When should Tax Payers Pick Up the Tab?

Zagreus Ammon over at The Physician Executive asked me a good question after I commented on his post regarding the recent blogger SCHIP 'FOOD FIGHT' (my characterization).

He wanted to know my thoughts regarding taxpayer-subsidized health benefits. More specifically how I might propose to establish appropriate financial thresholds at which an individual (or family) would be required to sell assets (or spend down resources) to continue to be eligible for benefits from programs, such as Medicaid or SCHIP.

He thought that my experience with being ‘caught in the web of chronic disease’ and subsequent frustrations in navigating 'safety net' programs might afford me some greater insight. Well, let’s see.

A Primer on Medical Assistance in Virginia

FAMIS - Family Access to Medical Insurance Security (SCHIP)

• FAMIS Plus is Medicaid for Children. To qualify family income must be at or below 133% FPL (2007: $18,308 for family of 2, $27,465 for 4, $36,722 for 6). No resource evaluation is required.
• FAMIS is a state/federal program which provides low-cost health insurance for children in families whose income is 133% to 200% FPL (2007: $18,308-$27,308 for 2, $27,465-$41,300 for 4, $36,722-$55,220 for 6). The child must not have health insurance (some exceptions apply) and is not eligible for a state employee health insurance plan. No resource evaluation is required.
• FAMIS Select is a program which helps families pay for private or employer-sponsored health coverage. To be eligible, family must have at least one child enrolled in FAMIS. Families can choose between FAMIS or FAMIS Select benefits. The eligible family will receive up to $100 per enrolled child to help pay for family health insurance coverage, although a minimum employer premium contribution is required. The amount received from FAMIS Select can not exceed the family's share of coverage premiums. No resource evaluation is required.
• For pregnant women, Virginia has FAMIS MOMS program. To be eligible, income must be at or below 185% FPL (2007: $25,327 for you and unborn child) and you must not have access to a state employee health plan. No resource evaluation is required.

DMAS - Department of Medical Assistance Services (Medicaid)

• Full Medicaid Coverage is available to enrollees who are 65 or older, blind, or disabled as determined by SSA and have income at or below 80% FPL (2007: $8168 for 1, $10952 for couple). Or be an SSI enrollee with resources less than $4000 for individual or $6000 for couple.
• Limited Medicaid Coverage is available to enrollees eligible for Medicare Part A with resources less than $4000 for an individual or $6000 for couple. If income is below 100% FPL (2007: $10,210 for 1, $13,690 for couple), medicaid pays Medicare Part A & Part B premiums and all amounts for coinsurance and deductibles which medicare doesn’t pay. If income is less than 135% FPL (2007: $13,784 for 1, $18,482 for couple), medicaid pays Medicare Part B premiums. If disabled, working, with income less than 200% FPL (2007: $20,420 for 1, $27,380 for couple), medicaid pays Medicare Part A premiums.
• If income is below 135% FPL, you may be eligible to receive a Medicare Part D Subsidy. For full subsidy, resources must not exceed $6000 for individual or $9000 for couple. For partial subsidy, resources must not exceed $10,000 or $20,000 respectively.
• A Work Incentive (WIN) program, called Medicaid Works, is available to disabled enrollees, under 65, who are employed or wish to be employed. Initial eligibility requires income below 80% FPL and resources limited to $2000 for individual or $3000 for couple. Continued participation requires that all earned income must be deposited into a WIN account, maintaining $2000 minimum balance. This program allows the disabled Medicaid recipient to earn income up to $40,905 and to accumulate resources up to $27,577. Any amounts deposited into IRS-approved accounts do not count against resource limits and will not affect continued eligibility. Examples of IRS-approved accounts include IRA, MSA, MRA, education accounts or independence accounts.
• If the Medicaid Works enrollee is unable to continue working, he may switch to traditional Medicaid. Resources accumulated in WIN accounts will not count against current eligibility and the enrollee will have one year to dispose of excess funds before impacting continued eligibility. Resources accumulated in IRS-approved accounts will not count against current or future eligibility.
• Health Insurance Premiums Payment (HIPP) Program is a Medicaid program which reimburses some or all of an enrollee's share of employer-sponsored group health insurance premiums when it is determined to be more cost-effective to do so.

