The Use of Modified Adjusted Gross Income
(MAGI) in Federal Health Programs
Evelyne P. Baumrucker, Coordinator
Analyst in Health Care Financing
Patricia A. Davis
Specialist in Health Care Financing
Bernadette Fernandez
Specialist in Health Care Financing
Annie L. Mach
Analyst in Health Care Financing
Carol A. Pettit
Legislative Attorney
April 22, 2015
Congressional Research Service
7-5700
www.crs.gov
R43861
The Use of Modified Adjusted Gross Income (MAGI) in Federal Health Programs
Summary
The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) created Section
36(B) of the Internal Revenue Code (IRC) to define household income, based on modified
adjusted gross income (MAGI). MAGI is used to determine (1) penalty amounts owed if a person
does not comply with the individual mandate or whether an individual is exempt from the
individual mandate; (2) eligibility for and the amount of a premium credit to purchase coverage
through a health insurance exchange; and (3) Medicaid income eligibility for certain populations.
MAGI is also used to determine which Medicare beneficiaries pay high-income premiums.
However, MAGI has many different definitions, depending on the purpose for which it is being
calculated.
For these government health programs, MAGI begins with Adjusted Gross Income (AGI) as
calculated for tax purposes. From there, various types of income are included (or in the case of
Medicaid subtracted) to calculate MAGI for each particular program. Although the different
health programs use the word “household,” they do not necessarily refer to the same groupings of
people. For example, married couples living together are counted as the same Medicaid
household regardless of whether they file a joint tax return. By contrast, married couples must file
a joint tax return to be eligible for premium credits.
This report explores the different MAGI definitions across health programs, including Medicare,
the health insurance exchanges under the ACA, and Medicaid. It also addresses why MAGI is
used, and how it is applied, specific to each program.
Congressional Research Service
The Use of Modified Adjusted Gross Income (MAGI) in Federal Health Programs
Contents
Introduction ...................................................................................................................................... 1
Definition of MAGI in Health Programs ......................................................................................... 1
Medicare Income-Related Premiums ............................................................................................... 3
Determination of Income ........................................................................................................... 4
Individual Mandate .......................................................................................................................... 5
Determination of Income ........................................................................................................... 6
Exchanges and Premium Tax Credits .............................................................................................. 7
Determination of Income ........................................................................................................... 8
Medicaid .......................................................................................................................................... 9
Determination of Income ........................................................................................................... 9
Transition to MAGI ........................................................................................................... 10
How MAGI Is Applied in Medicaid .................................................................................. 10
MAGI-Exempted Groups .................................................................................................. 10
Countable Income .................................................................................................................... 11
Family Size and Total Household Income ......................................................................... 12
Tables
Table 1. Additions and Subtractions to Federal Adjusted Gross Income (AGI) to Calculate
Modified Adjusted Gross Income (MAGI) for Health Programs ................................................. 2
Table A-1. Medicaid MAGI-Based Eligibility Categories, Beginning January 1, 2014 ................ 13
Table A-2. MAGI-Excepted Eligibility Categories, Beginning January 2014 ............................... 14
Appendixes
Appendix. MAGI and Medicaid’s Eligibility Categories .............................................................. 13
Contacts
Author Contact Information........................................................................................................... 17
Congressional Research Service
The Use of Modified Adjusted Gross Income (MAGI) in Federal Health Programs
Introduction
Certain portions of our government health programs rely on means-testing. Medicare premiums,
the individual mandate exemptions and penalties and eligibility for premium credits available
under the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended), and
Medicaid eligibility are determined, in part, by the modified adjusted gross income (MAGI)
income counting rule. MAGI, however, has many different definitions, depending on the purpose
for which it is being calculated.
To determine which Medicare beneficiaries pay high-income premiums, the Social Security
Administration uses the most recent federal tax return provided by the Internal Revenue Service
(IRS). These determinations are based on the MAGI income definition, which is defined
differently under Medicare than under other health programs.
ACA created Section 36(B) of the Internal Revenue Code (IRC, Title 26 of the U.S. Code) to
define household income, based on MAGI, which is used to determine (1) penalty amounts owed
if a person does not comply with the individual mandate or whether an individual is exempt from
the individual mandate; (2) eligibility for and the amount of a premium credit to purchase
coverage through a health insurance exchange; and (3) Medicaid income eligibility for certain
populations. The initial intent of using MAGI across the ACA low-income subsidy programs was
to standardize the definition of income for Medicaid eligibility purposes and to provide
consistency between Medicaid and the health insurance exchanges.1 Although these programs use
similar terms, they do not necessarily refer to the same thing.
For all of these government health programs, the MAGI calculation begins with Adjusted Gross
Income (AGI).2 However, from there various types of income are included (or in the case of
Medicaid subtracted) to calculate MAGI for each particular program. Also, while the different
health programs use the word “household,” they do not necessarily refer to the same groupings of
people. For example, married couples living together are counted as the same Medicaid
household regardless of whether they file a joint tax return. By contrast, married couples must file
a joint tax return to be eligible for premium credits. This report explores how MAGI is defined
differently across health programs, including Medicare, the health insurance exchanges under the
ACA, and Medicaid. It also discusses why MAGI is used, and how it is applied, specific to each
program.
Definition of MAGI in Health Programs3
The starting point for calculating MAGI for these health programs is, in all cases AGI, which
generally originates on a federal income tax return. AGI is determined by subtracting allowable
adjustments from gross income.
Gross income is defined as “all income from whatever source derived” unless otherwise
statutorily excepted.4 Exceptions to gross income include gifts (cash, property, or in-kind),
1 See Federal Register, vol. 76, no. 159, August 17, 2011, Proposed Rule.
2 26 U.S.C. §62.
