Moral Quandary: Free healthcare using a loophole in state system

[wantingToGetOut]

In my state of Mass., we have subsidized health care for low income families.

In talking with the people who run it, there appears to be a loop hole that I can use to get pretty much free health insurance for my family and keep all the doctors/hospitals I already use.


The "loophole" is that the eligibility is only based on income. It is NOT based on AGI. It is only based on income you would receive on a W2(before deductions) and from rental property, alimony, child support, pension, Social Security etc.


They do NOT consider interest/dividends/cap gains as income (I asked this question to the customer service representative working at MassHealth as it caught me off guard). They consider interest/dividend/cap gains as part of your assets and that does not factor into eligibility for me.


Since I do not work as an early retiree and have no other income outside of the interest/dividends/cap gains, I am very likely going to qualify for the max benefits (which is almost a free ride).


We are relatively well off but we are that way because we watch our expenses. Health care dominates our expenses. ~$13k of the ~$54k we spend every year is on health care.


Obviously dropping from $54k to $41k is going to make a huge difference in terms of my SWR.


My wife feels like we are going to be sponging off the state when the plan was not meant for people like us. I can't get past the numbers though.


Since others will likely be facing a similar choice come 2014 if/when the national plan kicks in, I was interested to see if other people had some moral issues with this loop hole.

 

[REWahoo]

Since others will likely be facing a similar choice come 2014 if/when the national plan kicks in, I was interested to see if other people had some moral issues with this loop hole.

Although what you describe may be perfectly legal and comply fully with the letter of the law, it does not comply with the spirit of the law.

I would not sleep well at night if I got a free ride under similar circumstances. Posting the question here indicates you have some doubts. Remember, you have to look at yourself in the mirror if you decide to take advantage of the loophole.

 

[wantingToGetOut]

Yes I agree with your sentiment.

I also am having a hard time imagining that come 2014, there are going to be more than a handful of people in this exact same spot who are going to 100% turn it down. I have even read in other threads that it is going to change when people think they are going to retire.


I wonder if the majority who are eligible will say no to the free money.


In a related question, are we early retirees such a small niche that it was not worth covering this loophole with a simple means/assets test?

 

[Texas Proud]

I will be on the other side of this....

It is NOT a loophole.... if what they say is correct, it was a decision that was made when the law was passed... if they do not like the results, they can change the law.... until they do (if they do), enjoy the free ride..


I can afford to do a number of things without gvmt help, but if that help is offered without jumping through a bunch of hoops, then I am going to take it...

 

[wantingToGetOut]

I will be on the other side of this....

It is NOT a loophole.... if what they say is correct, it was a decision that was made when the law was passed... if they do not like the results, they can change the law.... until they do (if they do), enjoy the free ride..


I can afford to do a number of things without gvmt help, but if that help is offered without jumping through a bunch of hoops, then I am going to take it...

Loophole was probably a bad term on my part. It just seems so obvious to me that this is something that could have been covered quite easily.


And from what I have read of the national plan, it appears to have the same opening in the eligibility.

 

[Brat]

Perhaps, so long as this option exists for you, you take the money you save and donate it to a health care charity of your cholce. If you are of a mind that charity begins at home put it in your children's college savings accounts. My thought is that the option may not remain forever, build the expense in your budget but set it aside for something you value.

 

[wantingToGetOut]

My thought is that the option may not remain forever, build the expense in your budget but set it aside for something you value.

I thought this as well until I read that the national plan also does not have an asset/means test.


My guess is the people who can take advantage of this are relatively so small in number that it was not worth it to try and cover

 

[samclem]

Although what you describe may be perfectly legal and comply fully with the letter of the law, it does not comply with the spirit of the law.

I would not sleep well at night if I got a free ride under similar circumstances. Posting the question here indicates you have some doubts. Remember, you have to look at yourself in the mirror if you decide to take advantage of the loophole.

I disagree. Who can know what the spirit of this law is? We can only know what the law requires. This is not a charity in which people voluntarily contributed their money in hopes of helping someone, it's just a cold government program with hard rules. The money to pay for these benefits was taken from taxpayers under rules just as capricious as the ones being used to dispense the funds.