Useful Definitions:

• Income includes earned income, such as wages, and unearned income, such as Social Security, retirement benefits, veteran's benefits, child support, etc.
• All resources and assets MUST be reported, including money on hand, in the bank, or in a safe deposit box; stocks, bonds, CDs, trusts, and pre-paid burial plans; cars, boats, life insurance policies, and real property. Not all resources are counted against eligibility, including your personal residence, one vehicle, and resources necessary to self-support.
• Spenddown - If you meet all Medicaid requirements, but have excess income, you can reduce your excess income by incurring medical expenses, placing you in Medically Needy group. A deductible, or spenddown amount, is calculated for a six-month period (2007: $1557-$2335 for 1, $1982-$2815 for couple). Current and some old unpaid medical bills can be used as deductions against the spenddown amount. Coverage starts only after the spenddown amount is reduced to zero, and runs through the end of the spenddown period, after which you can reapply for another period of coverage.

My thoughts on government (taxpayer-funded) programs

Regarding the Frost family in Baltimore:

• If they lived in Virginia, the only two issues affecting FAMIS eligibility include low family income (below 200% FPL, 2007: $55,220 for family of 6) and lack of access to employer-sponsored or state employee health insurance plans. The application form does not require documentation related to the value of their personal residence, bank accounts, business property, or general monthly expenses. In the FAMIS Select program, the Frosts would be eligible to receive up to $400 monthly to apply towards private insurance or their share of employer-sponsored group health insurance premiums. This program would place the Frost's medical care and expenses within the private insurance sector, not the public Medicaid system.
• In this scenario, I believe that means-testing is irrelevant. The potential monthly subsidy to a low-income family is a great incentive to participate in the private healthcare system, assuming insurance is available to them, and to be responsible for all associated copays, coinsurance, and deductibles. This is truly a step-up not a hand-out. But if the family is not reporting all of their earnings in order to qualify, then they've got a bigger problem than receiving medical benefits.

Regarding seniors who shelter assets:

• After reading much of the regulations surrounding the valuation or exclusion of resources for medicaid applicants, I am not convinced that one spouse would be able to squat on a Park Avenue apartment so that the other spouse could receive nursing home benefits, a situation which Megan McArdle eludes to at Asymmetrical Information. In Virginia a 1994 amendment invalidates the provisions in inter vivos trusts which provide for the suspension, termination or diversion of income of an irrevocable trust in the event that the grantor applies for Medicaid or needs medical, hospital or long-term care. The trustee must distribute the principal and interest to the potential medicaid applicant while only $25,000 will be exempt from the provisions. Here I believe that it would be seriously irresponsible for a couple who 'squat' on a Park Avenue apartment to not have Long Term Care Insurance.
• Regarding wealthy families who establish complicated trusts to protect their assets and to avoid taxes, transfer costs or capital gains on investments, I believe this is a much larger problem which is beyond the scope of the current discussion of government-subsidized programs. Although I acknowledge that the wealthy in this country do pay a substantial chunk of the dollars paid in taxes, I believe that the ratio of assets, income, and taxes paid is seriously out of proportion if you consider the same ratios throughout all income levels.

For years, my grandmother paid premiums for long-term care insurance. But my aunt retired early and she, along with my father and other siblings, chose to care for her in her home and paid for part-time nursing care at home. Now my grandmother didn't earn alot, but she was smart and responsible with her money. She was the personal bookkeeper for an affluent family in Oklahoma City and was great with numbers. If dementia had not settled in and if she had known her children were spending their own money and wasting her long-term care benefits, she would have given them serious "what for." After she passed away in 2003, there was practically nothing left of great value to split between her four children. One of the home nurses had stolen her jewelry, the children had spent the balances of her accounts, and the house which was jointly owned by the children (a change of deed which occurred almost 15 years ago) had become my aunt's personal residence and is worth about $55,000 at most. This just illustrates that even families of lesser means do not consider government programs to be an appropriate entitlement.

