Definition of Income in PPACA for Certain
Medicaid Provisions and Premium Credits
Janemarie Mulvey, Coordinator
Specialist in Health Care Financing
Evelyne P. Baumrucker
Analyst in Health Care Financing
Bernadette Fernandez
Specialist in Health Care Financing
Christine Scott
Specialist in Social Policy
October 24, 2011
Congressional Research Service
7-5700
www.crs.gov
R41997
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Summary
Under the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148, as amended), the
definition of income for eligibility for certain Medicaid populations and premium credits in the
exchanges is based on modified adjusted gross income (MAGI). The initial intent of using MAGI
was to standardize the definition of income for Medicaid eligibility purposes to reduce some of
the variability and complexity that exists under the current program and to provide consistency
between Medicaid and the health insurance exchange. The use of MAGI, however, has raised
some concerns among Congress and the Obama Administration, as it excludes some types of
income either partially or altogether. Of particular interest has been the potential impact of
eligibility for Medicaid and premium credits for early retirees (aged 62 through 64) receiving
Social Security benefits, as some or all of their Social Security income may be excluded from the
MAGI definition of income. By excluding some types of income, individuals and families with a
higher percentage of total income relative to the federal poverty level may qualify for Medicaid
and premium credits. A recent cost estimate by the Congressional Budget Office finds that
changing the MAGI income calculation to include all Social Security benefits would reduce the
deficit by $13 billion over the 2012-2021 period.
Legislative proposals have been introduced in both chambers of Congress to change the definition
of income to include the non-taxable portion of Social Security benefits in the definition of
MAGI (H.R. 2576, S. 1376). President Obama also included changing the definition of income
for these programs in his deficit reduction proposal. In evaluating these proposals, a number of
issues might be considered. First, an alternative definition may add complexity compared with the
use of MAGI. Specifically, because adjusted gross income (on which MAGI is based) can be
computed largely from information on an individual’s federal tax return, verification of income is
streamlined. If an alternative definition is used that is not based on tax return information, the
administrative complexity of verifying nontaxable income from different sources comes into play.
Second, the definition was developed to ensure coordination between Medicaid and premium
credits in the health insurance exchange. A change in the definition of income for Medicaid
should then also apply to premium credits to ensure consistency between Medicaid and the
premium credit offered to selected individuals who purchase private health insurance through the
exchanges. Finally, many of the current legislative proposals have focused largely on the
inclusion of Social Security benefits in income definitions for eligibility purposes. However, most
other low-income programs include other types of income (e.g., nontaxable pensions) and asset
holdings that are also excluded from MAGI.
Congressional Research Service
Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Contents
Introduction...................................................................................................................................... 1
Medicaid Eligibility and PPACA..................................................................................................... 2
Premium Credits Under PPACA...................................................................................................... 3
Income Eligibility for Premium Credits .................................................................................... 3
Amount of Premium Credits ............................................................................................... 4
The Definition of Income Under PPACA........................................................................................ 6
Social Security Income and MAGI.................................................................................................. 7
Congressional Budget Office Estimates .................................................................................. 11
Issues for Congress ........................................................................................................................ 12
Variability and Complexity of Current Medicaid Income Definitions .................................... 12
Administrative Costs of Using a More Inclusive Income Measure......................................... 15
Consistency Between Medicaid and Premium Credit Definition of Income........................... 15
Definitions of Income Used in Selected Low-Income Programs ............................................ 16
Conclusion ..................................................................................................................................... 19
Figures
Figure 1. Maximum Premium Contribution as a Share of MAGI
for Premium Credit Eligible Individuals, by Federal Poverty Level ............................................ 5
Tables
Table 1. Maximum Premium Contributions for Premium Credit Eligible Individuals, If
Implemented in 2011 .................................................................................................................... 6
Table 2. Composition of Income Under Different Definitions ........................................................ 7
Table 3. Calculation of Taxable Social Security and Tier I Railroad Retirement Benefits.............. 8
Table 4. Annual Social Security Benefits for New Beneficiaries Aged 62 in 2011......................... 9
Table 5. Illustrative Examples of Social Security and Non-Social Security Income
for Two-Earner Couple, Aged 62 through 64, to Qualify for Medicaid Expansions
Under PPACA, 2011................................................................................................................... 10
Table 6. Illustrative Examples of Social Security and Non-Social Security Income for
Two-Earner Couple, Aged 62 through 64, to Qualify for Premium Credits............................... 11
Table 7. Definitions of Income Used by Selected Social Programs .............................................. 17
Contacts
Author Contact Information........................................................................................................... 20
Acknowledgments ......................................................................................................................... 20
Congressional Research Service
Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Key Policy Staff............................................................................................................................. 20
Congressional Research Service
Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Introduction
Under the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148, as amended), the
definition of income for eligibility for certain Medicaid populations and premium credits in the
exchanges is based on modified adjusted gross income (MAGI). The initial intent of using MAGI
was to standardize the definition of income for Medicaid eligibility purposes to reduce some of
the variability and complexity that exists under the current Medicaid program and to provide
consistency between Medicaid and the health insurance exchange.1 The use of MAGI, however,
has raised concerns among Congress and the Obama Administration, as it excludes some income
categories either partially or altogether. Of particular interest has been the definition of income’s
impact eligibility for premium credits for early retirees (aged 62 through 64) receiving Social
Security benefits, as some or all of their Social Security income may be excluded from the MAGI
definition of income.
By excluding some types of income, individuals and families with a higher percentage of total
income relative to the federal poverty level may qualify for Medicaid and premium credits. The
Department of Health and Human Services (DHHS) also has recognized that this may be an issue
that needs to be addressed.2 In addition, the Centers for Medicare and Medicaid Services Chief
Actuary has indicated in recent public comments at a Society of Actuaries conference that this
could potentially affect 3 million early retirees.3 A recent cost estimate by the Congressional
Budget Office (CBO) shows changing the income calculation to include all Social Security
benefits would reduce the deficit by $3 billion over the 2012-2016 period and by about $13
billion over the 2012-2021 period.4
The use of MAGI for determining income eligibility is different from the income definition used
for most federal low-income programs, like Supplemental Security Income (SSI) and Department
of Veterans Affairs (VA) benefits, which include most sources of income, taxable and nontaxable,
when determining eligibility.
This report first describes the relevant Medicaid and health insurance exchange provisions in
PPACA that rely on MAGI. It then discusses what is and is not included in this definition of
income. Since Social Security income has been noted by others as a concern when defining
income, the report provides some illustrative examples of what composition of Social Security
and non-Social Security income would qualify early retirees for Medicaid and premium credits
under the MAGI definition of income. Finally, the report raises some issues for Congress in
considering changes to the definition of income for Medicaid eligibility and premium credits in
the health insurance exchanges.
1 See Federal Register, vol. 76, no. 159, August 17, 2011, Proposed Rule.
2 Statement by Richard Sorian, Assistant Secretary for Public Affairs, June 22, 2011, http://www.healthcare.gov/news/
blog/medicaid06212011a.html.
