I've heard of family friends putting their senior parents (who are too old to work in any meaningful way) on the payroll of a business owned by a family member. The parent stays on the payroll getting paid minimum wage for 1 year so they qualify for free medicare. I expect the money is not actually going to the senior parent but instead back to the hiring family member.
While this is certainly unethical, is there anything illegal about this?
Since Medicare and Medicaid are US federal government programs, I assume you are referring to US Medicare. What you describe is theoretically possible: a person has worked in the US but is 4 quarters short of the required 40 for Medicare eligibility (also, they do not gain spousal eligibility) because they have been previously employed. If they have earned income up to a certain level within a tax year, they would pay SS taxes thus qualifying for Social Security and Medicare. For 2020 that amount was $5,640 to get the maximum of 4 credits – it does not have to be stretched out over a year. You can earn those credits doing anything (certain government-sector jobs excluded). Then you pay income taxes and social security taxes on that amount. If the person earns the money as an independent contractor they pay the entire tax, if they are an employee the employer pays part of the tax (then the employer has to figure out what their obligation is, which the IRS is happy to tell you about). The employer also withholds the employee's contribution and pays it to the IRS, and the amount is reported on their form W2.
These are mandatory obligations on the employer: you must pay the employer portion and you must withhold. It would be illegal to not make the required contributions.
There is no law that prohibits employment of a person who has not already qualified for Medicare or SS (that should be obvious). There is no law that sets "usefulness" standards that an employee must meet in order to be lawfully employed. No untruthful statements are required in order to hire a person that just stands at the door and says "Hello".
If it actually is the case that the employee does not even receive their wage, as you conjecture, then that would be a violation of state or federal labor laws. In connection with that, continued employment is not required to continue receiving SS and Medicare, and this might be a scheme to exploit a senior citizen into working for low wages when they don't have to.
I think the OP is confused about Medicaid. Employment is not required for Medicaid and, in fact, employment that includes medical insurance benefits would preempt Medicaid being a primary insurance.
If the health insurance that all employees got at the hypothetical company was much better and/or less expensive than Medicaid or the family members somehow did not qualify for Medicaid, then this scheme might help them.
If implemented, this would cost the company since the company insurance will charge by the head. There is a company cost per person and might also be a cost for the employee.
Is it legal or ethical? The no-show employee will hurt the company fiances by their salary + ss, and other payroll taxes + the company side of the insurance premium.
If the company is a sole proprietorship and that owner is the one knowingly putting this plan into place and there are no investors or others who have a call on the profits then it might be that no-one is getting cheated.
If their are partners, shareholders, etc., they are getting money taken out of their pockets.
Last the insurance company - they have assumptions built into their underwriting. One may be that anyone employed is healthy enough to do some baseline job. Your bedridden great grandfather might not be that healthy. It is possible that they have recourse in their contract with the company to cover this case.
