Housing in Medicaid: Should It Really Change?

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. It shows that the homestead exemption explains important patterns of Medicaid recipiency and that it is highly valued. It also shows that estate recovery could cover most of its costs with possibly limited negative welfare consequences. Finally, the model predicts that removing the homestead exemption or enforcing estate recovery programs would reduce redistribution toward lower-income retirees.