Would anyone fail to take a tax deduction (and thereby pay more tax) just because maybe they disagree that such a deduction should exist? This is exactly the same situation. "No, I'll gladly give the state $5000 rather than deduct the mortgage interest--why should homeowners be favored over renters?" Crazy.

If you think the regulation/law is wrong, then definitely work to get it changed. But in the meantime take full advantage of it just as written. That's not hypocritical at all.

If you still feel bad about complying with the law as written, take the difference you would have spent and donate it to a medical charity for the indigent. I'll bet each buck does a lot more good that way than if you left it with the State of Massachusetts. You can already see that their criteria is a mess.

 

[wantingToGetOut]

I'll bet each buck does a lot more good that way than if you left it with the State of Massachusetts. You can already see that their criteria is a mess.

As I mentioned previously, the Mass criteria is not of much different from the National criteria for the PPACA in terms of an assets/ means test. At least from what little we know of the PPACA at this time.

 

[REWahoo]

I love threads like this - they clearly demonstrate we can all find justification why whatever decision we make is the right one...

 

[M Paquette]

I thought this as well until I read that the national plan also does not have an asset/means test.

My guess is the people who can take advantage of this are relatively so small in number that it was not worth it to try and cover

The PPACA subsidy as written will consider both taxable and tax exempt dividend and capital gain income.

 

[wantingToGetOut]

The PPACA subsidy as written will consider both taxable and tax exempt dividend and capital gain income.

I did not realize this. This makes more sense to me.


I had read that the PPACA was going to be based on AGI but from your information that does not appear to be true.


Thank you.

 

[easysurfer]

To answer the moral quandry question...

Sometimes, taking the tax advantages of having a HSA (triple tax benefit) feels like I'm getting a free ride as it feels like I'm just shuffling money around.

I contribute, then use the tax deferred contributions to pay myself back for qualified medical expenses, all the while get a tax deduction for the contributions come tax time. Additionally, some folks don't even use a HSA for medical expenses yet, but instead think of it as a super IRA.

I love my HSA. But is that a free ride, or just wise planning?

p.s. No political statement intended.

 

[MichaelB]

If the program is MassHealth, investment income is considered. It looks very much like SSI or other need based programs.
http://www.massresources.org/masshealth-financial-eligibility.html

What income is counted?

The following income is counted:

Wages, salary, tips, commissions (before deductions)
Self-employment income (minus expenses)
Social Security benefits
Railroad Retirement benefits
Pensions and annuities
Federal veterans' benefits (minus allowed exclusions)
Interest and dividends
Rental income (minus expenses)

 

[wantingToGetOut]

It looks like the PPACA is going to be based on MAGI(not AGI as I mistakenly thought) according to this document (great info in here).

Go to page 6
http://www.ncsl.org/documents/health/DefIncACAMedicdProv.pdf



Seems to be a bit of a trade off between the PPACA and the Mass plan in terms of eligibility.


The PPACA appears to include certain deductions and includes interest/dividends
The Mass plan does not include either deductions or tax exempt interest/dividends

 

[wantingToGetOut]

If the program is MassHealth, investment income is considered. It looks very much like SSI or other need based programs.
http://www.massresources.org/masshealth-financial-eligibility.html

It is Mass Health.


I called them earlier as I saw that exact line at that web site you linked.


I talked to the representative to confirm and dividends/interest does not apply to people under the age of 65. They categorize dividends and interest as an asset and they apply to people over 65.

Does not make a ton of sense though. I should probably call back.

 

[ERD50]

Loophole was probably a bad term on my part. It just seems so obvious to me that this is something that could have been covered quite easily. ....

... Who can know what the spirit of this law is? We can only know what the law requires. ....

If you think the regulation/law is wrong, then definitely work to get it changed. But in the meantime take full advantage of it just as written. That's not hypocritical at all.

Exactly. It is the lawmaker's job to write the law as they intend. If they intended to include div/int, then they should have written it that way. We are not the Supreme Court, we are in no position to question the intent, we can only follow the rules as written (and that is often difficult, as in 'substantially identical' with regards to a wash sale - but don't get me started).