3 Estimates by the Office of the Actuary based on analysis of the March Supplement to the Current Population Survey
and Medicare Expenditure Panel Survey data. The estimate was included in comments made during presentation before
the Society of Actuaries Conference on June 22, 2011.
4 Congressional Budget Office Cost Estimate, “S. 1376, A bill to conform income calculations for purposes of
eligibility for the refundable credit for coverage under a qualified health plan and for Medicaid to existing federal low-
income assistance programs,” July 22, 2011.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Medicaid Eligibility and PPACA
Medicaid is a means-tested program providing health insurance to certain low-income
individuals. Today, people qualify for Medicaid if they meet the program’s categorical
requirements and have income and assets equal to or below state-specified thresholds.5 PPACA
created a new mandatory Medicaid eligibility group for all nonelderly, non-pregnant individuals
(e.g., childless adults, certain parents, certain people with disabilities) who are not otherwise
eligible for Medicaid and are also not entitled to or enrolled in Medicare Part A or enrolled in
Medicare Part B. For such individuals, PPACA establishes an income threshold of 133% of the
federal poverty level (FPL) as the new mandatory minimum Medicaid income eligibility level.
The income that is compared with this threshold is based on MAGI. (Greater detail about what is
and is not included in MAGI will be discussed later in this report). The law also specifies that an
income disregard in the amount of 5% FPL will be used to determine Medicaid eligibility based
on MAGI; thus, the effective minimum income-eligibility threshold for such individuals in this
new eligibility group will be 138% FPL.6 These provisions are effective in 2014. In addition to
individuals eligible under the new mandatory eligibility group up to 133% FPL, PPACA also
requires the new MAGI counting rule to be used to assess the financial eligibility for most of
Medicaid’s other nonelderly populations eligible under prior law.
Under PPACA, certain groups are exempt from income eligibility determinations for Medicaid
based on MAGI. Prior law’s income determination rules under Medicaid will continue to be used
for determining eligibility for the following groups: (1) individuals who are eligible for Medicaid
through another federal or state assistance program (e.g., foster care children and individuals
receiving SSI), (2) the elderly, (3) certain disabled individuals who qualify for Medicaid on the
basis of being blind or disabled without regard to whether the individual is eligible for SSI, (4)
the medically needy, and (5) enrollees in a Medicare Savings Program (e.g., Qualified Medicare
Beneficiaries for whom Medicaid pays the Medicare premiums or coinsurance and deductibles).7
In addition, MAGI does not affect eligibility determinations through Express Lane enrollment (to
determine whether a child has met Medicaid or CHIP eligibility requirements) for Medicare
prescription drug low-income subsidies or for determinations of eligibility for Medicaid long-
term care services.8
5 For the Medicaid program, income includes anything a person receives that can be used to purchase food, clothing or
shelter, including earned income (such as wages, salary and compensation for work) and unearned income (such as
Social Security disability or retirement benefits, interest and dividends, and gifts). Resources encompass anything a
person owns that can be converted to cash, including checking or savings accounts, real estate, cars, boats and other
vehicles, stocks and bonds, and where applicable, insurance policies. See Medicaid Manual, Pub. 45, “General
Financial Eligibility Requirements and Options,” p. 3812, “Treatment of Contributions from Relatives to Medicaid
Applicants or Recipients.”
6 As a conforming measure, PPACA also changes the mandatory Medicaid income eligibility level for poverty-related
children aged 6 to 19 from 100% FPL to 133% FPL (as applied under prior law to children under the age of 6). MAGI
income counting rules and the 5% income disregard will apply to all poverty-related children (except those determined
eligible through an Express Lane eligibility determination as permitted under the State Children’s Health Insurance
Reauthorization Act, CHIPRA, P.L. 111-3).
7 For background information on the Medicaid program, see CRS Report RL33202, Medicaid: A Primer, by Elicia J.
Herz.
8 Long-term care services include institutional services, such as nursing facility care, and home- or community-based
services, such as home care, personal care, transportation, and care management, furnished under the state plan or a
waiver.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
During a transitional period between April 1, 2010, and January 1, 2014, states have the option to
extend Medicaid to individuals eligible under the new eligibility group up to 133% FPL as long
as the state does not extend coverage to (1) individuals with higher income before those with
lower income or (2) parents unless their children are enrolled under the state plan, a waiver, or in
other health coverage. Prior to 2014, states are not required to use the MAGI counting rules when
determining income eligibility for the new eligibility group up to 133% FPL. States that pick up
this option may apply a different income counting methodology, such as that used by SSI, as long
as it is approved by the Secretary. During this transitional period, states may apply less restrictive
income counting methodologies as long as such methodologies are available to all members in a
given group.9
Premium Credits Under PPACA
PPACA requires “American Health Benefit Exchanges” to be established in every state by
January 1, 2014, either by the state itself or by the DHHS Secretary.10 Exchanges will not be
insurers, but will provide qualified individuals and small businesses11 with access to private
health insurance plans. The exchange plans will provide comprehensive coverage (with the
exception of stand-alone dental plans and catastrophic health plans) and meet all applicable
market reforms specified in PPACA.
To make exchange coverage more affordable, eligible individuals may receive premium
assistance in the form of tax credits.12 Eligibility for the premium credit is based, in part, on
income and relies on the MAGI definition.13
Income Eligibility for Premium Credits
Beginning in 2014, qualifying individuals will be able to receive “premium assistance credits”
toward the purchase of exchange coverage. The credit is an advanceable, refundable tax credit,
meaning taxpayers need not wait until the end of the tax year to benefit from the credit (advance
payments will actually go directly to the insurer14) and may claim the full credit amount even if
they have little or no federal income tax liability.
9 Center for Medicare and Medicaid services, Center for Medicaid and State Operations, letter to state health officials
and state Medicaid Directors (SMDL# 10-005, PPACA #1), New Option for Coverage of Individuals Under Medicaid,
April 9, 2010.
10 §1311(b).
11 Beginning in 2017, states will also have the option to allow large employers to offer health benefits through the
exchanges. Under PPACA, small firms will be defined as employers with 100 or fewer workers beginning in 2016. By
extension, large firms will be defined as employers with 101 or more workers.
12 For additional information about the premium credits under PPACA, see CRS Report R41137, Health Insurance
Premium Credits in the Patient Protection and Affordable Care Act (PPACA), by Bernadette Fernandez and Thomas
Gabe.
13 In addition to premium credits, cost-sharing (e.g., deductibles and copayments) subsidies may also be available to
certain individuals who receive premium credits.§§1401-15 and 10105 of P.L. 111-148 as amended by §§1001 and
1004 of P.L. 111-152.
14 §1412(a)(3).
