Housing in Medicaid: Should it Really Change?

Bertrand Achou
Working paper #3
Retirement and Savings Institute – March 2020

In the U.S., housing is mostly exempted from Medicaid and Supplemental Social Insurance means tests. Reforms of this special treatment have been debated but little is known about its costs, benefits, and redistributive implications. I estimate a life-cycle model of single retirees accounting for this exemption. The model shows that the “homestead exemption” explains important patterns of Medicaid recipiency, that it is highly valued and may be of limited cost as it incentivizes saving and reduces Medicaid recipiency at older ages. The model also predicts that removing the homestead exemption or enforcing more systematically estate recovery programs would reduce redistribution towards lower-income retirees.