President Obama's health care law would let several million middle-class people get nearly free insurance meant for the poor, a twist that government number-crunchers say they discovered only after the complex bill was signed.
The change would affect early retirees: A married couple could have an annual income of about $64,000 and still get Medicaid, said officials who make long-range cost estimates for the Department of Health and Human Services.
After initially downplaying any concern, the Obama administration said late Tuesday that it would look for a fix.
Up to 3 million more people could qualify for Medicaid in 2014 as a result of the anomaly. That's because, in a major change from today, most of their Social Security benefits would no longer be counted as income for determining eligibility. It might be compared to allowing middle-class people to qualify for food stamps.
Medicare chief actuary Richard Foster says the situation keeps him up at night.
"I don't generally comment on the pros or cons of policy, but that just doesn't make sense," Foster said during a question-and-answer session at a recent professional society meeting.
"This is a situation that got no attention at all. And even now, as I raise the issue with various policymakers, people are not rushing to say we need to do something about this."
Obama administration officials said Tuesday that they now see the problem. "We are concerned that, as a matter of law, some middle-income Americans may be receiving coverage through Medicaid, which is meant to serve only the neediest Americans," said Department of Health and Human Services spokesman Richard Sorian. "We are exploring options to address this issue."
Administration officials and senior Democratic lawmakers initially defended the change, saying that it wasn't a loophole but the result of a well-meaning effort to simplify the rules for deciding who would get help under the new health care law. Instead of a hodgepodge, there would be one national policy.
But Sen. Orrin G. Hatch of Utah, ranking Republican on the Senate Finance Committee, called the situation "unacceptable" and said he intended to look into it.
Governors have been clamoring for relief from Medicaid costs, complaining that federal rules drive up spending and limit state options. The program is now one of the top issues in budget negotiations between the White House and Congress.
Some early retirees who worked all their lives may not want to join a program for the poor, but others might see it as a relatively painless way to satisfy the new law's requirement that most Americans carry health insurance starting in 2014. It would help tide them over until they qualify for Medicare.
The Actuary's Office said the early retirees eligible for Medicaid would be on top of an estimated 16 million to 20 million new people that Obama's law already brings into the program, by opening it to childless adults with incomes near the poverty level.
Former Utah Gov. Michael O. Leavitt said bringing early retirees in will "just add fuel to the fire," bolstering the argument from Republican governors that some of Washington's rules don't make sense.
"The fact that this is being discovered now tells you, what else is baked into this law?" said Leavitt, who served as secretary of health and human services under the first President George Bush.