Student Loans or Health Insurance?

The logic of the new healthcare law is that "young invincibles" have a patriotic duty to pay for older or sicker Americans.  The idea is that people with lower risks should pay higher premiums as long as we offer subsidies (or Medicaid) for people who really can't afford insurance. There may be more of a problem with this reasoning than we recognize--due to the new dynamics of student debt.


Here's the bottom line: the new law computes subsidies based on income, not discretionary income. For a lot of young graduates, that turns out to be a big problem. If you like math, read on. 

Professor Glenn Reynolds of Instapundit has been writing about the "higher education bubble" for some time now. This somewhat-controversial hypothesis claims that the value of a college degree is going down even as the cost of a degree is going up, and that the entire system of higher education in the United States is due for a "correction," much like the housing market bubble that popped in 2007.

Whether the "bubble" is sound economic theory or not, it focuses attention on how school debt burdens young people in an underperforming economy. A recent graduate who borrowed $50,000 for her BA in sociology may find nothing better than Starbucks--unless she's willing to borrow even more to get a masters degree.

Student debt is different from mortgage debt--and every difference disadvantages younger people. Student loans are paid out of after-tax dollars; home loans are paid from pre-tax dollars. Home loans vanish after bankruptcy, student loans stay with you until you die.

So let's put these facts together and see how they apply to the "young invincibles" who are supposed to sign up on the exchanges. A 26-year-old who makes 29,000 in Frederick, Maryland pays $168.00 per month for a "silver" plan, which has a $1,300 deductible and a $6,350 out-of-pocket maximum. A ten year loan for $50,000 at 6.8% costs $575 per month. Rent for a single person in Frederick is over $600 a month. Federal income tax on a person with no dependents or deductions is over $200 per month. Adding it up, we get:

• Income: $29,000
• Fixed Expenses: $21,600
• Federal taxes: $2,400
• Rent: $7,200
• Student loan: $6,900
• Insurance: $2000
• Car loan (4 years on $5000): $1500
• Cell phone (basic plan): $600
• Living Expenses: $2800
• Food ($100 a month for basics): $1200
• Gas (40 miles per day at 22 mpg): $1600
• Discretionary income: $5600

That is less than $500 per month--and doesn't include little items like state taxes, car repairs, clothes, and the like.

What if this particular graduate is one of those "young invincibles" that the law depends upon?  We have to add a few items:

• Young invincible expenses:
• Fast food
• Beer
• Sports
• Cable television
• A real car
• Etc.

 Of course, not all young men need fast cars or six six-packs to get through the week. I go to church with some remarkable young men who are saving up to get married and start a family. After paying their tithe (which gets them no tax advantages, since it falls within the "standard deduction"), these men have a total of $2700 they can save each year for an engagement ring and honeymoon--assuming they can find a girl who will say "yes" when their date budget only covers sandwiches on a park bench.

All that is for a student loan of $50,000 for a graduate with a pretty good job. What about the graduate in the next cubicle with the same salary and a $75,000 loan? His interest payment is just about $3600 more each year, leaving him with less than $200 a month after basic food and gas.

Bottom line? The new law wasn't written by a recent graduate, and things may get worse before they get better. The kind of job you need to pay off the kind of debt you need to get the kind of job you need is too high for subsidies but too low to get ahead in life. And don't forget--this lifestyle of "unsubsidized subsistence" is considered success for the recent graduate.

Is it any wonder that "millenials" aren't excited about the new healthcare law?

A HealthShare Pilgrimage

I am on the road today, visiting Samaritan Ministries in Peoria, IL, and the Alliance of Healthcare Sharing Ministries in Washington, IL. Tomorrow I will be meeting with Christian Healthcare Ministries in Barberton, OH. I hope to visit Medi-Share in Melbourne, FL in March.

I feel a little like the Apostle Paul, who submitted his message of a Gospel to the Gentiles to the church leaders in Jerusalem in Acts 15. I believe that "bearing one anothers' burdens" is a beautifully biblical way to pay for modern health care. I want to do what I can to persuade my brothers and sisters to explore the healthshare model. But I also know that the people who actually serve Christ by running healthshare ministries have been doing this humble, faithful work for decades--and they don't need me to come in and disrupt things.

So I'm on the road to find out how to combine enthusiasm with humility; energy with wisdom. Pray for me today!

Puzzling Over Medicaid

I have proposed a 50% federal tax credit for paying for someone else's health insurance. Payments to an insurance company or 501(c)(3) charity would be reported to the IRS, and the IRS would apply half the amount reported to federal income taxes owed. This tax credit would:

1. double what some people now pay in taxes,
2. reduce the burden on doctors who accept Medicaid, and
3. extend the solvency of the Medicaid fund, which is expected to go into the red by 2024 at the latest.