3 This section was written by Carol A. Pettit, Legislative Attorney, x7-9496.
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inheritances, interest on state and local bonds, a portion of Social Security benefits received,
some income earned in foreign countries or in U.S. possessions and territories, and the costs paid
by an individual toward some retirement plans.
Adjustments to gross income include alimony paid, penalties on early withdrawal of savings (e.g.,
from Certificates of Deposit [CDs]), moving expenses, student loan interest paid, and health
savings account deductions. When these adjustments are subtracted from gross income, the result
is AGI. This is the amount found on the bottom line of the first page of IRS Form 1040
(Individual Income Tax Return).
MAGI is used in a number of contexts within the IRC. For example, it is used to determine the
extent to which Social Security benefits are included in gross income. It is also used to determine
eligibility for an adjustment to income for tuition and fees paid.
However, for health programs, MAGI begins with AGI as calculated for tax purposes. From
there, various types of income not included in AGI are added to calculate MAGI for each
particular program. For Medicaid programs, these types of income are added in calculating
MAGI, but under Medicaid regulations, particular types of income included in AGI may be
subtracted to calculate MAGI for determining Medicaid eligibility.5 Table 1 summarizes the
additions and subtractions to AGI that are used to calculate MAGI for various health programs.
These adjustments are discussed in detail in the Medicare, Individual Mandate, Exchanges and
Premium Tax Credits, and Medicaid subsections of this report.
Table 1. Additions and Subtractions to Federal Adjusted Gross Income (AGI) to
Calculate Modified Adjusted Gross Income (MAGI) for Health Programs
Modified Adjusted Gross Income
ACA
ACA
Initial
Medicare
Individual
Premium
Medicaid
Description of Income
Premiums
Mandate
Credit
Eligibilitya
Tax-exempt interest income received or
Added to
Added to
Added to
Added to
accrued (e.g., interest from state and local
AGI
AGI
AGI
AGI
bonds)b
Interest from U.S. savings bonds used to pay
Added to
Added to
Added to
Added to
higher education tuition and feesc
AGI
AGI
AGI
AGI
Earned income of U.S. citizens living abroad that
Added to
Added to
Added to
Added to
was excluded from gross incomed
AGI
AGI
AGI
AGI
Non-taxable portion of Social Security benefitse
Added to
Added to
AGI
AGI
Income from sources within Guam, American
Samoa, the Northern Mariana Islands,
Added to
f or Puerto
Rico,
AGI
g not otherwise included in AGI
(...continued)
4 26 U.S.C. §61.
5 Per State Children’s Health Insurance Program (CHIP) regulations at 42 C.F.R. §457.315, the MAGI rules at 42
C.F.R. 435.603 (b) through (i) also apply to CHIP.
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Modified Adjusted Gross Income
ACA
ACA
Initial
Medicare
Individual
Premium
Medicaid
Description of Income
Premiums
Mandate
Credit
Eligibilitya
Irregular income received as a lump sum and
Included in
included in AGI (e.g., state income tax refund,
monthly AGI
lottery or gambling winnings)h
only in month
receivedi
Certain payments to American Indians and
Subtracted
Alaska Natives if included in AGIj
from AGI
Certain scholarships, awards, and fel owship
Subtracted
grants if included in AGIk
from AGI
Source: Congressional Research Service, compilation from sources within the U.S. Code and Regulations.
Current as of the date of this report.
a. “Initial” Medicaid Eligibility refers to eligibility rules that apply to applicants and new enrollees (i.e., not
current enrollees seeking an eligibility redetermination).
b. 26 U.S.C. §103.
c. 26 U.S.C. §135.
d. 26 U.S.C. §911.
e. While the Internal Revenue Service’s definition of MAGI excludes non-taxable social security benefits, the
Three Percent Withholding Repeal and Job Creation Act (P.L. 112-56) changed the definition of income for
the purposes of determining eligibility for ACA premium credits and Medicaid to include such non-taxable
social security benefits.
f.
26 U.S.C. §931.
g. 26 U.S.C. §933.
h. 42 C.F.R. §435.603(h)(1).
i.
Under Medicaid, income eligibility for applicants and new enrollees is based on current monthly household
income (see 42 C.F.R. §435.603(h)(1)). By contrast, when redetermining eligibility for current Medicaid
enrol ees, states are permitted to use current monthly income and family size, or projected annual income
and family size for the remaining months of the calendar year (see 42 C.F.R. §435.603(h)(2)).
j.
42 C.F.R. §435.603(e)(3).
k. 42 C.F.R. §435.603(e)(2). See also 45 C.F.R. §233.20.
Medicare Income-Related Premiums6
Medicare is the nation’s federal insurance program; it pays for covered health services for most
persons aged 65 and older, and for most permanently disabled individuals under the age of 65.
The program consists of four distinct parts: (1) Part A, which covers inpatient services; (2) Part B,
which covers physician and outpatient services; (3) Part C (Medicare Advantage), a private health
plan option that covers most Part A and B services; and (4) Part D, which covers outpatient
prescription drugs. Eligibility for Medicare is not based on income. Most individuals are eligible
for premium-free Part A if they or their spouse paid Medicare payroll taxes for at least 40
6 This section was written by Patricia A. Davis, Specialist in Health Care Financing, x7-7362.
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quarters. Parts B and D are optional and require the payment of premiums. Those premiums are
means-tested, and the income levels used to determine the premiums are based on a unique
Medicare definition of MAGI.