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
PPACA specifies that premium credits will be available to “applicable taxpayers” in a “coverage
month.”15
An applicable taxpayer is defined as an individual who
• is part of a tax-filing unit;
• is enrolled in an exchange plan;
• is not eligible for “minimum essential coverage”16 (other than through the
individual health insurance market), such as Medicaid, Medicare Part A, or
employer-sponsored insurance (with exception17); and
• has household income (defined as MAGI) between 100% and 400% of the
federal poverty level (with exception18).
Amount of Premium Credits
The amount of the tax credit will vary from person to person: it depends on the MAGI of the
taxpayer (and dependents), the premium for the exchange plan in which the taxpayer (and
dependents) is (are) enrolled, and other factors. In certain instances, the credit amount may cover
the entire premium and the taxpayer will pay nothing toward the premium. In other instances, the
taxpayer may be required to pay part (or all) of the premium.
For this latter scenario, the amount that a taxpayer who receives a premium credit would be
required to contribute toward the premium is capped as a percentage of MAGI. That percentage
will be less for those with lower MAGI compared with those with higher MAGI, where income is
measured based on MAGI relative to the FPL. For taxpayers with MAGI between 100% FPL and
133% FPL, the amount they would be required to contribute toward the premium will be capped
at 2% of MAGI. For taxpayers with income 300%-400% FPL, their premium contribution will be
capped at 9.5% of MAGI. PPACA further specifies the “applicable percentages” that premium
credit recipients, whose incomes are between those two MAGI bands, would be required to pay
toward the cost of exchange coverage.19 The premium credit amount would be the arithmetic
15 A coverage month refers to a month in which the applicable taxpayer paid for coverage under an exchange
established under PPACA.
16 The definition of minimum essential coverage is broad. It includes Medicare part A, Medicaid, CHIP, TRICARE, the
TRICARE for Life program, the veteran’s health care program, the Peace Corps program, a government plan (local,
state, federal) including the Federal Employees Health Benefits Program (FEHBP) and any plan established by an
Indian tribal government, any plan offered in the individual, small group or large group market, a grandfathered health
plan, and any other health benefits coverage, such as a state health benefits risk pool, as recognized by the HHS
Secretary in coordination with the Treasury Secretary.
17 An individual eligible for, but not enrolled in, an employer-sponsored plan may still be eligible for premium credits
if the employer’s coverage is either (1) not “affordable;” that is, the employee’s premium contribution toward the
employer’s self-only plan would exceed 9.5% of household income; or (2) of low value; that is, the plan’s payments
cover less than 60% of total allowed costs on average.
18 An exception is made for lawfully present aliens with income below 100% of the FPL, who are ineligible for
Medicaid for the first five years that they are lawfully present. These taxpayers will be treated as though their income is
exactly 100% of FPL for purposes of the premium credit.
19 In years after 2014, the percentages would be adjusted to reflect any percentage by which premium growth exceeded
income growth.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
difference (if any) after subtracting the maximum premium contribution amount from the
premium for the second-lowest-cost silver plan20 in the enrollee’s local area.
Figure 1. Maximum Premium Contribution as a Share of MAGI
for Premium Credit Eligible Individuals, by Federal Poverty Level
10%
s
n
9.5%
9.5%
9.5%
tio
9%
u
8.05%
trib
8%
n
o
C
7%
m
iu
6.3%
6%
em
r Pr
5%
o
f
4%
me
4%
co
3%
f In
3%
2%
2%
2%
m % o
1%
aximu
M
0%
100
150
200
250
300
350
400
Federal Poverty Level (%)
Source: The Congressional Research Service analysis of PPACA, as amended.
While premium credits will not be available until 2014, for illustrative purposes, consider what
the maximum premium contributions would be for exchange enrollees if premium credits were
available in 2011. For example, an exchange enrollee who is eligible for the credit with MAGI at
200% FPL may be required to pay up to 6.3% of MAGI toward the cost of exchange coverage. In
2011, 6.3% of MAGI at 200% FPL is equal to approximately $114 per month21 (see Table 1). If
the premium for the second-lowest-cost silver plan is greater than $114 per month, that excess
would be the amount of that enrollee’s premium credit (provided that the premium for the plan in
which the person actually enrolled was more than the excess amount). With respect to this
premium credit calculation, an individual who enrolls in an exchange plan that is more expensive
than the second-lowest-cost silver plan will have to pay the additional premium amount.
20 One of the requirements that nearly all exchange plans must meet is to provide a certain level of coverage generosity,
based on actuarial value. Actuarial value is a summary measure of a plan’s generosity, expressed as the percentage of
medical expenses estimated to be paid by the issuer for a standard population and set of allowed charges. Most
exchange plans must meet one of four levels of actuarial value specified in PPACA. Each actuarial value level has a
corresponding precious metal designation: bronze (60%), silver (70%), gold (80%), and platinum (90%).
21 For 2011, 200% of the federal poverty level for one person, residing in one of the 48 contiguous states or the District
of Columbia, is $21,780 for the year or $1,815 per month. CRS computation based on “Annual Update of the HHS
Poverty Guidelines,” 76 Federal Register 3637-3638, January 20, 2011, http://aspe.hhs.gov/poverty/11fedreg.pdf.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Table 1. Maximum Premium Contributions for Premium Credit Eligible Individuals,
If Implemented in 2011
(for the 48 contiguous states and the District of Columbia)
Federal
Maximum Premium
Maximum Monthly Premium Contribution, by Family Size
Poverty
Contribution as a %
Line
of MAGI
1 2 3 4
100% 2.0% $18 $25 $31 $37
133.00% 2.0% $24 $33 $41 $50
133.01% 3.0% $36 $49 $62 $74
150% 4.0% $54 $74 $93 $112
200% 6.3% $114 $154 $195 $235
250% 8.05% $183 $247 $311 $375
300% 9.5% $259 $349 $440 $531
350% 9.5% $302 $408 $513 $619
400% 9.5% $345 $466 $587 $708
Source: The Congressional Research Service (CRS) computation based on “Annual Update of the HHS Poverty
Guidelines,” 76 Federal Register 3637-3638, January 20, 2011, and PPACA.
Notes: The premium credits are not available until 2014, therefore, these 2011 amounts are for illustrative
purposes only. If individuals enroll in more expensive plans than the second-lowest-cost silver plan in their
respective areas, they would be responsible for the additional premium amount.
The Definition of Income Under PPACA
In Section 2002(a) and Section 1401(a) of PPACA, household income is defined to be MAGI in
compliance with the Internal Revenue Code (IRC). Specifically, gross income is total income
minus certain exclusions (e.g., public assistance payments, employer contributions to health
insurance payments). From gross income, adjusted gross income (AGI) is calculated to reflect a
number of deductions, including trade and business deductions, losses from sale of property, and
alimony payments. MAGI is defined as AGI plus certain foreign earned income and tax-exempt
interest.22
Because AGI (and consequently MAGI) includes only sources of income that are taxable, some
sources (or types) of income that may be considered resources for determining whether a person
(or couple) is low-income are only partially included, whereas others are not included at all. Two
of the sources of income partially included in MAGI that may be considered resources for
determining low-income are non-taxable Social Security benefits and non-taxable pension and
annuity income. Examples of sources of income that are not included in MAGI are fringe
benefits, cafeteria plan benefits, gifts (cash, property, or in-kind), and inheritances (see Table 2).