 Who might be interested in such a proposal? Here are a few examples:

1. Parents of low-income children over 26 who live in "Medicaid gap" states. 
2. Children of low-income parents over 55 who do not want the Medicaid estate recovery program (MERP) to take the family assets after death.
3. Church members who want to help the poor people in their congregation.
4. Women's rights activists who want to give low-income women access to all reproductive choices despite Medicaid restrictions.
5. Immigrant groups that want to help Medicaid-eligible individuals get coverage without disclosing the immigration status of their family members.

In my online discussions about this idea, I have encountered a handful of objections. These include:

1. "You just want to privilege church-goers." (Rebuttal: I think many church-goers would be willing to pay twice what they now pay in taxes. Maybe I'm trying to exploit church-goers!)
2. "Why shouldn't the state claim all the assets from a person who goes on Medicaid?" (Rebuttal: the so-called "Death Tax" only takes 40% of the assets from billionaires. Why take 100% from the working class?)
3. "This doesn't help the people who don't have wealthy family and friends." (Rebuttal: overloading the Medicaid system hurts the people who need it most. This frees it up as a true safety net for the truly destitute.)
4. "It's a tax break for the rich." (Rebuttal: no, it's a tax break for the working class. Tax deductions are fairly valuable to people in the top tax brackets, because they can save about 39 cents on the dollar by giving money away. People in the lowest bracket are just as generous, but they get 10 cents of the dollar for their donations. A tax credit levels the playing field for altruism.)
5. "Medicaid may be cheaper than insurance." (Rebuttal: yes, and you get what you pay for. Why not help people get better medical care at lower overall cost to the taxpayer?)

The only objection I haven't encountered yet is the only one I can't get around--"your system might actually work, which would keep Medicaid from crashing, after which the federal government would have to create a single-payer system."

Elder Law Opportunity

Approximately one million Americans are now at risk of losing their homes, farms, and small businesses to Medicaid's estate recovery program ("MERP"), but as of today there have been less than 20 news stories about the problem--and most of those have been published in the "local news" section. That is a problem for older, poorer Americans but a terrific opportunity for elder law attorneys.

Attention, attorneys: would you like more business? Here's your recipe for free advertising:

• Find a person who is:
• over 55 
• with an income below 138% of the federal poverty line
• who owns a home, farm, small business, substantial savings, or other assets.
• Research MERP in your state (if you don't already know the law).
• Find the webpage where your state explains MERP.
• Find the newspaper(s) that serve your area and look for their "submit a story" button. (If they don't have a "submit a story" button, search for "health" and find the reporter who covers health issues.) Explain the problem, the solution, and offer to put them in touch with your client. Make sure they include the name of your firm in the story!

To make this work, you have to be able to explain the solution. As I have explained in previous posts, any person with enough assets to worry about can sell just enough of their property each year to generate the income they need to qualify for subsidies. For some, one big yard sale might boost their income over the Medicaid line. Other clients may need more specialized help--which is why this is such an opportunity for specialists in elder law.

Sell Your Assets to Save Them

Low-income Americans are now eligible for expanded Medicaid, including a million or more who own homes, farms, small businesses, or other significant assets. People with incomes below 138% of the federal poverty line are not eligible for subsidies at HealthCare.gov and are being routed straight to Medicaid--but the federal website doesn't warn people over 55 that Medicaid is a healthcare loan, not health insurance. Federal law requires states to recover the costs of long-term care and related medical expenses from the estates of Medicaid recipients who die after the age of 55, and many states have expanded that rule to recover all Medicaid expenses. This means that many older, poorer Americans are poised to lose their farms, homes, or small businesses.

A farmer cannot pass his land on to the next generation, because Medicaid "looks back" five years to see if whether assets have been given away.  Mom and Pop can't deed the corner store to their daughter; Nana can't give the house to her son. Medicaid was designed to serve the truly poor, not to offer tax-funded benefits to people with assets. The problem older Americans now face is an "unexpected human-caused event" with no easy answers.

Some people have suggested that low-income seniors lie about their income to get above the Medicaid threshold. If people over 55 can qualify for the maximum subsidy, health insurance costs them almost nothing. Lying is no solution, however--not only does it involve perjury, it commits a fraud on the insurance companies, and the insurers have no obligation to provide (very expensive) care to people who lie to get their coverage. People who claim income they don't have are likely to lose everything.

There is one way to save these assets--sell them. To be more precise--sell an undivided interest in them. A 64-year-old individual in Maryland qualifies for maximum subsidies with an income of just $12,000 per year. Grandpa can sell the farm to his son over time for $1,000 per month. Nana can get a reverse mortgage on her home. Mom and Pop can take on a partner who will buy them out on an installment basis. Selling part of your property may be the only way to keep the rest.