For the first 41 years of the Medicare program, all Part B enrollees paid the same Part B premium
amounts regardless of their income. However, the Medicare Modernization Act of 2003 (MMA;
P.L. 108-173)7 required that, beginning in 2007, higher-income enrollees pay higher premiums.
The ACA imposed similar high-income premiums for Medicare Part D prescription drug benefit
enrollees beginning in 2011. The Centers for Medicare & Medicaid Services (CMS) estimates
that fewer than 5% of Medicare beneficiaries pay these higher premiums.8
For Medicare Part B, standard premiums are set at 25% of average annual per capita Part B
program expenditures.9 Under Part D, base premiums are set at 25.5% of expected per capita
costs for basic Part D coverage.10 Adjustments are made to the Parts B and D premiums for
higher-income beneficiaries, with the percentage of per capita expenditures paid by these
beneficiaries increasing with income. This percentage ranges from 35% to 80% of average per
capita expenditures for both Parts B and D.11 In 2015, individuals whose income exceeds
$85,000, and couples whose income exceeds $170,000, are subject to higher premium amounts.
Income thresholds used to determine high-income premiums for 2011 through 2017 are frozen at
the 2010 levels.12
Determination of Income
To determine which Medicare beneficiaries pay high-income premiums, the Social Security
Administration uses the most recent federal tax return provided by the IRS. The income
determinations are based on an individual’s tax filing status (i.e., individual filing, joint filing, or
married filing separately).13 The income definition on which these determinations are based is
7 The MMA would have phased in the increase over five years; however, the Deficit Reduction Act of 2005 (DRA, P.L.
109-171) shortened the phase-in period to three years.
8 See U.S. Department of Health and Human Services, “2015 Medicare Part B Premiums and Deductibles to Remain
the Same as Last Two Years,” press release, October 9, 2014, at http://www.hhs.gov/news/press/2014pres/10/
20141009a.html.
9 In 2015, the standard monthly Part B premium is $104.90. For additional information on Part B premiums, see CRS
Report R40082, Medicare: Part B Premiums.
10 In 2015, the base monthly Part D premium is $33.13; however, actual premiums paid by beneficiaries may vary
depending on the prescription drug plan that they select. See CRS Report R40611, Medicare Part D Prescription Drug
Benefit.
11 There are four high-income premium tiers; depending on income, beneficiaries can pay 35%, 50%, 65%, or 80% of
per capita Parts B or D expenditures. For additional information, see Social Security Publication Medicare Premiums:
Rules for Higher-Income Beneficiaries, 2015 at http://www.ssa.gov/pubs/EN-05-10536.pdf.
12 Section 3402 of the ACA froze the thresholds used to determine high-income premiums at the 2010 level. These
levels will be maintained through 2017. In 2018 and 2019, Section 402 of the Medicare Access and CHIP
Reauthorization Act of 2015 (P.L. 114-10) maintains the freeze on the income thresholds for the lower two high-
income premium tiers but reduces the threshold levels for the two highest income tiers so that more beneficiaries will
fall into the higher percentage categories. Beginning in 2020, the thresholds will be adjusted annually for inflation. See
CRS Report R43962, H.R. 2: The Medicare Access and CHIP Reauthorization Act of 2015, coordinated by Jim Hahn
and Kirstin B. Blom.
13 Centers for Medicare & Medicaid Services, “Medicare Program: Medicare Part B Monthly Actuarial Rates, Premium
Rate, and Annual Deductible Beginning January 1, 2015,” 79 Federal Register 61314, October 10, 2014,
http://www.gpo.gov/fdsys/pkg/FR-2014-10-10/pdf/2014-24248.pdf.
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MAGI,14 which is defined differently under Medicare than under other programs. Section
1839(i)(4) of the Social Security Act (SSA) defines MAGI for this purpose as adjusted gross
income increased by the amount of certain other income that is exempt from tax under the IRC.15
For the purpose of identifying who is required to pay high-income Medicare premiums, MAGI is
defined as the sum of (as defined in Table 1):
• the beneficiary’s AGI, plus
• certain income exempt from tax under the IRC,16 including
• tax-exempt interest income received or accrued (e.g., interest from state and
local bonds);
• interest from U.S. savings bonds used to pay higher education tuition and
fees;
• earned income of U.S. citizens living abroad that was excluded from gross
income;
• income from sources within Guam, American Samoa, the Northern Mariana
Islands, or Puerto Rico, not otherwise included in AGI.
If a Medicare beneficiary had a one-time increase in taxable income in a particular year (e.g.,
from the sale of income-producing property), that increase would be considered in determining
the individual’s total income for that year, and thus would be a liability for the income-related
premium two years ahead. It would not be considered in the calculations for future years. In the
case of certain major life-changing events that result in a significant reduction in MAGI,17 an
individual may request to have the determination made for a more recent year than the second
preceding year.18
Individual Mandate19
Beginning in 2014, ACA requires most individuals to maintain health insurance coverage or
otherwise pay a penalty.20 Certain individuals are exempt from the individual mandate. For
example, individuals with qualifying religious exemptions and those for whom health insurance
14 See also Social Security Program Operations Manual, HI 01101.010, “Modified Adjusted Gross Income (MAGI),” at
https://secure.ssa.gov/poms.nsf/lnx/0601101010.
15 The Parts B and D high-income premium determinations are based on the same definition of MAGI. Specifically, the
Social Security Act §1860D-13(a)(7)(C) states that MAGI has the same meaning for Part D as it does for Part B as
defined in §1839(i)(4).
16 20 C.F.R. §418.1010(b)(6).
