Congressional Research Service: Definition of Income for Certain Medicaid Provisions and Premium Tax Credits in ACA

This analysis from the Congressional Research Service describes the continuing policy implications of the new definition of Modified Adjusted Gross Income (MAGI) to be used to determine income eligibility for expanded Medicaid and health insurance marketplace premium and cost-sharing subsidies under the Patient Protection and Affordable Care Act (ACA). The analysis includes a discussion of the 2011 amendment to the definition of MAGI in P.L. 112-56, which was enacted into law on November 21, 2011. That legislation amended the definition of MAGI to include non-taxable Social Security.

Income for tax purposes is the income to be taxed, usually for the purpose of calculating personal income tax. Some types of income may be excluded partially or fully from income for tax purposes because they have been, or will be, taxable in other ways (such as business, gift, or estate taxes). Also, some types of income are excluded to encourage (or reward) certain behavior by tax units, such as saving for retirement.

In contrast, the purpose of social programs is to provide support (financial, medical, or other) to persons and families that may not be able to provide the needed support themselves. The programs generally rely on a concept of need that uses definitions of household and income to determine the level of financial resources actually available from the household to support the needs of the family or individual. A social program may consider everyone related in the household (or residence) as a household regardless of the tax unit status of the members of that household.

Also, many social programs use a definition of income that is more inclusive than the definition for income taxes. This is because for social programs, the relevant factor for income is not who is responsible for paying the taxes associated with the income, but who is the final recipient of the income. For example, many social programs require applicants and individuals receiving benefits to report gifts (cash and in-kind) and inheritances, as these gifts and inheritances can be used to support the applicant or recipient, even though they are not taxable to the applicant or recipient. Across social programs, the definition of income (what income is counted) and the specific rules for counting income are not consistent and will vary.

Since the MAGI definition of income is less inclusive than the definitions of income used in many other social programs, it may result in permitting individuals and families with a higher percentage of total income relative to the federal poverty level to qualify for Medicaid. The Congressional Research Service analysis recommends additional Congressional attention to this issue.

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