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.