What were they thinking?
When the Affordable Care Act (ACA), or Obamacare as it is most commonly called, was being debated, we were told that it would provide premium subsidies to low and middle income people to help out with the high cost of health insurance.
But while helping the truly needy people is a worthwhile goal which I fully support, I was shocked this past open enrollment period to learn that the Obamacare subsidy is going not just to low and middle of the road folks—but also to millionaires.
People with significant wealth and assets are qualifying for the Obamacare subsidy in surprisingly large numbers. In fact every single agent that I’ve talked to that specializes in health insurance has witnessed millionaires qualify for government help with their health insurance. Here are a few examples:
- One real estate investor who owns 20 properties, along with his wife, both qualified for free health insurance through Medicaid.
- A restaurateur sold a chain of 10 fast food restaurants and retired. His wife, has qualified for free Medicaid health insurance under the new Obamacare law despite their having a large portfolio of many millions of dollars. (Medicaid is a welfare program and should not be confused with Medicare.)
- One retired engineer who manages a large 401K portfolio receives $400 each month to subsidize his family’s health insurance premiums with a commercial carrier.
Programs available to help with health insurance
There are two main programs available to help with health insurance.
- Medicaid: Not to be confused with Medicare, Medicaid is actually a welfare program that traditionally has required proof of both low income and low assets. Those with incomes below 138% of the Federal poverty level qualify for free health coverage through Medicaid. Although the coverage looks good on paper, many doctors refuse to participate in Medicaid because of extremely low reimbursement rates.
- Private insurance subsidy payments: Those whose income is too high for Medicaid, can often qualify for a tax subsidy to reduce the cost of their private health insurance premium if their income is below 400% of the Federal poverty level. These subsidies are formally known as “Advance Premium Tax Credits” or APTC.
How are millionaires able to get subsidies meant for low income individuals?
Why are well-to-do individuals qualifying either for expanded free Medicaid or for APTC to help reduce the cost of private insurance? The shocking answer is because Obamacare does away with the requirement that people must prove they have low assets before qualifying for Medicaid or a subsidy for private insurance. If a millionaire can arrange his or her finances so they are receiving a low income—low on paper at least—they will qualify for help with their health insurance premiums.
I asked Chris Wyrick, a Fort Collins CPA and attorney handling tax, business and estate law, how someone with 20 rental houses was able to get his income low enough to look dirt poor—even though they lead a very comfortable lifestyle. He explained that a combination of depreciation, various deductions such as mortgage interest, and expenses really could make a person look poor on paper. An investor’s net worth portfolio could easily be worth several million dollars, even after accounting for what they owe to the bank due to the increase in home prices from when the houses were bought.
Similarly, business owners and retirees with large retirement portfolios are often able to legally manipulate their income to get under the income thresholds to obtain an Obamacare subsidy that lowers the cost of their insurance from private insurance companies.
Curious as to why we’ve suddenly stopped asking people how much they have in assets before handing out premium subsidies or qualifying people under Medicaid, I spoke with Mike Fierberg, the Public Affairs Officer for the Centers for Medicare and Medicaid in Denver, the agency that oversees both Medicaid and Obamacare. He clearly explained that “the reason is that this is the way the ACA was written.”
When I queried him as to what possible rationale there might have been for changing the law to disregard assets, Fierberg’s succinct answer was: “You’d have to ask Congress.”
Following that advice, I called Senator Udall requesting an explanation. Unfortunately, numerous calls over several weeks went unanswered.
So where do we go from here? Clearly, it’s wrong to ask taxpayers to give out subsidies to people with substantial net worth. But where do we draw the line? Do we cut subsides off for someone with $500,000 in assets? One million? Two million? Do we include the value of one’s home in the calculation?
The answers won’t be easy or simple. But Congress must have that conversation with the American people and draw the line somewhere. Will we prevent every person of substantial means from getting a subsidy? Of course not—but we can, we must make substantial improvement over the current situation.
In the meantime, those who voted for Obamacare owe the public an explanation as to why they allowed subsidies for millionaires to stay in the bill. Maybe they have a good explanation as to what they were thinking… or were they thinking at all?