State Automatic Retirement Account Savings May Affect Medicaid Eligibility – Center for Retirement Research

Low-income retired couples with less than $3,000 in assets can receive Medicaid to supplement their health insurance or pay for nursing home expenses. This asset cap is set by the state and applies primarily to financial accounts, excluding the value of homes and vehicles.

But in a growing number of states (16 now), senior Medicaid coverage may conflict with automatic IRA plans designed to help workers without an employer save for retirement in a 401(k).

The large savings workers accumulate in these automatic IRAs could make some people ineligible for additional health insurance in retirement, even if their income meets the program’s income caps, according to a new study from the Center for Retirement Research.

A typical worker who starts saving in his early 20s will have $25,000 in an auto IRA by his early 50s — an estimate on the lower end of the spectrum for low-wage workers who didn’t go to college and enroll in autos intermittently. Irish Republican Army. But for a college-educated worker without an employer 401(k) who keeps saving in an automatic IRA, the account balance could be as high as $105,000 — the most optimistic scenario.

The researchers concluded that “workers accumulate substantial new savings in automatic retirement accounts” over their decades-long careers, according to their estimate, which is based on U.S. worker income data and assumptions using the National Automatic Retirement Account Program Model 2019.

The researchers chose to count the automatic IRA balances of workers ages 51 to 56. Although individuals who retire until age 65 accumulate greater savings, this is not the case for many low-income workers. They are often vulnerable to developing disabilities that require them to reduce their hours or stop working prematurely and apply for disability benefits. They may be forced to withdraw funds (tax-free) from a Roth auto-IRA to supplement their income or meet the Medicaid asset test.

Future Medicaid coverage will also be affected by workers who start saving later (in their 40s), but the effect will be smaller than among younger savers. Older workers in the study could have saved an estimated $22,000 to $25,000 by the time they were in their early 50s. Even these relatively small balances can make some people ineligible for Medicaid, creating an incentive to quickly spend their savings in retirement to get the low-cost health insurance or long-term care coverage they need.

States can follow the example of Medi-Cal, which eliminates the conflict between two financial goals—saving for retirement and controlling senior health care costs. Low-income retirees who apply for Medi-Cal to supplement Medicare no longer face asset limits. It was phased out on January 1, 2024.

But without similar legislation in other states, workers and retirees with automatic IRAs may face difficult decisions about how to reconcile their financial needs with their health care needs.

To read this short By Karolos Arapakis and Laura Quinby, see “Will Auto-IRA Plans Affect Medicaid Enrollment?”

The research reported in this article was conducted under a grant from the U.S. Social Security Administration (SSA) as part of the Retirement and Disability Research Consortium. The views and conclusions expressed are those of the authors and do not necessarily represent the views or policies 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, and assumes no legal responsibility or liability as to the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process, or service, whether by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation, or support of the U.S. Government or any agency thereof.