These may be considered resources for determining low-income. In addition, as discussed later,
many other low-income programs include some measure of liquid assets as resources when
determining eligibility.
22 See IRC Section 36(B)(d)(2).
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Table 2. Composition of Income Under Different Definitions
Adjusted
Modified
Gross
Gross
Adjusted
Income Source
Income
Income
Gross Income
Fully Included
Wages, Salary
Yes
Yes
Yes
Interest Yes
Yes
Yes
Dividends Yes
Yes
Yes
Alimony and Separate Maintenance
Yes Yes Yes
Payments
Life Insurance and Endowment
Yes Yes Yes
Contracts
Estate or Trust Interest Income
Yes
Yes
Yes
Interest on State and Local Bonds (tax-
No No Yes
exempt interest)
Prizes or Awards
Yes
Yes
Yes
Reimbursement of Moving Expenses
Yes
Yes
Yes
Unemployment Compensation
Yes
Yes
Yes
Partially Included in MAGI
Social Security and Tier 1 Railroad
Yes (partial)
Yes (partial)
Yes (partial)
Retirement Benefits
Annuities
Yes
Yes (partial)
Yes (partial)
Pension benefits
Yes (partial)
Yes (partial)
Yes (partial)
Partnership Gross Income
Yes
Yes (less
Yes (less
deductions)
deductions)
Earned Income of U.S. Citizens Living
Yes (partial)
Yes (partial)
Yes (partial)
Abroad
Retirement contributions
Yes (partial)
Yes (partial)
Yes (partial)
Business (Including Property, Rental, or
Yes
Yes (less
Yes (less
Royalties) Income
deductions)
deductions)
Fully Excluded from MAGI
Income from Discharge of
No No No
Indebtedness
Gifts and Inheritance
No
No
No
Death Benefits
No
No
No
Cafeteria Plans
No
No
No
Certain Fringe Benefits
No
No
No
Contributions to Defined Contribution
No No No
Plans
Source: Table prepared by CRS.
Social Security Income and MAGI
Generally, Social Security beneficiaries aged 65 and older are eligible for Medicare coverage for
health care services. Under PPACA, individuals and households who choose to receive their
Social Security benefits early at the ages of 62 through 64 may qualify for Medicaid if their
MAGI is up to 133% of the FPL (or 138% of FPL because of the 5% disregard). In 2011, the
federal poverty guidelines published by DHHS for a two-person family are $14,710 and $10,890
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
for a one-person family.23 Under this criteria, MAGI would have to be $20,300 or lower for a
two-person family and $15,028 or lower for a one-person family to qualify for Medicaid
coverage.24 A two-person household with MAGI up to $58,540 or 400% of income could be
eligible for premium credits. Because the IRC definition of MAGI would be used, not all Social
Security income is included in the MAGI definition and, for the majority of Social Security
beneficiaries, no Social Security income is included in MAGI.25
As shown in Table 3, up to 50% of Social Security and Tier I Railroad Retirement Board (RRB)
benefits are taxable (i.e., included in MAGI) for individuals whose provisional income exceeds
$25,000 ($32,000 for married couples). Provisional income is defined as the total income from all
sources recognized for tax purposes plus certain otherwise tax-exempt income, including half of
Social Security and Tier I RRB benefits. There is also a second income threshold for the
calculation of taxable Social Security and Tier I RRB benefits; up to 85% of benefits may be
taxed (included in MAGI) for individuals whose provisional income exceeds $34,000 and for
married couples whose provisional income exceeds $44,000.
Table 3. Calculation of Taxable Social Security
and Tier I Railroad Retirement Benefits
Provisional Incomea
Taxable Social Security and Tier I Railroad Retirement Benefits
Single Taxpayer
Less than $25,000
No taxable Social Security or Tier I Railroad Retirement benefits
$25,000 less than $34,000
Lesser of
(1) 50% of Social Security and Tier I benefits or
(2) 50% of provisional income above $25,000
$34,000 and over
Lesser of
(1) 85% of Social Security and Tier I benefits or
(2) 85% of provisional income above $34,000 plus lesser of
(A) $4,500 or
(B) 50% of Social Security and Tier I benefits
Married Taxpayers
Less than $32,000
No taxable Social Security or Tier I Railroad Retirement benefits
$32,000 less than $44,000
Lesser of
(1) 50% of Social Security benefits or
(2) 50% of provisional income above $32,000
23 These are for the 48 contiguous states. There are different thresholds for Alaska and Hawaii. See Department of
Health and Human Services, http://aspe.hhs.gov/poverty/11poverty.shtml. These are different than the U.S. Census
Bureau’s poverty threshold measures.
24 $20,300 = ($14,710 x 1.38) and $15,028= (10,890 x 1.38).
25 According to the Congressional Budget Office, 39% of all Social Security beneficiaries were affected by the income
taxation of Social Security benefits in 2005. This is the most recent data available. Because the income thresholds to
determine the taxation of Social Security benefits are not indexed for inflation or wage growth, the share of
beneficiaries affected by these thresholds is expected to increase over time.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Provisional Incomea
Taxable Social Security and Tier I Railroad Retirement Benefits
$44,000 and over
Lesser of
(1) 85% of Social Security benefits or
(2) 85% of provisional income above $44,000 plus lesser of
(A) $6,000 or
(B) 50% of Social Security and Tier I benefits
Source: Table prepared by CRS.
a. Provisional income is total income plus certain income exclusions plus one-half (50%) of Social Security
benefits.
Because most of the legislative proposals to change the definition of income under PPACA have
focused on Social Security benefits, the illustrative examples in this report are limited to Social
Security benefits. But any income fully excluded from MAGI, such as gifts or inheritances, is not
reflected in the examples, as an individual (or couple) could have an unlimited amount of these
types of income with no impact on eligibility for the Medicaid expansion or premium credits.
The extent to which Social Security benefits would be included in MAGI would depend on the
amount of other non-Social Security income. Beneficiaries with high Social Security benefits but
lower non-Social Security income would be more likely to qualify for the new 133% eligibility
group.26 One example of such a case would be those earning at or above the taxable maximum
amount of earnings for their entire careers and with little other income from pensions, earnings,
and dividends.27 Table 4 shows what Social Security benefits would be for early retirees who had
career earnings at the taxable maximum amount (“maximum earner”) and scaled low and medium
career earners.28
Table 4. Annual Social Security Benefits for New Beneficiaries Aged 62 in 2011
Scaled Low Earner
Scaled Medium Earner
Maximum Earner
Single
$8,304
$13,680
$21,516
Married: Two-Earner Couplea $16,608
$27,360
$43,032
Married: One-Earner Coupleb $12,456
$20,520
$32,274
Source: Social Security Administration, 2011 Social Security Fact Sheet, http://www.socialsecurity.gov/
legislation/2011factsheet.pdf.