17 Major life-changing events include (1) death of a spouse; (2) marriage; (3) divorce or annulment; (4) partial or full
work stoppage for the individual or spouse; (5) loss by individual or spouse of income from income-producing property
when the loss is not at the individual’s direction (e.g., a natural disaster); or (6) reduction or loss for individual or
spouse of pension income due to termination or reorganization of the plan or scheduled cessation of the pension.
(C.F.R. §418.1205.)
18 Social Security Form SSA-44, http://www.ssa.gov/online/ssa-44.pdf.
19 This section was written by Annie L. Mach, Analyst in Health Care Financing, x7-7825.
20 For more information about the individual mandate, see CRS Report R41331, Individual Mandate Under ACA.
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coverage is “unaffordable” will not be subject to the mandate or its associated penalty. Individuals
who do not maintain health insurance coverage and are not exempt from the mandate will have to
pay a penalty for each month of noncompliance. The penalty is assessed through the federal tax
filing process; any penalty that taxpayers are required to pay for themselves or their dependents
must be included in their return for that taxable year.
Determination of Income
An individual’s household income is used to determine any penalty amounts owed, and it is used
to determine whether an individual is eligible for certain exemptions from the individual mandate.
With respect to the individual mandate, household income is defined as the MAGI of the
taxpayer, plus the aggregate MAGI of all other individuals for whom the taxpayer is allowed a
deduction for personal exemptions for the taxable year.21 As shown in Table 1, MAGI for the
purposes of the individual mandate is AGI increased by tax-exempt interest income received or
accrued, interest from U.S. savings bonds used to pay higher education tuition and fees, and
earned income of U.S. citizens living abroad that was excluded from gross income.22
For individuals who do not maintain health insurance coverage and are not exempt from the
individual mandate, the penalty is based either on a formula or on a flat-dollar amount, whichever
is greater. The formula is a specific percentage multiplied by a person’s “applicable income.” The
percentage is 2% in 2015 and 2.5% thereafter. An individual’s “applicable income” is defined as
the amount by which an individual’s household income exceeds the applicable filing threshold for
federal income taxes for the tax year.23 In other words, “applicable income” is the aggregate
MAGI above the tax filing threshold for the taxpayer and all dependents required to file a tax
return. The flat-dollar amounts are $325 in 2015 and $695 in 2016 and beyond (adjusted for
inflation), assessed for each taxpayer and any dependents.
Certain individuals are exempt from the individual mandate and its associated penalty. Household
income based on MAGI is used to determine eligibility for some exemptions. Individuals for
whom coverage is “unaffordable” are exempt; in 2015, coverage is considered unaffordable if an
individual’s required contribution for self-only coverage exceeds 8.05% of his or her household
income.24 Individuals are also exempt if their household income is less than the filing threshold
for federal income taxes for the applicable tax year.
21 26 U.S.C. §5000A(c)(4)(B). The individuals for whom a taxpayer is allowed a deduction for personal exemptions are
identified in 26 U.S.C. §151.
22 P.L. 112-56, which changed the definition of income for the purposes of determining eligibility for ACA premium
credits and Medicaid to include non-taxable social security benefits, did not apply the change to the individual mandate
provision.
23 In 2015, the filing thresholds for individuals under the age of 65 are $10,300 for a single filing status and $20,600 for
a married couple filing jointly. The filing threshold is linked to an inflation adjustment based on the CPI-U, and
therefore it may be higher in future years.
24 In statute, the affordability threshold was set at 8% for 2014. The 8.05% threshold for 2015 is a result of the statutory
requirement that the threshold percentage be adjusted in subsequent years to reflect the excess rate of premium growth
above the rate of income growth for the period.
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Exchanges and Premium Tax Credits25
Health insurance exchanges operate in every state and the District of Columbia (DC), per the
ACA statute.26 Exchanges are not insurance companies; rather, they are “marketplaces” that offer
private health plans to qualified individuals27 and small businesses.28 Given that ACA specifically
requires exchanges to offer insurance options to individuals and small businesses, exchanges are
structured to assist these two different types of “customers.” Consequently, there is an exchange
to serve individuals and families, and another to serve small businesses (“SHOP exchanges”),
within each state.29
Certain enrollees in the individual exchanges are eligible for premium assistance in the form of
federal tax credits.30 Such credits are not provided through the SHOP exchanges. The premium
credit is an advanceable, refundable tax credit, meaning tax filers need not wait until the end of
the tax year to benefit from the credit, and they may claim the full credit amount even if they have
little or no federal income tax liability.
To be eligible for a premium credit through an individual exchange, a person (or family) must
• have a household income (based on MAGI) between 100% and 400% of the
federal poverty level (FPL), with an exception,31
• not be eligible for “minimum essential coverage”32 (such as Medicaid, Medicare,
or an employer-sponsored plan that meets certain requirements),33 other than
through the individual health insurance market;
25 This section was written by Bernadette Fernandez, Specialist in Health Care Financing, x7-0322.
26 See Kaiser Family Foundation, “State Health Insurance Marketplace Decisions,” January 27, 2014, at http://kff.org/
health-reform/slide/state-decisions-for-creating-health-insurance-exchanges/. ACA §1323 allowed U.S. territories to
choose to either establish an exchange or not; as of the date of this report, no territory opted to establish an exchange.
27 Enrollment in an exchange plan is voluntary; see ACA §1312(d)(3). The voluntary nature of exchange enrollment
also applies to Members of Congress and their personal staff, who may be offered by the federal government only
coverage created under the ACA or offered through an exchange, per ACA §1312(d)(3)(D). In other words, although
the federal government may make only certain health coverage available to applicable Members and staff, such
individuals retain their right to enroll in any coverage that may be available to them (e.g., a private employer’s health
plan offered to the Member’s spouse). For a comprehensive discussion about these issues, see CRS Report R43194,
Health Benefits for Members of Congress and Certain Congressional Staff.