Remember--Medicaid is not insurance. When you pay insurance premiums, some company assumes the risk that you will get sick and need care. When you sign up for Medicaid, the government effectively co-signs your medical loans. When you die, the government recoups as much of its investment as it can.

If you like your farm, you can keep it--by paying for insurance instead of Medicaid.

My Medicaid Nightmare

Did you ever have that dream where you are screaming as loud as you can and no sound comes out? Medicaid's "estate recovery" rule has me screaming, but my super-partisan audience isn't listening.

The "estate recovery" rule says that states must recover the costs of long-term care and related Medicaid expenses from the estates of Medicaid recipients who die after the age of 55. This rule has been on the books for twenty years, and elder law attorneys specialize in helping older Americans pass on their assets to their children and grandchildren so that nobody has to lose the family farm or corner store because they get old and sick.

The problem is that half the states have expanded Medicaid without thinking about how this rule is going to affect their citizens. Before the changes to healthcare, Medicaid was hard to get onto and people had years to prepare. Now, anybody with income below 138% of the federal poverty line is eligible with no limits on the assets they may own. Many of the family farms in my county belong to people who are not eligible for federal subsidies because their incomes are too low. That means they are signing up for Medicaid without understanding the implications.

My nightmare is that partisan Republicans treat this as "merely" another monstrous failure of the new law, while partisan Democrats don't want to deal with it. The gridlock in Washington leaves families at risk, but since this particular time-bomb won't blow up for years, nobody cares. By the time the Washington Post tells how one family lost the farm they had tilled for six generations, tens of thousands of family farms will have become the collateral for billions of dollars worth of medical expenses they can never pay.

I hereby invite Americans of every political persuasion to help address this problem. If you are a true-blue Democrat who celebrates the Patient Protection and Affordable Care Act, please join me in protecting these patients. If you are a red-hot Republican who despises Obamacare, please help me warn the people most affected. If you don't belong to either party, this isn't political--it's neighbors helping neighbors get ready for an "unexpected human-caused event."

What can you do to help? Click two hyperlinks and send one email. Use this link to find an elder law attorney in your state, click that link to find their contact information, and paste this into an email:

How does Medicaid's estate recovery rule apply to expanded Medicaid under the Affordable Care Act? See:http://healthshareadvocates.com/2013/12/help.html

With help from elder law attorneys across America, we can get the word out in time to save the family farm.

Iowa and the Medicaid Trap

Washington and Oregon have noted the "Medicaid Trap," which threatens sole proprietorships and family farms in states which have expanded Medicaid. I had hoped that Iowa, Arkansas, and Utah might dodge this bullet because those three states are trying to provide actual insurance for low income citizens rather than enroll them in Medicaid as such. I contacted the Iowa Department of Human Services to find out more.

Unfortunately, the news goes from bad to worse. First, Iowa's low-income citizen remain subject to Medicaid's estate recovery rule. Congress required every state to recover the costs of "long-term care and related Medicaid expenses" from the estates of Medicaid recipients who died after the age of 55, and Iowa's novel approach to providing coverage to low-income citizens does not get around that.

Unfortunately, Iowa recovers all medical expenses, not just "long term care" and expenses directly attributed to such care. According to a personal email I just received from DHS,

Estate recovery applies to those persons who receive assistance funded by Medicaid who are 55 years of age or older. Iowa law does not limit the recovery of Medicaid expenditures to long-term care and related Medicaid expenses, as Iowa applies this program equitably to all Medicaid members who meet the requirements of federal law.

What this means is that many family farms across Iowa are now threatened by any medical event. If Iowans had been given more time get ready, the new law might not affect them much, but federal law imposes a five-year "look back" rule to keep Medicaid recipients from hiding their assets. That means Grampa and Nana can't just deed the farm over to the next generation--they have to stay out of the hospital for five years if they want to keep the farm in the family.

Here's one silver lining for Iowa farmers. Iowa Senator Charles Grassley asked Senator Max Baucus to make sure that several well-established Christian healthcare sharing ministries could continue to operate, and 26 USC 5000A(d)(2)(b) expressly recognizes their right to exist. Samaritan Ministries, Christian Healthcare Ministries, and Medi-Share all help non-smoking, church-going Christians pay their bills by sharing medical costs among their members--and the cost of a monthly "share" is surprisingly low.

The next generation of Iowa farmers may choose to help Mom and Dad sign up for healthshare for the next five years. That way they may be able to pay their medical bills and keep the family farm!