Medicaid: Understanding the difference between Long-term Care Medicaid and Medicaid Expansion: Part 1: Medicaid Expansion

How the ACA forever changed Medicaid and why you cannot afford to miss out on the program

Just a warning: this is going to be a long, but very necessary article, and probably one of the top 3 most useful FIRE articles I will ever write for this blog, specifically because no other FIRE bloggers have the medical background and experience with the Medicaid program that I do which is necessary to show you why these programs are so important.  First and most important when discussing Medicaid is understanding that there is a huge difference between Medicaid under the ACA expansion program, traditional Medicaid, and Long-term care Medicaid.  IF you learn nothing else from this blog, please understand that Long-term care Medicaid and Medicaid are two vastly different programs, covering two very different groups of people for two very different reasons.  So, what exactly is the difference between the two programs? The short answer is: Long-term Care Medicaid or LTC Medicaid, is a program designed specifically to cover the medical expenses of Long-term care for those 65 years and older, or disabled persons under the age of 65.  Medicaid Expansion is a program designed to cover individuals under the age of 65 for all medical expenses not related to Long-term care.  Whether you realize it or not, Medicaid coverage, whether expansion or LTC, is nearly necessary in today’s world, and is much easier to obtain than traditionally thought, thanks to the Affordable Care Act. So, lets dive into the differences between the programs, how to qualify for both programs, and most importantly, why it’s necessary for you to plan to qualify for both programs.  

First, let’s discuss Medicaid Expansion, under the Affordable Care Act.  Back when I was a kid growing up in an impoverished area of Southwest Virginia, Medicaid was a program that only the very poorest of the poor used for medical care.  However, the Obama administration, eager to artificially inflate the number of individuals covered by health insurance, changed some key definitions necessary for qualification, thus quietly expanding the Medicaid program over night.  This act was instrumental in changing the face of healthcare in the United States and was snuck in so quietly that it took me, working fulltime in healthcare, over a year to notice and recognize how significant these changes were.  After spending years of researching, I finally found an article that best describes the changes, and the effect of the changes on qualification for the program.  The article can be found here: https://ccf.georgetown.edu/2015/01/30/getting-magi-right-primer-differences-apply-medicaid-chip/      I highly recommend you read the entire article so you can see for yourself how the changes will apply to you for qualification for Medicaid expansion.  Since this is a 17-page article, I will summarize and discuss the two major changes to Medicaid under the ACA, allowing millions more Americans to join the program.

You need to understand that Medicaid expansion doesn’t include all states currently.  Currently 36 states and Washington D.C are included in the list of states offering Medicaid expansion, but my guess is eventually all states will offer the program. So, check the listing of states, as your state may not currently recognize the program.  The two major changes to the Medicaid program under ACA expansion were: 1.  The definition of MAGI, or Modified Adjusted Gross Income, was changed, eliminating many sources of income that were previously counted towards MAGI, from the list of countable income sources.  2.  The asset check was completely eliminated, allowing millionaires to qualify for Medicaid under the expansion program if their MAGI was under the state threshold.  Let’s discuss MAGI first.

MAGI stands for Modified Adjusted Gross Income, which is the primary threshold used to determine eligibility for Medicaid.  Although MAGI was used to determine eligibility for Medicaid long before the ACA, the changes to the definition revolutionized the program, allowing millions of more Americans to quietly slip onto the Medicaid rolls.   Refer to page 12 on the above article for a detailed list but let’s cover the major changes here.