Notes: Benefits are estimates from SSA for retirees who retired at age 62 in January 2011. Benefit amounts
include an actuarial reduction from normal retirement age (which is 66 in 2011).
a. CRS Estimate from SSA data, assumes both earners have similar earnings history.
b. CRS estimate from SSA data, non-working spouses receive 50% of the working spouse’s benefit. Both
benefits include an actuarial reduction from normal retirement age.
26 There is a 5% set aside when calculating eligibility thresholds, so technically the threshold is 138% of FPL.
27 The taxable maximum limit is $106,800 in 2011. According to SSA, 6% of workers had earnings above the taxable
maximum amount in 2008 and this level has remained relatively steady over the past decade.
28 The three scaled-earnings cases have earnings patterns that reflect differences by age in the probability of work and
in average earnings levels experienced by insured workers during the period 1991-2007. The general level of earnings
is set relative to the average wage index (AWI). For the scaled medium earner, the general career-average earnings
level is set to about equal the AWI. For the scaled low earner, the general career-average earnings level is set at about
45% of the AWI. The maximum earner is assumed to have earnings at (or above) the contribution and benefit base for
each year starting at the age of 22 and prior to retirement.
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Table 5 shows how Social Security and other (non-Social Security) income is included in MAGI.
It illustrates what combination of Social Security and non-Social Security income, at different
ratios of total income to the poverty level, would qualify a two-earner couple to be eligible for the
Medicaid provisions under PPACA.
For example, early retirees aged 62 to 64 who are married and a two-earner household and have
income of $58,840 (which is equivalent to 400% of the FPL) could qualify for Medicaid if they
receive the maximum Social Security benefit (about $42,000) and have a very low level of non-
Social Security income. For this couple, their MAGI is equal to their non-Social Security income
($16,840) plus the taxable portion of their Social Security benefits ($2,920), which is equal to
$19,760 and is below the 138% of the FPL ($20,300), thus making them eligible for Medicaid
under the PPACA provisions.
Another example shown in Table 5 is a two-earner couple with $36,775 in total income, which is
about 250% of the FPL. In this case, the couple could also collect $17,000 in Social Security
benefits, which is equivalent to a scaled lower earner couple (assuming both have similar
earnings history), and they would still be eligible for Medicaid with their MAGI of $19,775 at
134% of the FPL.
Table 5. Illustrative Examples of Social Security and Non-Social Security Income
for Two-Earner Couple, Aged 62 through 64, to Qualify for Medicaid Expansions
Under PPACA, 2011
Components of MAGI
Total Income as
Other Non-
Taxable
a Percentage of
Total Social
Social
Social
Poverty
Total
Security
Security
Security
Guidelines
Income
Benefit
Income
Benefit MAGI
150%
$22,065
$2,000
$20,065
$0
$20,065
200%
$29,420
$10,000
$19,420
$0
$19,420
250% $36,775
$17,000a
$19,775
$0
$19,775
300% $44,130
$24,000
$20,130
$65
$20,195
350%
$51,485
$33,000
$18, 485
$1,493
$19,978
400% $58,840
$42,000b
$16,840
$2,920
$19,760
Source: Table prepared by CRS.
Notes: Examples are based on 2011 Federal Poverty Guidelines and Social Security benefits are estimates for a
beneficiary retiring at age 62 in 2011.
a. Equivalent to a scaled low two-earner couple in 2011.
b. Equivalent to a maximum two-earner couple in 2011.
Similar illustrations can be done for premium credits. Table 6 illustrates what combination of
Social Security and non-Social Security income, at different ratios of total income to the poverty
level, would allow a two-earner couple to qualify for premium credits. For example, a couple
with total income equal to 300% of poverty and Social Security benefits of $23,000 (slightly
lower than a medium earner) would have MAGI at 146% of poverty. Under PPACA their
maximum premium contribution would be about 4% of MAGI compared with 9.5% if total
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
income were used instead of MAGI. Using the estimates in Table 1 for 2011, this would result in
their maximum monthly premium contributions declining from $349 to $74 per month.
A similar illustration can be shown with a couple with total income of 400% of FPL. As shown in
Table 6, if this couple had about $36,000 in Social Security benefits (which is in between a
medium and maximum earner), their MAGI would be about 200% of FPL. Under PPACA, their
maximum premium contribution would be about 6.3% of MAGI compared with 9.5% if total
income were used instead of MAGI. Using the estimates in Table 1 for 2011, this would result in
their maximum monthly premium contributions declining from $466 to $154 per month.
Table 6. Illustrative Examples of Social Security and Non-Social Security Income for
Two-Earner Couple, Aged 62 through 64, to Qualify for Premium Credits
Components of MAGI
Total Income as
Other Non-
a Percentage of
Total Social
Social
Taxable Social
MAGI as a
Poverty
Total
Security
Security
Security
Percentage of
Guidelines
Income
Benefit
Income
Benefit
FPL
300% $44,130
$23,000
$21,130 $315 $21,445
(146% of FPL)
400% $58,840
$35,000
$23,840 $4,670 $28,510
(194% of FPL)
500%
$73,550
$43,000 $30,550 $16,868 $45,743
(311% of FPL)
Source: Table prepared by CRS.
Note: Example in table is based on 2011 Federal Poverty Guidelines and Social Security benefits are estimates
for a beneficiary retiring at age 62 in 2011.
