State Auto-IRA Savings Can Affect Medicaid Eligibility – Center for Retirement Research

Low-income retired couples with assets under $3,000 can get Medicaid to supplement their Medicare insurance or pay for a nursing home. This property measure, set by state governments, applies mostly to financial accounts and does not include the value of a home or car.

But Medicaid coverage in old age would conflict with auto-IRA programs in a growing number of states — 16 so far — designed to help workers without an employer 401(k) save for retirement.

The large savings workers will build up in these auto-IRAs could make some ineligible for additional health insurance in retirement, even if their income meets the plan’s income threshold, according to a new study by the Center for Retirement Research.

The average worker who starts saving in their early 20s will have $25,000 in an auto-IRA by their early 50s — the average, finally, for a low-income worker who didn’t go to college and was occasionally enrolled in a car. -IRA. But account balances can be as high as $105,000 — a highly optimistic scenario — for a college-educated worker who doesn’t have an employer 401(k) and saves steadily in an auto-IRA.

Over the decades of many jobs, “employees accumulate significant new savings in the auto-IRA,” the researchers concluded in their estimate, which was based on data on the income of American workers and a model that assumes the national auto-IRA program is adopted. in 2019.

The researchers chose to include auto-IRA balances for workers aged 51-56. Although people who do not go to work until 65 will have accumulated more money, this is not the case for many low-wage workers. They are often at risk of developing a disability that requires them to reduce their work hours or stop working early and apply for disability benefits. They may be forced to take money out of Roth auto-IRAs — which are tax-free — to supplement their income or meet the Medicaid asset test.

Future Medicaid coverage will also be affected for workers who start saving later — in their 40s — but the impact will be more muted than it is for younger savers. Older workers in this study would have saved an estimated $22,000 to $25,000 in their first 50 years. Even these small amounts can make some ineligible for Medicaid, giving retirees an incentive to spend their money quickly to get the cheap health insurance or long-term care they need.

States can eliminate the conflict between two financial goals – saving for retirement and containing health care costs in old age – by following the lead of California’s Medicaid program, Medi-Cal. Low-income retirees who apply for Medi-Cal to supplement their Medicare no longer face the asset limit. Released on Jan. 1, 2024.

But without similar legislation in other states, workers and retirees with auto-IRA accounts can face difficult decisions about how to balance their financial needs with their health care needs.

Reading this in short by Karolos Arapakis and Laura Quinby, see “Will Auto-IRA Plans Affect Medicaid Enrollment.”

The research reported here was conducted in accordance with a grant from the US Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The views and conclusions expressed are solely those of the authors and do not necessarily represent the views or policy of SSA or any agency of the Federal Government. Neither the United States government nor any of its agencies, nor any of its employees, makes any warranty, express or implied, or assumes any legal responsibility or liability for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any particular commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not imply endorsement, recommendation or favor by the United States Government or any agency thereof.