1. Self-employment income:  Before the ACA, many expenses were NOT deductible, however after the ACA net income, including losses, and tax-deductible expenses like depreciation, were included.  This was extremely important, as it allowed those with major assets such as farmers and business who owned millions of dollars of property and machinery, to effectively qualify for Medicaid by looking at only their bottom-line profits or losses on paper.  Remember, accounting like this allowed Amazon to avoid any federal taxes in 2018, so if Amazon were a person, they would have qualified for Medicaid under the expansion program in 2018 if they lived in the right state.  The asset check would have previously eliminated these people from qualification, but that was also eliminated in the ACA.
2. Child support income:  Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!
3. Alimony:  Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!
4. Workers Compensation Benefits: Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!
5. Gifts and inheritances: Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI! So, your rich uncle could die and leave you ten million dollars of cash, and you could still qualify for Medicaid under the ACA.
6. Veterans Benefits: Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!
7. TANF and SSI payments: Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!
8. Contributions to accounts such as a 401k, traditional IRA, FSAs, and other non-taxable accounts: Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!

DO you see a trend here?  Numbers 1 and 8 are the most crucial changes made to the definition of MAGI according to the ACA in terms of allowing YOU to take advantage of the program, however all of these changes had a significant impact on the expansion program.  Number 1, when combined with the removal of the asset check, allowed individuals will millions of dollars of assets to qualify for Medicaid expansion overnight with the stroke of a pen, thanks solely to fancy accounting.  Thankfully, number 8 will allow normal working class Americans like you and I to take advantage of this opportunity to qualify our families for Medicaid, thus saving us hundreds of thousands of dollars in insurance premiums and medical bills, while protecting us from the possibility of medical bankruptcy.  Here is how it works.

Since I live in Alaska, and I am familiar with Alaska Medicaid income eligibility limits, we will focus on how the program works in Alaska, and how I can qualify even with my income as an Occupational Therapist, but check your local state listings for information on your state limits. Eligibility for Medicaid expansion is determined by comparing your ACA MAGI, against the FPL, or Federal Poverty Level income. According to healthcare.gov, FPL is “A measure of income issued every year by the Department of Health and Human Services (HHS). Federal poverty levels are used to determine your eligibility for certain programs and benefits, including savings on Marketplace health insurance, and Medicaid and CHIP coverage.” Most states set the cutoff for Medicaid expansion at 133% of FPL, however this is up the individual state you reside in, so check your state regulations.  In addition to the traditional 133% of FPL equation, many states like Alaska, have extended eligibility to other groups, with even higher FPL limits.  For instance, in Alaska, pregnant women can be covered at 200% of the FPL, while children under 19 with insurance can be covered at 177% of FPL, and children under 19 with no insurance can be covered at 203% of the FPL.    Check out this website for current Alaskan FPL MAGI limits based on household size:  http://dpaweb.hss.state.ak.us/POLICY/PDF/Medicaid_standards.pdf

Another key factor in determining eligibility under MAGI rules is family size.  For instance, in Alaska, for each additional member of your family, you can make an additional $621.00 monthly, allowing large families to easily qualify for Medicaid expansion under the 133% expansion group.  For instance, currently my family consist of 4 individuals, my wife, two children and myself.  However, my wife is going to have our third child in November of this year, increasing our household size from 4 to 5 people.  This will in turn, raise our MAGI threshold monthly income from $3630.00 to $4251.00.  Since we plan to have 4 children, eventually this MAGI threshold will be $4872.00 for our family of 6, should things go as planned.  So, with a family of 6 at the 133% Medicaid threshold qualification, my wife and I could make a combined annual ACA MAGI of $58464.00, but since the FPL increases every year with inflation, this number will likely be over $60,000.00 by the time our fourth child arrives.  Both Alaska and Hawaii have slightly higher FPL limits than the other 48 states, however I find this ironic as its actually cheaper to live in Alaska than most people think, and in circumstances like ours, is actually cheaper when compared to the lower 48 states. This will be the topic of another blog discussion in the future.  Regardless, FPL levels for the other 48 states aren’t substantially lower than Alaska and Hawaii.  A list of the current FPL limits can be found here:  https://www.healthcare.gov/glossary/federal-poverty-level-fpl/  Remember though, ACA MAGI is usually 133% of the FPL, or higher depending on the target group.  So, for a pregnant woman in Alaska, you could make twice the listed incomes, and still qualify for Medicaid under ACA MAGI rules.  