28 Before 2016, states will have the option to define “small employers” either as those with 100 or fewer employees or
50 or fewer employees. Beginning in 2016, small employers will be defined as those with 100 or fewer employees.
Beginning in 2017, large groups may participate in exchanges, at state option.
29 ACA gives states the option to merge both exchanges and operate them under one structure.
30 For additional information about ACA’s premium tax credits, see CRS Report R43945, Health Insurance Premium
Credits in the Patient Protection and Affordable Care Act (ACA) in 2015.
31 An exception is made for lawfully present aliens with income below 100% 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% FPL for purposes of the premium credit.
32 The definition of minimum essential coverage is broad. It generally includes Medicare Part A; Medicaid; the State
Children’s Health Insurance Program (CHIP); TRICARE; the TRICARE for Life program, a health care program
administered by the Department of Veteran’s Affairs; the Peace Corps program; a government plan (local, state,
federal), including the Federal Employees Health Benefits Program (FEHBP); 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.
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• be enrolled in an exchange plan; and
• be part of a tax-filing unit.34
Once eligibility is determined, income will be used in some (but not necessarily all) instances to
determine the amount of the tax credit. The calculation of the credit amount is based on a
comparison of two amounts that result from two different scenarios. The first scenario (and
amount) is straightforward: the monthly premium for the exchange plan in which the
person/family enrolls. The second scenario is more complicated, involving a formula that
considers the premium for a standard plan35 in the local area in which the person/family resides,
and an amount that the person/family may be required to contribute toward the premium. This
required contribution amount is based on income, with contributions capped between 2% and
9.5% of income. Based on a comparison of the two amounts (resulting from the two scenarios),
the premium credit will be the lesser amount.
Determination of Income
Household income is measured according to MAGI.36 As shown in Table 1, MAGI for the
purposes of the premium credit is AGI as calculated for tax purposes increased by tax-exempt
interest income received or accrued during the taxable year, as well as interest from U.S. savings
bonds used to pay higher education tuition and fees, earned income of U.S. citizens living abroad
that was excluded from gross income, and non-taxable portion of Social Security benefits.
Household income, for purposes of determining premium credit eligibility, refers to the MAGI of
a given taxpayer and the aggregate MAGI of all persons for whom the taxpayer claims a
deduction for a personal exemption.37 Given this definition, the household may include the
taxpayer, the taxpayer’s spouse, and other tax dependents.38
Note that the use of “household” to determine eligibility for and amount of the premium credit,
based on income, is not necessarily equivalent to a family seeking coverage in an exchange
(“coverage family”). For example, a hypothetical taxpayer may have three children, two of whom
are tax dependents and one of whom is 25 years old (and therefore, because of age, may not be
claimed as a dependent). However, the parent and children wish to enroll in the same exchange
(...continued)
33 Individuals who are offered health coverage through an employer may be eligible for the premium tax credit if the
employer coverage does not meet affordability and adequacy standards. For a discussion of those standards, see CRS
Report R43945, Health Insurance Premium Credits in the Patient Protection and Affordable Care Act (ACA) in 2015.
34 Since the premium tax credits are administered through the individual income tax filing process, credit recipients are
required to file federal tax returns, even if they do not have federal tax liability.
35 The standard plan that will be used in the premium credit formula is the second lowest cost “silver” plan in the local
area. Silver refers to a type of health plan that meets an actuarial value of 70%. For a summary discussion about
actuarial value, see the “Essential Health Benefits Package” section of CRS Report R43854, Overview of Private
Health Insurance Provisions in the Patient Protection and Affordable Care Act (ACA).
36 26 U.S.C. §36B(d)(2).
37 These individuals are identified in 26 U.S.C. §151.
38 The IRS final regulations on premium tax credits (77 Federal Register 30377) clarified that the household could
include individuals who are exempt from the ACA individual mandate. Moreover, although an individual who is
incarcerated or not lawfully present may not enroll in an exchange health plan (and is consequently ineligible for
premium credits), he or she may be an applicable taxpayer for a family member who is eligible to enroll in an exchange
(and potentially eligible for premium credits).
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plan. The coverage family is a total of four individuals, because the 25-year-old may be included
as a dependent for health insurance purposes. Given that the young adult is not a tax dependent,
the young adult’s income is not included with the parent’s income for premium credit purposes.
The parent would claim the credit based on his or her income, using a household size of three
(parent and two tax-dependent children). The young adult may claim his or her own credit, using
the income amount calculated on his or her own tax return, separate from the parent. In other
words, the tax definition of “dependent” results in a separate premium calculation for the young
adult, even though the health insurance definition allows the young adult to enroll with the family
in the same health plan.39
Medicaid40
Medicaid is a joint federal-state program that finances the delivery of primary and acute medical
services, as well as long-term services and supports (LTSS), to certain low-income individuals.41
Eligibility for Medicaid is determined by both federal and state law, whereby states set individual
eligibility criteria within federal minimum standards. Individuals must meet both categorical
(e.g., elderly, individuals with disabilities, children, pregnant women, parents, certain nonelderly
childless adults) and financial (i.e., income and sometimes assets limits) criteria, and must
otherwise be eligible for coverage.42 Some eligibility groups are mandatory, meaning that all
states with a Medicaid program must cover them; others are optional.
