A little known provision in a law signed last week changes a method of calculating eligibility for Medicaid that would eventually have
benefited middle-income seniors on Social Security. It will reduce the future ability of many seniors
to qualify for Medicaid based health care benefits.
On November 21, 2011, H.R. 674, which
includes the “3%
Withholding Repeal and Job Creation Act,” was signed into law by President
Obama. Unusual for this Congress, the Act was enacted with strong bi-partisan
support.
The main feature of the Withholding Repeal Act was the repeal
of a tax policy set to take effect on January 1, 2013. That policy would have
required federal and state government agencies to withhold 3% of their payments
to contractors for many products and services. For example, 3% of the amount
due from Medicare to a nursing home for providing Medicare covered services to
a resident would have been withheld. Amounts withheld would have been credited
against the income taxes ultimately due from the nursing home, but one can
easily imagine that cash flow and other problems would be created for the
contractor.
Healthcare provider groups lobbied hard for repeal of 3% withholding.
The American Medical Association argued that the 3% withholding was an
additional burden on physicians who treat Medicare beneficiaries. The American
Health Care Association described repeal as a victory for both providers and
nursing facility residents. To help ensure passage the repeal measure was bundled
in H.R. 674 with a very popular measure that provides tax credits for companies
that hire unemployed veterans.
The withholding requirement had been intended to improve tax
compliance by some government contractors. The estimated cost of its repeal is $11.2
billion over the 2012-2021 period. The question for Congress was how to pay for
the repeal without increasing the deficit. Democrats originally proposed
funding the repeal by reducing corporate tax breaks for the US oil and gas
industry, but this was rejected by the Republican-controlled House. Eventually,
the House funding provision was adopted – it involves doing away with a
perceived “glitch” in the Affordable Care Act (ACA) that would have allowed some
middle-class couples to enroll in Medicaid starting in 2014.
Under the ACA, non-taxable Social Security income was not to
be included in the calculation of income for purposes of determining Medicaid
eligibility. This meant that a couple with income (including non-taxable Social
Security) as high as $60,000 per year could have become dually eligible for
both Medicare and Medicaid. Now, under the Withholding Repeal Act, non-taxable Social
Security benefits will be included as income when calculating income for
purposes of determining Medicaid eligibility.
Since the ACA provision for exempting non-taxable Social Security income for purposes of Medicaid had not yet taken effect, the change in methodology has received little notice. Easy come, easy go, I guess.