The second major change made to the Medicaid eligibility requirements through the ACA was the ELIMINATION of the asset check.  Before Medicaid expansion, there was something called an asset check, where basically the government made sure an applicant didn’t own millions of dollars of assets such as land, and excluded those who did from qualification for Medicaid.  However, the Obama administration completely eliminated the asset check, meaning that millions of people across the country could now qualify while owning millions in assets, as long as their bottom line MAGI fell below the FPL thresholds set by the individual state implementing Medicaid expansion.  Here is an example of how it works.  Let’s say a family of 4 with 2 adults and 2 children owned a 1-million-dollar property in Alaska in 2019.  If the bottom-line MAGI of the family after all expenses such as taxes, depreciation, and insurance fell below the state thresholds, the family would be eligible for Medicaid under the expansion program.  However, before ACA Medicaid expansion, this family would be excluded from Medicaid, because they could hypothetically sell the asset, and have 1 million dollars in the bank, and afford their own health insurance.  I personally agree with the elimination of the asset check, as the asset check is a POS punishing Americans for hard work by making them ineligible for a program they pay into via federal taxation.  

Now that you understand how the ACA asset check elimination, MAGI rules and income limits work, it’s time to put them to work for you, allowing you to qualify for Medicaid expansion for your family, saving yourself hundreds of thousand of dollars in premiums alone, which if invested elsewhere could result in savings of over 1 million dollars by the time you retire.  Currently, I pay 600 dollars in monthly health insurance premiums alone for my family.  Since I am 34, if I could save this 600 dollars monthly and invest it over the remainder of my typical working career until I reach the age of 65, if I got an average 9 percent annual return, I would have 1,085,000.00 when I retired at age 65.  This is why you literally cannot afford to pass up the opportunity to take advantage of the Medicaid program for your family, and one of the many reasons why it actually makes financial sense to intentionally reduce your income, and qualify for Medicaid expansion. Here is exactly what you need to do in order to qualify.

First, as I said before, it is absolutely mandatory that you reduce all your debt, especially mortgage debt ASAP, as this plan will most likely fail if you still have a significant mortgage payment.  For this to work, the key is to be able to comfortably live at or below the ACA MAGI threshold for your family size.  In my case, this will be impossible while having a 3300.00 monthly mortgage payment as our monthly threshold will be $4872.00.  It would be very difficult to make all of our other bills on just over a thousand dollars a month, thanks primarily to other POS’s. However, when our mortgage is eradicated in 2-3 years, $4872.00 is more than enough money to cover our monthly expenses and live a comfortable life. Remember, these $4872.00 dollars are AFTER contributions to your retirement accounts, and FSA accounts which could be as much as an additional $56,000.00 annually under current maximal contribution limits to retirement accounts and your FSA.

The second step to qualify for ACA MAGI Medicaid is to maximize all of your non-taxable retirement accounts and FSA account if possible, thus reducing your ACA MAGI, and your overall taxable income, while saving for your future.  Here is how it works.  Since the 401k limits for 2020 are $19500.00, and IRA limits are $6000.00, a married couple, such as my wife and I, can effectively disqualify $51,000.00 of our income from counting towards our ACA MAGI for Medicaid by simply contributing to our retirement accounts!  Tack on an additional $5000.00 for a daycare FSA, and my wife and I have now reduced our Obamacare MAGI by $56,000.00!!!!!  It’s not that we didn’t make this income, its simply that we placed it in a tax deferred or tax exempt account.  Since we will hopefully have a family size of 6 when we implement this strategy, with an annual Alaska ACA MAGI threshold of just over $58,000.00, this means my wife and I could actually make $114,000.00 and still qualify for Medicaid for my wife and myself, as well as our 4 children.  In addition, since we would have 4 children under the age of 19, all of which would no longer have or need my private health insurance, they would qualify under the 203% of FPL.  This means that my wife and I could make over $145,000.00, and still have all of our children qualify for Medicaid under the expansion program, however my wife and I would not qualify for the program due to being over the 133% threshold for ourselves.  