Determination of Income
Under the ACA, states are required to transition to a new income-counting rule based on MAGI
to establish uniform standards for what income to include or disregard in determining Medicaid
eligibility for most nonelderly and nondisabled individuals, children under the age of 18, and
adults and pregnant women under the age of 65.43 Medicaid’s MAGI income-counting rule is set
forth in law and regulation.44 In addition to specifying the types of household income that must be
considered during eligibility determinations, the policies also define “household.” The income of
any person defined as a part of an individual’s “household” must be counted when determining
that individual’s income level for purposes of a Medicaid eligibility determination.45 These rules
are discussed in further detail below.
39 This hypothetical example is a summary of an example included in the IRS final regulations. For the full example
and explanation, see 26 C.F.R.1.36B-3(h).
40 This section was written by Evelyne P. Baumrucker, Analyst in Health Care Financing, x7-8913.
41 For more information about Medicaid, see CRS Report R43357, Medicaid: An Overview, and CRS Report R43328,
Medicaid Coverage of Long-Term Services and Supports.
42 Individuals also need to meet federal and state requirements regarding residency, immigration status, and
documentation of U.S. citizenship.
43 The transition to MAGI represents a major change in terms of the types of information collected (e.g., what counts as
income) and the definition of “household” (e.g., the inclusion of step-parent income) compared with former Medicaid
income-eligibility rules. Under the former Medicaid income-eligibility rules, those regarding income exclusions and
disregards varied greatly across states and Medicaid eligibility categories.
44 42 C.F.R. §435.603(e) and §1902(e)(14)(E)) of the Social Security Act. Per State Children’s Health Insurance
Program (CHIP) regulations at 42 C.F.R. §457.315, the MAGI rules at 42 C.F.R. 435.603 (b) through (i) also apply to
CHIP.
45 See 42 C.F.R. §435.603.
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Transition to MAGI
The ACA requires states to transition to the MAGI income-counting rule no later than January 1,
2014. In transitioning to the new rule, states were required to establish income eligibility
thresholds that were no less than the standards applicable on the date of ACA’s enactment (i.e.,
March 23, 2010).46 The ACA also included maintenance of effort (MOE) provisions, under which
states were required to maintain their Medicaid programs for adults with no more restrictive
eligibility standards, methodologies, and procedures through December 31, 2013 (i.e., until the
exchanges were operational), and for Medicaid-eligible children up to the age of 19 until
September 30, 2019.47 (States that fail to comply with the ACA MOE requirements lose all of
their federal Medicaid matching funds.) The purpose of these policies was to ensure that
individuals who were eligible for Medicaid prior to 2014 could maintain coverage in 2014 under
the MAGI-equivalent income standards. In addition, through December 31, 2013, states were
permitted to establish more expansive income eligibility policies (within federal parameters). As
of January 1, 2014, states were no longer permitted to expand eligibility standards to higher
income levels through the adoption of income disregards.48
How MAGI Is Applied in Medicaid
Under the Medicaid MAGI income-counting rules, a state will look at an individual’s MAGI,
deduct an amount equal to 5% of FPL (which the law provides as a standard disregard),49 and
compare that income to the new income standards set by each state in coordination with CMS to
determine whether the individual meets the program’s eligibility requirements.50 (For a complete
list of Medicaid eligibility categories that are subject to the MAGI income-counting rules, see
Table A-1 in the Appendix of this report.)
MAGI-Exempted Groups
Under the ACA, certain groups are exempt from the MAGI income-counting rule. (For a
complete list of Medicaid eligibility categories that are exempt from the MAGI income-counting
rules, see Table A-2.) Pre-ACA income determination rules under Medicaid will continue to
apply to the following MAGI-exempted groups:
• Individuals who are eligible for Medicaid through another federal or state
assistance program (e.g., foster care children and individuals receiving
Supplemental Security Income [SSI]).
• The elderly (defined as aged 65 and older).
46 §1902(e)(14)(E)) of the Social Security Act.
47 §1902(gg) of the Social Security Act
48 §1902(e)(14)(B) of the Social Security Act.
49 The 5% FPL income disregard is applicable only if an individual is at the highest income limit for coverage. See 42
C.F.R. §435.603(d)(4).
50 For state Medicaid income eligibility standards for Medicaid eligibility groups subject to the MAGI income
counting-rules, based on state decisions as of July 1, 2014, see http://www.medicaid.gov/AffordableCareAct/Medicaid-
Moving-Forward-2014/Downloads/Medicaid-and-CHIP-Eligibility-Levels-Table.pdf.
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• Certain disabled individuals who qualify for Medicaid on the basis of being blind
or disabled, without regard to the individual’s eligibility for SSI.
• The medically needy (defined as individuals who are members of one of the
broad categories of Medicaid-covered groups, but who do not meet the applicable
income requirements).
• Enrollees in a Medicare Savings Program (e.g., qualified Medicare beneficiaries
for whom Medicaid pays the Medicare premiums or coinsurance and
deductibles).
In addition, MAGI does not affect eligibility determinations through Express Lane enrollment (to
determine whether a child has met Medicaid or State Children’s Health Insurance Program
[CHIP] eligibility requirements). Nor does MAGI affect eligibility determinations for low-income
subsidies for Medicare prescription drugs, or for Medicaid long-term services and supports.51 For
these MAGI-exempted groups, pre-ACA income-determination rules under Medicaid will
continue to be used.