Congressional Budget Office Estimates
CBO has estimated the effect of including non-taxable Social Security income in the definition of
MAGI for H.R. 2576 (as reported by the Committee on Ways and Means) and S. 1376. For
Medicaid, CBO estimates that adding nontaxable Social Security income to the MAGI definition
would reduce Medicaid enrollment, beginning in 2014, by between 500,000 and 1 million people
depending on the year. According to CBO, those losing Medicaid coverage include some retirees
aged 62 through 64 as well as some people receiving survivor benefits, disability benefits, and
other Social Security benefits. Those losing Medicaid coverage are expected to enroll in the
health insurance exchanges and receive premium credits, or obtain employment-based insurance,
or become uninsured.29
29 See Congressional Budget Office(CBO) Cost Estimate, “H.R. 2576, A bill to amend the Internal Revenue Code of
1986 to modify the calculation of modified adjusted gross income for purposes of determining eligibility for certain
healthcare-related programs, October 14, 2011; and CBO Cost Estimate, “S. 1376, A bill to conform income
calculations for purposes of eligibility for the refundable credit for coverage under a qualified health plan and for
Medicaid to existing federal low-income assistance programs,” July 22, 2011.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
CBO estimates two different effects on the number of people who purchase insurance through the
health insurance exchanges. First, CBO and the Joint Committee on Taxation (JCT) estimate that
many of the individuals who lose Medicaid coverage would become eligible for premium
assistance and cost sharing subsidies in the exchanges. Thus, the number of people purchasing
health insurance through the exchanges would increase. Second, CBO estimates that some people
previously eligible for premium credits would lose eligibility if the definition used for eligibility
included all Social Security benefits (e.g., MAGI plus nontaxable Social Security benefits). This
would, according to CBO, reduce the number of people purchasing insurance through the
exchanges. CBO and JCT estimate the net effect would increase enrollment in the health
exchanges by roughly 500,000 people in any given year between 2014 and 2021.30
Issues for Congress
There has been increased interest in Congress to change the PPACA definition of income for
determining Medicaid eligibility for new enrollees and premium credit eligibility to be more
inclusive and more consistent with other low-income programs. A number of issues might be
considered in exploring the consequences of the change. First, the initial intent of PPACA was to
standardize current rules governing Medicaid eligibility for a majority of Medicaid-eligible
groups (e.g., non-disabled children, parents, pregnant women, and caretaker relatives) in order to
reduce the variability and complexity of these definitions under the current Medicaid program. An
alternative definition may add complexity compared with MAGI. In addition, because adjusted
gross income (on which MAGI is based) can be computed largely from information on an
individual’s federal tax return, verification of income is streamlined. If an alternative definition is
used that is not based on tax return information, the administrative complexity of verifying
nontaxable income from different sources comes into play. Third, the definition was developed to
be consistent so that qualifying for Medicaid and qualifying for premium credits in the exchange
would be mutually exclusive. So changing the definition for Medicaid should also apply to
premium credits. Finally, many of the current legislative proposals have focused largely on the
inclusion of Social Security benefits in income definitions for eligibility purposes. However, most
other low-income programs include other types of income (e.g., nontaxable pensions) and asset
holdings that are also excluded from MAGI.
This section discusses these issues in greater detail and identifies how other federal low-income
programs define and verify income for eligibility purposes.
Variability and Complexity of Current Medicaid
Income Definitions
Under today’s general rules for determining income eligibility for Medicaid, states are required to
follow the same rules and processes used by the most closely related cash assistance program in
their state to determine eligibility.31 For example, children eligible for Medicaid who are
receiving child welfare services follow the income eligibility rules of the Title IV-E assistance
programs. Low-income families with children follow the income counting rules of the former Aid
30 Ibid.
31 Section 1902(a)(10) of the Social Security Act.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
to Families with Dependent Children (AFDC) program,32 and aged, blind, or disabled individuals
follow the eligibility rules of the Supplemental Security Income (SSI) program, except in states
that have elected the option of not providing Medicaid for all SSI recipients (209(b) states).
Differences in income eligibility determination rules across different Medicaid eligibility
categories increase the complexity of determining eligibility for the Medicaid program.
For Medicaid eligibility groups that rely on the former AFDC income eligibility rules, not only
were the rules complex but there was large variability across the states. For example, the state
AFDC methodologies had both mandatory33 and optional34 income exclusions and disregards.
Some of these disregards applied to recipients but not applicants, meaning that it was harder to
become eligible for AFDC than to continue receiving benefits. To further complicate matters, a
gross income test equal to 185% of a state’s standard of need applied after certain exclusions and
disregards were taken into account (e.g., the first $50 of child support) but before others (e.g.,
earned income disregards). In addition, many states obtained waivers to operate their AFDC
programs outside of the standard rules—including those that applied to disregards.35 Program
rules also defined the group of individuals whose income, resources, and needs were considered
as a family or a unit for purposes of determining eligibility and payment amounts.36
As with the former AFDC program, not all income and resources are counted in the SSI income
methodologies. In general, the SSI program assesses unearned income37 as well as earned income
for the purpose of determining eligibility. Examples of monthly unearned income exclusions
permitted under the SSI program’s income counting rules include food stamps, housing
assistance, energy assistance, student grants and scholarships for educational expenses, and a
general income exclusion of $20 that applies to income that is not needs-based. Examples of
monthly earned income exclusions permitted under the SSI income counting rules include the
first $65 of earnings, one-half of earnings over $65, and impairment-related expenses for blind
32 The AFDC program was replaced by Temporary Assistance for Needy Families (TANF) block grant program under
the Personal Responsibility and Work Opportunity Act of 1996 (P.L. 104-193). However, there is no Medicaid link to
TANF under current law.
33 Examples of mandatory income exclusions and disregards included income tax refunds (which instead counted as a
resource), the first $50 of child support received monthly, the income of individuals receiving SSI payments or on
behalf of whom foster care or adoption assistance payments are made, grants and loans to undergraduate students for
educational purposes, federal low-income home energy assistance program benefits, and certain monthly earned
income disregards—including the earned income of recipient children who are students and not full-time employees,
the first $90 of earnings per worker, a time-limited $30, a time-limited one-third of remaining earnings for recipients,
and up to $175 of the actual cost of care for each dependent child or incapacitated adult (up to $200 for those under the
age of 2).
34 Examples of optional income exclusions and disregards used by most or all states included gifts up to $30 per
recipient in any quarter, food stamps, government rent or housing subsidies, the earned income of applicant children
who are fulltime students, and assistance from other agencies and organizations that complements and does not
duplicate cash payments under AFDC. See 45 CFR 233.20 and U.S. Department of Health and Human Services,
Characteristics of State Plans for Aid to Families with Dependent Children, 1990- 91 Edition.
35 For more information, see Congressional Distribution Memo, Overview of Medicaid and Medicaid-Expansion
SCHIP Eligibility for Children and Rules for Counting Income, November 29, 2007, by April Grady.
36 In general, when determining income eligibility, states may consider only income and resources actually available to
the individual. The agency may not consider income or assets of relatives or other members of the household to be
available to a Medicaid applicant except for parents of a child who is under the age of 21, blind or disabled, or the
spouse of an adult. Special rules apply when one spouse is in a medical institution and the other remains in the
community. See (See Sections 1109 and 1902(a)(17) of the Social Security Act.
37According to SSI’s income counting rules, Social Security retirement benefits—along with other types of annuities or
pensions related to past work—are treated as unearned income. See (20 C.F.R. § 416.1121(a)).
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
and disabled workers. In some cases, the income and resources of non-recipients (e.g., a parent or
spouse) are counted in determining eligibility and payment amounts.38
In addition, while the Medicaid statute requires states to start by using the same rules and
processes (or methodology) as the cash assistance programs, the statute also gives states the
authority to cover higher-income individuals under many eligibility pathways by using additional
disregards (i.e., less restrictive methodologies) that reduce their countable income to the threshold
that is normally allowed. These statutory authorities permit states to cover higher-income
individuals under many eligibility pathways. Although some information is available, with the
flexibility that states are provided for determining countable income under Medicaid, it is difficult
to identify the full range of exclusions and disregards that states may use in practice today.
The transition to MAGI income counting rules for most Medicaid-eligible populations (e.g., non-
disabled children, parents, pregnant women, and other caretaker relatives) beginning in 2014 (or
sooner at state option) was intended, in part, to reduce the variability and complexity of the
definition of income under the current Medicaid program.39 However, because the MAGI
definition of income is less inclusive than the definitions of income used in many 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.