That is all! Two simple steps to reduce your ACA MAGI, allowing you to qualify for Medicaid under the expansion program while saving hundreds of thousands of dollars in insurance premiums over your lifetime, eliminating your chances of bankruptcy due to medical bills, while simultaneously maximizing your annual retirement savings yielding you millions of dollars in retirement.  What an amazing combination!!!  In my case, if I can implement this strategy in 2 years at the age of 35, my wife and I could save nearly 4 million dollars, and still qualify for Medicaid thanks to the removal of the asset check. 😊 This is assuming my wife and I continue to contribute the maximum $51,000.00 annually to our traditional IRAs, and 401ks, while earning an average 5% annual return until the age of 65, yielding almost 3.4 million dollars by retirement.  When combined with the 600.00 monthly health insurance premium savings, invested over the same time at the same 5% annual rate of return, the investment will yield just over $450,000.00, for a combined total of just under 4 million dollars. 😊 Since 401k and IRA contribution limits will continue to increase, our overall contribution limits will continue to increase, meaning an even larger percentage of our income could be excluded from MAGI.  Now we obviously don’t plan to work until 65, because we are interested in the FIRE movement, which by its very nature requires us to quit working while we are still relatively young, and enjoy quality time with friends and family, but you get the point.  Now do you understand why you cannot afford to miss out on ACA Medicaid under the expansion program??? Now do you understand why exclusion from Medicaid because you work, is one most likely the largest POS you will ever face, second only to the cumulative effect of taxes?  Now do you understand why it no longer makes financial sense to work in this country?  Exclusion from the Medicaid program, while paying for the program yourself via taxation, is one of the two largest POS’s you will ever experience in your lifetime.  

So now that you understand why you need Medicaid, let’s explore what ACA Medicaid expansion covers compared to your current employer sponsored health insurance.  In Alaska, Medicaid under the expansion program covers everything you could imagine relating to your healthcare expenses.  For instance, let’s say you live in Southeast Alaska in Wrangell, but need to see a cardiologist in Anchorage.  Medicaid will cover not only your medical bills for your cardiology appointment, but they will cover your round trip airfare on Alaska Airlines, your hotel, all of your cab rides while in Anchorage, food vouchers, and should you need it will even pay for an “escort” to accompany you on your trip.  Should you live somewhere even more remote, don’t worry as Medicaid will send you your own private charter float plane to pick you up and transport you to the appointment!  We won’t even to begin to discuss the fraud and abuse made possible by this program, but this article about how a woman used her private float plane Medicaid charter to transport to go shopping for construction supplies to take back to her remote home, resulting in overloading, crashing, and the death of the pilot, should give you an indication to how the program is abused.   https://mustreadalaska.com/medicaid-flight-plane-crashed-was-filled-goods-masonry/   Now let’s say for a minute that you have private insurance provided by your employer, like I do.  Since my employer sponsored insurance will not assist whatsoever with in state medical travel, I would have to pay just under one thousand dollars, plus taxes and fees, for a round trip ticket to Anchorage to see my cardiologist.  Since I am not on Medicaid, should I need my wife to assist me, I will need to pay another thousand dollars for another ticket on Alaska Airlines.  Since I don’t have Medicaid, I would be responsible for my own hotel, running approximately 100 dollars per night, and due to the plane schedule, would require at least 2 nights in Anchorage to complete my appointment.  Since I don’t have Medicaid, I would be responsible for all of my meals, and my transportation to and from my hotel, the airport, and my cardiologist.  When all the costs are totaled, I would have to pay approximately $2,000.00 to attend my specialist appointment in Anchorage, not counting the actual cardiology bill, while someone on Medicaid would receive the same services for free.  Remember, since I actually work and try, the government has already taken at least 31% of my income from income tax, and my share of FICA tax, meaning this single trip would take 3k of my gross income.  In fact, due to the cost, my wife and I always plan dermatology appointments around our vacations back home, to lower our costs.  So once again, we have another POS thanks to exclusion from Medicaid.  It isn’t just the cost savings of not having to pay your monthly premiums, but exclusion from Medicaid also cost you a significant amount of money when it pertains to actual medical bills, and the travel surrounding those appointments.  

