services. 2018. 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RETIREMENT RESEARCH About the Center Affiliated Institutions The mission of the Center for Retirement Research The Brookings Institution at Boston College is to produce first-class research Syracuse University and educational tools and forge a strong link between Urban Institute the academic community and decision-makers in the public and private sectors around an issue of criti- cal importance to the nation’s future. To achieve Contact Information Center for Retirement Research this mission, the Center sponsors a wide variety of Boston College research projects, transmits new findings to a broad Hovey House audience, trains new scholars, and broadens access to 140 Commonwealth Avenue valuable data sources. Since its inception in 1998, the Chestnut Hill, MA 02467-3808 Center has established a reputation as an authorita- Phone: (617) 552-1762 tive source of information on all major aspects of the Fax: (617) 552-0191 retirement income debate. E-mail: crr@bc.edu Website: http://crr.bc.edu The Center for Retirement Research thanks AARP, BlackRock, Inc., The Blackstone Group L.P., The Capital Group Companies, Inc., J.P. Morgan Asset Management, MassMutual Financial Group, Prudential Financial, Sage Advisory Services, Ltd. Co., State Street, and TIAA Institute for support of this project. © 2018, by Trustees of Boston College, Center for Retirement Research. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that the author are identified and full credit, including copyright notice, is given to Trustees of Boston College, Center for Retirement Research. The research reported herein was supported by the Center’s Partnership Program. The findings and conclusions expressed are solely those of the author and do not represent the views or policy of the partners, Boston College, or the Center for Retirement Research.