I love threads like this - they clearly demonstrate we can all find justification why whatever decision we make is the right one...

It's not justification, it is reading and complying with a law as it is written. It's not we are trying to 'justify' going 65 in a 45.

-ERD50

 

[plex]

Just keep in mind that even if Mass. Health works the way you think it might, it won't work that way anymore in 2014. Federal law establishes the bare minimum, states can expand on it, but they can't have looser restrictions.

 

[wantingToGetOut]

I called Mass Health again. This customer service representative now says that taxable interest/dividends are included but that tax exempt interest/dividends are not. They sound very confused as he had to check a couple times with supervisor.

I guess I just need to wait for the eligibility check to be complete to see.


It is still an interesting question no matter what though from a high level about the moral quandary.




Thank you to everyone for your help.

 

[Buckeye]

I sure hope you don't take the mortgage interest deduction (assuming you have a mortgage) or claim your kids on your tax return given that you don't need the extra funds!

 

[plex]

Some other details were interesting in the document. It confirms that if you are eligible under PPACA for Medicaid (and the state is one of those that expands their Medicaid program), you are not eligible for the subsidy credits.

So, there will be a pretty specific income range to hit in order to get the best coverage for the lowest price, you can't qualify for both after 2014.

 

[REWahoo]

It's not justification...

No, of course it isn't.

 

[Mulligan]

To answer the moral quandry question...

Sometimes, taking the tax advantages of having a HSA (triple tax benefit) feels like I'm getting a free ride as it feels like I'm just shuffling money around.

I contribute, then use the tax deferred contributions to pay myself back for qualified medical expenses, all the while get a tax deduction for the contributions come tax time. Additionally, some folks don't even use a HSA for medical expenses yet, but instead think of it as a super IRA.

I love my HSA. But is that a free ride, or just wise planning?

p.s. No political statement intended.

Either way, at least you are smart enough to use it. Just talked to a friend yesterday who said he finally signed on to companies flex spending account. Last 10 years been spending over $1000 a year in prescription payments. Was just too lazy to sign up. Another friend who has a $7k family deductible, I cant get him to take 30 minutes and sign up for an HSA. Just pays his bills out of pocket. I don't understand people who just leave $ on the table just because they are too lazy to do the paperwork. And both these people live paycheck to paycheck despite nice income.

 

[wantingToGetOut]

Just keep in mind that even if Mass. Health works the way you think it might, it won't work that way anymore in 2014. Federal law establishes the bare minimum, states can expand on it, but they can't have looser restrictions.

Good point.


I am still a bit unclear the exact difference for me between PPACA's use MAGI(which includes some deductions, dividends/interrest and only certain tax exempt investments) and the Mass plan (which does not include any deductions, taxable dividends/interest and no tax exempt interest/dividends).


At this point I just need to proceed slowly and see what is what. The guy at Mass Health Care said not to sweat the form, they do all the eligibility based on your taxes so I just need to wait it out.

 

[MichaelB]

It is Mass Health.


I called them earlier as I saw that exact line at that web site you linked.


I talked to the representative to confirm and dividends/interest does not apply to people under the age of 65. They categorize dividends and interest as an asset and they apply to people over 65.

Does not make a ton of sense though. I should probably call back.

There is a section that specifically refers to people age 65 and above, and it does not reference interest and dividends. Seems pretty clear to me from the web page that investment income is included.

Edit to add: I would also base my actions what is written, not what is said.

Good point.


I am still a bit unclear the exact difference for me between PPACA's use MAGI(which includes some deductions, dividends/interrest and only certain tax exempt investments) and the Mass plan (which does not include any deductions, taxable dividends/interest and no tax exempt interest/dividends).


At this point I just need to proceed slowly and see what is what. The guy at Mass Health Care said not to sweat the form, they do all the eligibility based on your taxes so I just need to wait it out.

MAGI may be determined the same way it is for other purposes or it may be unique to PPACA. I'd wait to be certain before counting on a subsidy or credit.