For example, under today’s Medicaid income counting rules, any voluntary contributions made
by relatives or friends are to be taken into account by the state in determining Medicaid
eligibility.40 Under the MAGI income counting rules, gifts (cash and in-kind) and inheritances are
not taken into account when determining income eligibility for populations where MAGI income
counting rules will apply. It is possible that an individual eligible under the new mandatory
eligibility pathway with annual income less than 133% of FPL could be determined eligible for
Medicaid, and while receiving gifts (cash and in-kind) to cover, for example, the cost of food,
rent, and other living expenses that are not counted as income. The same also may be true for
groups exempted from the MAGI income counting rules.41
It is also possible that an individual eligible for Medicaid under one of the optional eligibility
groups that are explicitly exempt from MAGI income counting rules (beginning in 2014) may
also meet the income eligibility test for the new mandatory eligibility group that will rely on
MAGI income counting rules.42 In general, that individual may choose the pathway that is in the
38 See CRS Report RS20294, Supplemental Security Income (SSI): Beneficiary Income/Resource Limits and Accounts
Exempt from Benefit Determinations, by Umar Moulta-Ali. A more extensive list of income exclusions is contained in
SSI program regulations and guidance.
39 See Federal Register, vol. 76, no. 159, August 17, 2011, Proposed Rule, p. 51152.
40 State Medicaid Manual, Pub. 45, 3812.
41 A recent proposed rule, “Medicaid Program; Eligibility Changes Under the Affordable Care Act” acknowledges the
differences in the treatment of income under the Internal Revenue Code as compared with pre-PPACA Medicaid
program rules as well as circumstances under which the change to MAGI income may have varying impacts on the
Medicaid eligibility of potential beneficiaries. “The Administration is concerned about this unintended consequence
and is exploring options to address it, including a modification of the section 36B treatment of Social Security benefits
through regulation.” The proposed rule identifies three types of income (e.g., lump sum payments, including
inheritance, educational scholarships, grants) in which the Administration proposes to codify current Medicaid rules
and seeks comments on these proposed policies. See Federal Register, vol. 76, no. 159, August 17, 2011, Proposed
Rule, p. 51157.
42 See Federal Register, vol. 76, no. 159, August 17, 2011, Proposed Rule, p. 51151.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
best interest of the recipients.43 For example, the individual might choose the pathway that would
entitle him or her to more benefits, or one that uses the MAGI income eligibility definition in lieu
of the SSI income definition rules to protect funds (e.g., gifts) not taken into account when
determining the individual’s eligibility for Medicaid. For individuals who would be eligible under
more than one category, Medicaid regulations specify that the individual will be determined
eligible for the category he or she selects.44
Administrative Costs of Using a More Inclusive Income Measure
The problem with not using MAGI (or any income measure tied to the tax return) is that
validation of income would no longer be done primarily through tax returns. While non-taxable
Social Security income is reported for informational purposes on a tax return, not all non-taxable
income is reported on an individuals’ tax return. For example, as shown in Table 7, individuals
applying for SSI must provide documentation directly to an entity that must ensure that those
documents are complete and valid. This could be administratively cumbersome to collect and
validate. These administrative costs would be highest for premium credits largely because it is an
entirely new program and because of the expected volume of potential applicants. CBO estimates
that approximately 19 million individuals would receive premium credits in 2019.45 For Medicaid
eligibility this would be less of an issue because many states already use SSI definition for other
categories of Medicaid eligibility and have set up processes for income verification. Under
current law, the Medicaid program requires states to collect applicants’ Social Security numbers
and wage information from agencies administering state unemployment compensation laws,46 as
well as wage income and other information from the Social Security Administration and the
Internal Revenue Service.47 Employers are also required to make quarterly wage reports to a state
agency.48 The health insurance exchanges, on the other hand, would have to develop and support
an administrative process to verify nontaxable income not currently included in MAGI.
Consistency Between Medicaid and Premium Credit Definition
of Income
The definition of income in PPACA was developed to be consistent between the Medicaid and
premium credit provisions. As long as a person is eligible for Medicaid and can access those
benefits through a state Medicaid program, that person may not receive a premium credit. PPACA
further requires state exchanges to identify individuals eligible for Medicaid and premium credits.
43 Medicaid statute provides that eligibility determination will be made in a manner consistent with simplicity of
administration and the best interest of the recipient. Section 1902(a)(19) of the Social Security Act.
44 See 42 CFR §435.404. For individuals who would be eligible under more than one category, the state may assign
eligibility based on a pre-determined eligibility hierarchy. With regard to state reporting systems, if no eligibility
category is selected the system may be programmed to default to a specified eligibility category.
45 The premium credit estimate is from CBO’s and JCT’s final estimate of PPACA, dated March 20, 2010, which
includes the provisions in both, P.L. 111-148 and the amendments in P.L. 111-152. It is available at
http://www.cbo.gov/ftpdocs/113xx/doc11379/AmendReconProp.pdf.
46 IRC Section 3304(a)(16).
47 IRC Section 6103(1)(7).
48 Agencies will exchange information that may be of use in establishing or verifying eligibility or benefit amounts
under any other program (such as child support programs under Part D of Title IV of the Social Security Act, any state
program under a plan approved under Title I, X, XIV, or XVI of the Social Security Act).
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Likewise, Medicaid programs must be able to determine applicants’ eligibility for subsidized
exchange coverage. These eligibility determination and enrollment provisions (“PPACA screen
and enroll requirements”) were intended to ensure that there is coordination between the
exchanges and Medicaid.49
Definitions of Income Used in Selected Low-Income Programs
If the MAGI definition of income is changed, the key question becomes what definition of
income should be used. In determining this, it is instructive to understand key differences
between using the current definition of income derived from a tax return versus income
definitions used by other low-income programs for eligibility purposes.
Definitions of income and household (or family unit) are different between the tax system and
low-income programs, reflecting the different purposes of the systems. In general, the purpose of
the income tax system is to collect income taxes, and the definitions of income and tax unit were
developed to meet this purpose. A tax unit (or tax filing unit) is the taxpayer and, if married, the
taxpayer’s spouse. The tax unit may have qualified children or qualified relatives associated with
the tax unit as dependents for certain tax provisions. For tax purposes this is the “household.” A
household, using the Census definition, may consist of a number of tax units. For example, a
single household may have three tax units: (1) a married couple with minor children; (2) an adult
child of the married couple; and (3) an elderly parent of the married couple. All three of these tax
units would be evaluated separately for Medicaid eligibility. Beginning in 2014, tax unit 2 would
have a Medicaid eligibility pathway not currently available. Use of MAGI may permit entitlement
to Medicaid that would not exist under current income rules for tax units 1 and 2.
Income for tax purposes is the income that is taxed at that level; in this case, the personal income
tax level. Generally, income is only the income of the taxpayer, and if married the taxpayer’s
spouse. However, under certain circumstances, the income of minor children may be included.
