These Government Rules Trap Millions of Americans in Poverty
Susanne Brasset has $5 in her bank account. She’s scared to save more.
Brasset, a 39-year-old freelance photographer in Denver, has cerebral palsy, which limits her ability to work. To pay her bills, she relies on Social Security, which she gets because of her disability.
But the program monitors her bank accounts to make sure she's not putting away too much money. With more than a few thousand in the bank, she'd be disqualified for the program, as well as for Medicaid and other crucial benefits. Unable to plan for the future, Brasset said her finances put her in a "constant state of anxiety and fear."
“There’s more money I could be making,” she said. “But I’m discouraged by all the rules I need to adhere to.”
Brasset is caught in a bind familiar to many people with disabilities. Their well-being relies on government benefit programs, but these programs impose strict limits on how much recipients can earn and save. Rules intended to bar freeloaders end up keeping disabled people in a permanent state of poverty, unable to put money away for emergencies, retirement, and other life goals.
It's hardly a fringe issue—some 50 million Americans have disabilities, ranging from depression and other mental health conditions to chronic illnesses such as lupus and physical impairments like cerebral palsy and spinal cord injury—and the problem is starting to get more attention. Last week's Democratic National Convention featured disability rights advocate Anastasia Somoza, who has cerebral palsy and spastic quadriplegia, taking the stage in her wheelchair to deliver a searing speech, as well as video of Donald Trump apparently mocking a disabled reporter by waving his arms around spasmodically.
Now a handful of states are rolling out a new financial product called an ABLE account, which could help millions of disabled adults who worry about losing food stamps, cash benefits, or life-sustaining health insurance if they accumulate more than a couple thousand dollars. Three of the states let residents of any other state open an account. Medicaid, the health insurance program for the poor, covers some 65 million Americans.
ABLE is a savings account, created by Congress in 2014, that can be opened by or for people with a disability that began before they turned 26. Like a 529 college savings plan, ABLE accounts are run by states, which need to pass legislation of their own to create them. Just as investment gains in a 529 plan aren’t taxed if the money is used for higher education, the funds in an ABLE account are tax-free if they go toward disability-related expenses, a broad category that includes housing, education, health care, and basic needs.
ABLE goes only so far in fixing a confusing and frustrating system, but it does create a much-needed loophole. For some, the account offers a way to prepare for emergencies. For others, like 35-year-old filmmaker and activist Dominick Evans, it could let them save money that doesn't count toward the asset cap so they can work without losing benefits.
Medicaid is vital for Evans. He was diagnosed with spinal muscular atrophy, a genetic nerve disorder that weakens muscles, when he was four. Unlike most other insurance, Medicaid covers the personal care assistants who help him get out of bed in the morning.
"I would essentially die without home health care," said Evans, who lives in New York's Hudson Valley.
With the support Medicaid provides, Evans could work more than he does. But, in a Catch-22, additional income would threaten his Medicaid eligibility.
“The financial situation for disabled people is dire,” Evans said. “A major reason is we have to choose between our job and the benefits we get.”
Even marrying his girlfriend could cause Evans to lose Medicaid, because state programs also monitor a spouse's resources. “There’s so much frustration,” he said.
Those are the dilemmas ABLE is meant to resolve. The first ABLE accounts have opened in four states, with many more states on the way. While Florida’s program is restricted to residents, the other three states – Ohio, Tennessee, and Nebraska – are also open to people who don't live there. 1 States are setting up ABLE accounts with investment options along with savings and checking accounts. All four states charge users of ABLE accounts, but fees should fall as the accounts become more popular, said Deborah Goodkin, managing director of savings plans at the First National Bank of Omaha, which runs Nebraska’s 529-plans and the Enable Savings Plan, its new ABLE option.
The Social Security Administration says it has trained staff members on ABLE accounts. Still, Brasset, who was surprised to learn she is eligible, said she recently visited a Social Security office to renew her benefits and “that person had no idea what an ABLE account was.”
Brasset is leaning toward signing up for an account with Ohio. She’s hoping she'll be able to work more now and save the proceeds in her ABLE account. Relatives will be able to make contributions, too, helping to create a safety net for major expenses.
“It gives me peace of mind,” Brasset said. “Saving money should be a right to each and every American.”
Strings are attached. Total contributions, whether by an account holder, friends, or family, are capped at $14,000 a year. If an account exceeds $100,000, the holder can lose eligibility for cash benefits from Social Security's Supplemental Security Income program until the overage has been spent. When a Medicaid recipient dies, the health insurance program for the poor can take the contents of an ABLE account as compensation for the care that was provided.
ABLE accounts can be a valuable tool for parents of children with disabilities and for adults who get help from relatives. Families may be eager to make sure disabled children get the care they need after older relatives die. But parents and grandparents are often warned not to leave money to people with disabilities without hiring an attorney to set up a trust.
Doing so is “a drastic mistake,” said Henry Klosowski, a trusts and estates lawyer at Moritt Hock & Hamroff, in Garden City, N.Y. Recipients can lose eligibility for benefits, and their entire inheritance can be swallowed up by health-care, or even basic, expenses.
Still, ABLE makes it much easier for relatives to give money and to start saving when disabled kids are young.
Jacob Gehringer is ready to move on from his parents' home in Papillion, Neb., a suburb of Omaha. The 20-year-old, who has Down syndrome, graduated from high school and is training to work as a preschool aide. He and his parents recently opened an ABLE account. His goal: save for a place of his own, with a backyard where his black Labrador retriever, Miller, can play.
“I plan to be an independent man,” he said. “I want to take care of myself—and my dog, too.”
(Updates headline to distinguish between Americans with disabilities and those living in poverty. Revises paragraph about the first four state ABLE programs to make it clear they are already open.)