Finally a little Something about My Situation

First of all, my challenge to qualify for and obtain assistance in covering medical costs has not required me to enroll in any of the above programs.

• I am not disabled.
• I am 39 (which is under the age of 65).
• I am employed (self-employed as musician).
• I 'choose to save' to prepare for a secure financial future.
• I maintain a debt-free status (paying bills in full each month).
• I have no student loan debt or mortgage debt. I received substantial scholarships and fellowships which the majority of college costs. I have not purchased a home, although I was saving for that purpose.
• I have private health insurance in an individual (non-group) plan.

So why do I have trouble paying for medications?

• My prescription benefit is capped at $1500 annually, which I discovered AFTER submitting a prescription for a $21,000 MS medication. Two years ago, someone asked me - "Will your insurance pay for it?" My naive answer was - "Well, I think so, but I don't know what my copay will be. I guess I'll find out."
• My insurance would not pay for this medication and bounced my case to the pharmaceutical company's benefit investigations department which determined I was not eligible for any state or federal programs. The pharmaceutical company referred me to NORD (National Organization for Rare Diseases) who administrates their assistance program, as well as many other programs. The application to NORD required proof of income (paystubs, tax returns, etc) and financial assets (bank statements, pension statements, etc), listing of property assets (home, car, etc), and details of monthly expenses (mortgage and loan payments, food and shelter, utilities, insurance premiums, etc).
• November 2005, I applied submitting the most recent tax return (2004) which showed $32,696 AGI. (I had not been deducting retirement contributions from taxes so as to show higher income to improve credibility to potentially purchase a home.) Although I had a separate 'business' and 'personal' subaccounts within the solitary bank account I have had since childhood, the total balances were determined to be 'personal' by NORD. Although I am self-employed and file Schedule C, certain business deductions were non-allowed by NORD and were 'added back into' by income for eligibility consideration, including the modest $200 spent on concert attire and depreciation amounts related to musical equipment. With this information NORD awarded me 50% assistance which meant 6 months of medication would be provided after which I would be responsible for the full expense.
• I was told that I could appeal this decision after completing 2005 taxes which I did showing $27,321 AGI. I also documented that during the previous six months, expenses exceeded income by $10,390, the result of decreased income and increased medical expenses. My appeal was denied and I was told that without great debt (ie. mortgage or student loans) I was expected to spend excess savings (ie. retirement money and savings for a downpayment). The woman I spoke with also mentioned that I was not even spending the minimum of what they allowed in their calculations for food and shelter and so I was fortunate. So fortunate and financially responsible that I was expected to pay the remaining $10,000 out of savings for this one medication, in addition to all medications after reaching my insurance policy's $1500 limit which ran out in June 2006.
• This denied appeal marked the beginning of a long search for non-government assistance programs which propose to help with prescription costs. I discovered several copay programs which had closed their MS programs due to insufficient funding. The Patient Access Network Foundation provides disease-specific assistance for lower-income individuals who have insurance, but they denied me because my income exceeded their limit by approximately $5000, although my immediate need was in excess of $10,000. I won't bore you with the LONG list of applications and denials, but it was rather discouraging.
• So February 2007, I reapplied to NORD for assistance - this time armed with $19,417 AGI, medical expenses of $15,542 in 2006, and segregated personal, business, and retirement accounts. Additionally, I sent my application by certified, signature-required mail to the director of NORD's Copaxone assistance program. This time I was quickly approved to receive Copaxone free for 12 months. But I still have to go through the same process next spring, and the next spring, and so on, during which I cannot risk earning or saving too much for fear of becoming disqualified. And I still exhausted my prescription coverage in July this year, so I'm on my own to pay for meds until January 2008.

My situation does not belong on the books of government-subsidized programs. My argument is with the federal and state regulations which allow a private insurance company to arrange benefits for self-employed persons such that the beneficiary will be unprotected from catastrophic medical expenses. My argument is also with the business practices of pharmaceutical companies, who are allowed to exploit their blockbuster drugs and price-gauge individuals suffering from chronic illness, in order to improve their market share and profit margin.

I've written just a little about my personal experience in previous blogposts. Please feel free to browse through all such articles and leave a comment.