Another often overlooked POS surrounding Medicaid vs employer sponsored health insurance is the headache involved in dealing with the insurance company, the clinics, hospitals, doctors, dentist, and every other healthcare provider.  When I have Medicaid and go to one of the above, I simply show my card and walk away.  Then somebody from Medicaid contacts the provider, and they work out an arrangement to pay for the services.  With private health insurance, that nightmare is YOUR responsibility. For instance, when our first child was born, we traveled to Ketchikan, Alaska, as our town does not provide the services necessary to deliver a baby.  Since we were not on Medicaid, we were responsible financially for our own travel, lodging and food: had we been on Medicaid at the time, all of these expenses would have been covered.  The care we were provided at the hospital was amazing, but the aftercare relating to the bill was a nightmare.  I received somewhere around 20 individual bills in the mail, all for the labor and delivery charges.  Since I could not keep up with which ones I had paid, and which were duplicates, I simply called every few days, and paid the hospital.  After months of doing this, I finally got the hospital to note in my chart that all of my bills for the labor and delivery were paid in full and that I would not receive another bill.  A few weeks later, I received another bill.  All together I estimate I spent 20-30 hours dealing with this issue, while paying over 6,000.00 out of pocket for the labor and delivery charges alone.  While I love my children, it’s a POS that I had to pay this out of pocket expense, after paying my monthly insurance premium, while someone on Medicaid who received the exact same services in the same facility from the same providers, paid $0.00.  If this isn’t enough to convince you to reduce your work to qualify for Medicaid expansion, when you learn how Medicaid expansion is actually funded, you will. 

Under the ACA Medicaid expansion program, the Federal Government pays for 90 percent of the cost of the program.  Yes, you read that right ninety percent of all Medicaid expansion costs are covered by the Federal Government.  Since you pay federal tax dollars via income and FICA taxes, your federal tax dollars are being taken from you, to fund a program you are ineligible for, because you work and pay federal tax dollars and FICA tax to fund the Medicaid expansion program.  It sounds totally crazy and insane, but it’s absolutely true!!! If you don’t believe me, Google it.  If that doesn’t make your blood boil, you should know that it only recently started funding 90 percent.  Up until 2017, under the ACA, the federal government was contributing up to 100% of the cost of the program!  Altogether, the federal government (your federal tax dollars) pay over 70 billion dollars annually for the expansion program alone.  Add in traditional Medicaid spending, and federal tax dollars pay for over 600 BILLION dollars of Medicaid services annually! https://www.kff.org/medicaid/state-indicator/medicaid-expansion-spending/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D  