Some types of income may be excluded partially or fully from income for tax purposes because
they have been, or will be, taxable to other personal income tax units, or at other levels (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 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 the 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 this reason 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
49 See CRS Report R41210, Medicaid and the State Children’s Health Insurance Program (CHIP) Provisions in
PPACA: Summary and Timeline, by Evelyne P. Baumrucker et al.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
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. Table 7 shows some of the
definitions of income used by various social programs.
Table 7. Definitions of Income Used by Selected Social Programs
Household Basis for
Definition of Income
Program
Income Calculation
for Income Calculation
Verification
Supplemental Security
Individual or couple (if
Two types of income are
When applying for SSI, an
Income (SSI)
married).
considered for purposes of individual must provide
determining SSI eligibility
documentation that Social
and payment amounts:
Security Administration
earned and unearned
uses to determine income
income. Earned income
and resource eligibility,
includes wages, net
such as a Social Security
earnings from self-
card or record of a Social
employment, and earnings
Security number; a birth
from services performed.
certificate or other proof
Most other income not
of age; a copy of a
derived from current work mortgage or lease and
(e.g., Social Security
landlord's name; payroll
benefits, other
slips, bank records,
government and private
insurance policies, car
pensions, veterans’
registration, and other
benefits, workers'
income information;
compensation, and in-kind
medical information if
support and maintenance)
applying for disability; and
is considered “unearned."
proof of immigration
In-kind support and
status (if not a U.S.
maintenance includes food, citizen).
clothing, or shelter that is
given to an individual or
couple. There is also a
resource limitation that
includes liquid assets or
any real or personal
property owned that could
be converted to cash and
used for support and
maintenance.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Household Basis for
Definition of Income
Program
Income Calculation
for Income Calculation
Verification
Veterans Improved
Veteran and, if married,
Income from nearly all
Annual verification
Pension and Death
veteran’s spouse. There is
sources, including all Social
process. All income is
Pension (administered
also the assumption that
Security and pension
reported and the
by the Department of
all of a child’s income is
income, and acquired
Department of Veterans
Veterans Affairs)
available to the veteran,
through inheritance. There Affairs calculates income
but this can be waived
are sources of income that for benefit purposes.
(under certain
are not included such as:
circumstances and upon
donations from public
application for exclusion of welfare or private relief
the child’s income).
organizations (including SSI
and maintenance by a
relative, friend or
organization); profit from
disposing of property
(other than in the course
of business); net gain from
sale of a home if the gain is
not rolled over into
another home; amounts in
joint accounts the veteran
acquires by the death of
the other owner(s); and
certain final expenses and
medical expenses. There is
also a net worth limitation.
Refundable Tax Credits Taxpayer and, if married,
Earned income only—
Income reported on
– Earned Income
the taxpayer’s spouse.
wages and other
annual tax return.
Credit and Additional
Taxpayers must have a
compensation, and net
Child Tax Credit
qualified child (based on
income from self-
age, residency, and
employment (without
income) for the additional
deduction for self-
child tax credit. For the
employment taxes).
Earned Income Credit, the
taxpayer, taxpayer’s
spouse, and any qualifying
child for the credit must
also have a Social Security
number valid for work in
the United States.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Household Basis for
Definition of Income
Program
Income Calculation
for Income Calculation
Verification
Supplemental
Married couples and
SNAP law defines income
State agencies set income
Nutrition Assistance
groups of individuals who
as “income from whatever
verification policies and
Program (SNAP)
live together and purchase
source” but also explicitly
procedures within federal
and prepare meals
excludes dozens of income parameters. Federal
together. If a member of
sources: e.g., most
regulations make the
the household is elderly or educational loans,
verification of gross
disabled, that member
reimbursements, lump-
income mandatory and
(and the member’s spouse) sum nonrecurring
prefer documentary
may be able to qualify as a
payments (such as income
evidence for verification;
separate household if they
tax refunds).a However,
however, the regulations
have income below 165%
lump-sum nonrecurring
also specify that a state
of FPL.
payments will be included
may not require a specific
in a calculation of assets.
document for verification.
SNAP has an asset limit,
For the most part, states
but many states have
verify income for the
exercised an option they
entire SNAP certification
have to effectively bypass
period, though states vary
the asset limit when
in their requirements for
determining financial
reporting change of
eligibility. SNAP also
income within the
makes available a number
certification period.
of deductions, including a
standard deduction, which
will be subtracted from
the gross income
calculation. Regulation
gives states the option,
within certain parameters,
to align SNAP income
requirements with state
TANF or Medicaid policy;
as of September 2010, 39
states have opted for this
alignment.
Source: Table prepared by CRS.
a. A full list of income exclusions can be found in Section 5(d) of the Food and Nutrition Act of 2008.
Conclusion
Both the Administration and Congress have recognized potential shortcomings of using MAGI to
determine eligibility for Medicaid provisions and premium credits in PPACA. The initial intent of
using MAGI was to standardize the definition of income for Medicaid eligibility purposes in
order to reduce some of the variability and complexity that exists under the current Medicaid
program and to provide consistency between Medicaid and the health insurance exchange.
Although changing the definition of income to include a more comprehensive measure that
includes both nontaxable Social Security income and other nontaxable income sources would be
more consistent with other low-income programs, such as SSI, this change may increase the
administrative complexity, especially for the premium credits in the health insurance exchanges.
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Definition of Income in PPACA for Certain Medicaid Provisions and Premium Credits
Author Contact Information
Janemarie Mulvey, Coordinator
Bernadette Fernandez
Specialist in Health Care Financing
Specialist in Health Care Financing
jmulvey@crs.loc.gov, 7-6928
bfernandez@crs.loc.gov, 7-0322
Evelyne P. Baumrucker
Christine Scott
Analyst in Health Care Financing
Specialist in Social Policy
ebaumrucker@crs.loc.gov, 7-8913
cscott@crs.loc.gov, 7-7366
Acknowledgments
Gene Falk provided valuable comments on the report. Randy Aussenberg provided the information on
income eligibility for SNAP. Umar Moulta-Ali provided comments on the Supplemental Security Income
information.
Key Policy Staff
Area of Expertise
Name
Phone
E-mail
General Questions
Janemarie Mulvey
x7-6928 jmulvey@crs.loc.gov
Taxation Questions
Christine Scott
x7-7366
cscott@crs.loc.gov
Medicaid Evelyne
Baumrucker
x7-8913
ebaumrucker@crsl.loc.gov
Premium Credits in Health Exchange
Bernadette Fernandez
x7-0322
bfernandez@crs.loc.gov
Supplemental Security Income
Umar Moulta-Ali
x7-9557
umoulta@crs.loc.gov
Veteran’s Benefits
Christine Scott
x7-7366
cscott@crs.loc.gov
Supplemental Nutritional Assistance
Randy Aussenberg
x7-8641
raussenberg@crs.loc.gov
Program
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