Countable Income
Income eligibility for Medicaid applicants and new enrollees is based on current monthly
household income.52 As indicated in Table 1, MAGI-based income under Medicaid refers to
income calculated using the same methodology used to determine MAGI in Section 36B(d)(2)(B)
of the IRC (i.e., it includes tax-exempt interest income earned or accrued, interest from U.S.
savings bonds used to pay higher education tuition and fees, earned income of U.S. citizens living
abroad that was excluded from gross income, and non-taxable portion of Social Security
benefits), with some exceptions. Specifically, under Medicaid regulations, particular payments
included in AGI may be subtracted to determine MAGI. These include certain payments to
American Indians and Alaska Natives, and certain scholarships, awards, and fellowship grants
(i.e., work study income) if used for educational costs and not for living expenses. Under
Medicaid regulations, irregular income received as a lump sum (e.g., state income tax refund,
lottery or gambling winnings, one-time gifts or inheritances) is counted as income only in the
month received.53
51 Long-term services and supports include institutional services, such as nursing facility care, and home- and
community-based services, such as home care, personal care, transportation, and care management, furnished under the
Medicaid state plan or the state’s Medicaid waiver program.
52 When redetermining eligibility for current Medicaid enrollees states are permitted to use current monthly income and
family size, or projected annual income and family size for the remaining months of the calendar year. For states that
choose the latter measure, the rules for projected household income and family size under Medicaid differ as compared
to the rules under the exchanges. Specifically, Medicaid requires the applicant to predict income and household size for
the remaining months of the calendar year, whereas applicants seeking eligibility for premium tax credits must predict
income and household size based on the tax year. See 42 C.F. R. §435.603(h)(2). States are required to use “reasonable
methods” to account for changes in income such as, increases or decreases in income due to seasonal work. See 42 C.F.
R. §435.603(h)(3).
53 42 C.F. R. §435.603(e).
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Family Size and Total Household Income
The MAGI income-counting rule for Medicaid has two components: (1) family size (or the
number of persons counted as members of an individual’s household), and (2) total household
income.54
Family size is determined on a person-by-person basis and is affected by criteria such as living
arrangements, legal status, age, how the individuals are related to each other (e.g., multi-
generational families), whether the individual is pregnant, who is seeking the Medicaid eligibility
determination (i.e., the tax filer or the dependent), and whether the individual is a student. For
example, Medicaid rules include unborn children when determining family size, and married
couples living together are counted as the same Medicaid household regardless of whether they
file a joint tax return.55
Once an applicant’s family size has been established, a second step is required to determine
whether to include the income of each household member in the calculation of total household
income. In general, Medicaid defines total household income as the sum of the MAGI-based
income of every individual included in the household. However, certain exceptions apply when
counting Medicaid household income.56 These exceptions include
• the income of a child who is included in the household of his or her natural
parent, adopted parent, or step-parent and is not expected to file a tax return is
not included in the Medicaid household income;
• the income of a tax dependent who is not expected to file a tax return is not
included in the Medicaid household income of the taxpayer, regardless of
whether the tax dependent files a tax return;
• Medicaid household income may, at state option, include cash support above
nominal amounts provided by another tax payer expected to claim a member of
the household (other than a spouse, a natural child, adopted child, or step-child)
as a tax dependent; and
• beginning January 1, 2014, in determining Medicaid eligibility using MAGI-
based income, a state must subtract an amount equal to 5 percentage points of the
FPL for the applicable family size.57
In a final step, family size and total household income are then compared to the Medicaid
eligibility thresholds (which are expressed as a percentage of the FPL) to determine whether the
applicant qualifies for the program.58
54 42 C.F. R. §435.603.
55 42 C.F. R. §435.603(f)(4).
56 42 C.F. R. §435.603(d)(2) through (d)(4).
57 42 C.F.R. §435.603(d)(4) makes it clear that the MAGI 5% income disregard applies only if an individual is on the
verge of not being Medicaid-eligible because his or her income is too high.
58 For a specific example of how these rules play out, see Rules and Regulations, 77 Federal Register 17152, Friday,
March 23, 2012. For more information on Medicaid’s new MAGI-based eligibility levels adjusted for the 5% disregard,
effective January 1, 2014, see Table A-1 of CRS Report R43347, Budgetary and Distributional Effects of Adopting the
Chained CPI .
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Appendix. MAGI and Medicaid’s
Eligibility Categories
Table A-1 shows the Medicaid eligibility categories where MAGI applies, beginning January 1,
2014. Table A-2 shows Medicaid eligibility categories that are exempt from MAGI. Exempted
groups include (1) those expressly listed in statute; (2) those where the state does not conduct an
income determination (e.g., Supplemental Security Income [SSI] recipients); and (3) those for
whom an income test is not required as a part of the statutory requirements for the eligibility
pathway (e.g., former foster care children up to the age of 26, and women needing treatment for
breast or cervical cancer).
Table A-1. Medicaid MAGI-Based Eligibility Categories, Beginning January 1, 2014
Eligibility Category
Social Security Act Citation
Regulatory Citation (42 C.F.R.)
Mandatory Eligibility Categories
Parents/caretaker relatives
Low-income families
1902(a)(10)(A)(i)(I) and 1931
§435.110
Consolidated group for pregnant womena §435.116
Low-income families
1902(a)(10)(A)(i)(I) and 1931
Qualified pregnant women
1902(a)(10)(A)(i)(III)
Poverty-level related pregnant
1902(a)(10)(A)(i)(IV)
women (mandatory)
Pregnant women financial y
1902(a)(10)(A)(ii)(I)
eligible for Aid to Families for
Dependent Children (AFDC)
Pregnant women who would be
1902(a)(10)(A)(ii)(IV)
eligible for AFDC if not
institutionalized
Poverty-level related pregnant
1902(a)(10)(A)(ii)(IX)
women (optional)
Consolidated group for children under the age of 19a §435.118
Low-income families
1902(a)(10)(A)(i)(I) and 1931
Qualified children under the age
1902(a)(10)(A)(i)(III)
of 19
Poverty-level related infants
1902(a)(10)(A)(i)(IV)
(mandatory)
Poverty-level related children
1902(a)(10)(A)(i)(VI)
between the ages of 1 and 5
Poverty-level children between
1902(a)(10)(A)(i)(VII)
the ages of 6 and 18
Children who would be eligible
1902(a)(10)(A)(ii)(IV)
for AFDC if not institutionalized
Poverty-level related infants
1902(a)(10)(A)(ii)(IX)
(optional)
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Eligibility Category
Social Security Act Citation
Regulatory Citation (42 C.F.R.)