If taking an extra 70 billion dollars annually of your federal tax dollars wasn’t enough, the state steps in and takes that extra 10 percent of the tab that the federal government didn’t cover.  States do this through, you guessed it, taxation!! Now here is where it gets interesting for Alaska.  As you may know, and definitely will if you keep reading this blog, Alaska has no state income, sales, or property taxes of any kind at the state level.  Alaska for decades, has relied solely on income from its natural resources to cover the bills for the entire state.  In fact, we’ve had such an abundance of money, that starting in the 70s, the state government started requiring that 25% of all revenues be invested, resulting in what is today known as the Permanent Fund, which holds over 60 billion dollars and counting. Excess funds from the Permanent Fund were supposed to be distributed to the individual Alaskans via a formula that was written into state law.   Former Governor Walker in his infinite wisdom, signed Medicaid expansion into effect in September 2015, increasing the number of those covered by the program by nearly 90 thousand, in a state of only 750 thousand residents.  Overall, over 200 thousand people were put on the Medicaid rolls, representing over one quarter of the entire states’ population on Medicaid.  Almost exactly 1 year after signing Medicaid into law, Governor Walker, with the stroke of his pen, cut the required dividend by more than half, citing budget shortfalls.  In 2016 alone, the Medicaid expansion program cost the state of Alaska 1.8 billion dollars, for their share of the program. Again in 2016, Governor Walker cut 666 million dollars of Permanent Fund Dividends to the residents of Alaska.  Altogether, Governor Walker cut 1.3 billion dollars from the budget, citing budget concerns, while paying out 1.8 billion dollars for Medicaid expansion.  Let that sink in for a minute.  Former Governor Walker used his veto power to override a law mandating a certain percentage of the Permanent Fund be transferred to the residents of the state, while simultaneously paying 3 times the amount of the PFD veto, in Medicaid expansion.  So, Medicaid expansion under the ACA is another POS as it directly took money out of the pocket of all Alaskans, to pay for Medicaid expansion for some Alaskans.  Ever since Medicaid expansion was passed in this state, our state has been struggling to pay its bills, partially due to low oil prices, and partially due to nearly 2 billion dollars of annual spending on Medicaid expansion.  My fear is as time progresses, Alaska will implement some type of tax reform, such as income, property, or state sales tax, which will be just one of the many POS’s caused by Medicaid expansion under the ACA.  

The very last POS related to Medicaid expansion is bankruptcy due to medical bills.  Multiple studies have indicated that medical bills in the United States are one of the leading causes, if not the leading cause of bankruptcy.  A Harvard study published in the American Journal of Medicine found that nearly 66% of all bankruptcies were related to medical bills.  Read about the study here: https://pnhp.org/news/illness-medical-bills-linked-to-nearly-two-thirds-of-bankruptcies-harvard-study/

What’s even more scary is it found that nearly 75% of those effected, actually were insured!  The issue was the individual bills the patients received were so high, the patients could not pay them, even with insurance.  Another issue was since the patients were no longer working due to the medical complications, their medical insurance coverage lapsed, leaving them with a hefty bill. So here is where Medicaid comes into play.  If you are on Medicaid, you can never go bankrupt due to medical bills.  Furthermore, depending on your state and the Medicaid program, some programs are “retroactive” meaning that you can apply for Medicaid and get it AFTER you have had a medical emergency, and Medicaid will then pay for your bill.  Good luck getting employer sponsored insurance to do the same!  Simply put, even if you have employer sponsored health insurance, you still stand a significant risk of financial bankruptcy should you ever face any significant medical condition.  Nobody ever expects something like a heart attack, car accident or stroke to happen to them, but if these things never happened, I wouldn’t have a job.  You literally cannot afford the risk of being caught in a medical emergency without Medicaid, as it could bankrupt you, causing you to lose everything you have worked for in your lifetime. 

In conclusion, exclusion from Medicaid, while paying for Medicaid with your tax dollars is the second largest POS you will experience in your lifetime, second only to taxation.  Whether it’s paying for it by working, or being excluded from it for working, it is a massive POS that can cost you millions of dollars over your lifetime in both medical expenses, and lost investment income from the money you could have saved if you were on the program.  Since all Medicaid recipient care is 100% covered by Medicaid, there is a 0% chance you can go bankrupt due to medical bills.  Since medical bills are the number one cause of bankruptcy in the United States, you will no longer have to worry about this issue, if you are on Medicaid.    If losing over half of your income to some form of taxation wasn’t enough to get you to reduce your working hours and enjoy your life, the possibility of losing what little you have left to medical bills because you don’t have Medicaid should be enough to finally convince you that it no longer makes financial sense to continue to try to work hard and be successful in our current United States of America.  Eliminate your debt and reduce your ACA MAGI to just under the threshold to qualify for Medicaid for your family, then enjoy the extra time you have now with your friends and family.  Remember, you only get one life, don’t waste it working, and remember the primary focus of this FIRE pathway is for you to enjoy the life you have been given, with the people that mean the most to you.  Time is your most valuable asset, don’t squander it.