ACA Medicaid expansion groupb 1902(a)(10)(A)(i)(VIII)
§435.119
Optional Eligibility Categories
Parents and other caretaker relatives
1902(a)(10)(A)(ii)(I) NAc
financially eligible for AFDC
Reasonable classifications of children
1902(a)(10)(A)(i )(I) and (IV)
§435.222
under the age of 21 financially eligible
for AFDC or who would be
financially eligible if not
institutionalized
Individuals under the age of 21 who
1902(a)(10)(A)(i )(VIII) §435.227
are under state adoption assistance
agreements
Optional targeted low-income
1902(a)(10)(A)(i )(XIV) §435.229
children under the age of 19
Optional group for individuals
1902(a)(10)(A)(ii)(XII) NA
needing treatment for tuberculosis
Optional Chafee independent foster
1902(a)(10)(A)(ii)(XVII) NA
care adolescents under the age of 21
Individuals under the age of 65 with
1902(a)(10)(A)(i )(XX) §435.218
income more than 133% of the
federal poverty level (FPL) and at or
below standard established by state
Family Planning Option
1902(a)(10)(A)(i )(XXI)
NA
Source: Centers for Medicare and Medicaid Services (CMS), Medicaid and Children’s Health Insurance Program
(CHIP) Eligibility Groups in 2014, September 2012. Available at http://www.medicaid.gov/AffordableCareAct/
Medicaid-Moving-Forward-2014/Downloads/Medicaid-and-CHIP-Eligibility-Groups-in-2014.pdf.
a. Represents existing groups that were consolidated beginning January 1, 2014.
b. On June 28, 2012, the U.S. Supreme Court issued a decision in National Federation of Independent Business v.
Sebelius. The Court held that the federal government cannot terminate current Medicaid program federal
matching funds if a state does not expand its Medicaid program, effectively making the ACA Medicaid
expansion for this new adult group optional.
c. NA means not applicable.
Table A-2. MAGI-Excepted Eligibility Categories, Beginning January 2014
Eligibility Category
Social Security Act Citation
Regulatory Citation (42 C.F.R.)
Mandatory Eligibility Categories
Children receiving foster care,
1902(a)(10)(A)(i)(I)
§435.115(e) and §435.145
adoption assistance, or kinship
guardianship assistance under title
IV-E of the Social Security Act (SSA)
Former foster care children up to
1902(a)(10)(A)(i)(IX) NAa
the age of 26
Medicare Savings Program
Qualified Medicare Beneficiary
1902(a)(10)(E)(i) and 1905(p)
NA
(QMB)
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The Use of Modified Adjusted Gross Income (MAGI) in Federal Health Programs
Eligibility Category
Social Security Act Citation
Regulatory Citation (42 C.F.R.)
Specified Low Income Medicare
1902(a)(10)(E)(iii) and
NA
Beneficiary (SLMB)
1905(p)(3)(A)(ii)
Qualifying Individuals (QI)
1902(a)(10)(E)(iv) and
NA
1905(p)(3)(A)(ii)
Qualified Disabled and Working 1902(a)(10)(E)(i ), 1905(p)(3)(A)(i),
NA
Individuals (QDWI)
and 1905(s)
Aged, blind, or disabled individuals
Supplemental Security Income
1902(a)(10)(A)(i)(II) §435.120
(SSI) recipients in §1634 of SSA
and SSI criteria states
Individuals meeting more
1902(f) §435.121
restrictive criteria than SSI in
209(b) statesb
Working disabled individuals
1902(a)(10)(A)(i)(II), 1619(a),
NA
1619(b), and 1905(q)
Disabled widows and widowers
1634(b) §435.137
ineligible for SSI due to increase in
Old-Age, Survivors, and Disability
Insurance (OASDI)
Disabled adult children
1634(c)
NA
Early widows/widowers
1634(d)
§435.138
Individuals ineligible for SSI/State
NA §435.122
Supplemental Program (SSP) because
of requirements prohibited by
Medicaid
Individuals receiving mandatory state
Section 13(c) of P.L. 93-233
§435.130, §435.1011
supplements under Section 212 of
P.L. 93-66
Individuals who would be eligible for
Section 503 of P.L. 94-566
§435.135
SSI/SSP but for Old-Age, Survivors,
and Disability Insurance (OASDI)
Cost of Living Adjustments (COLA)
increases since April 1977c
Individuals who would be eligible for
Public Law 92-36
§435.134
SSI/SSP but for OASDI COLAs in
1972c
Institutionalized individuals
NA §435.132
continuously eligible since 1973
Blind or disabled individuals eligible
NA §435.133
in 1973c
Individuals eligible as essential
NA §435.131
spouses in 1973c
Optional Eligibility Categories
Women needing treatment for
1902(a)(10)(A)(i )(XVIII) NA
breast or cervical cancerd
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Eligibility Category
Social Security Act Citation
Regulatory Citation (42 C.F.R.)
Aged, blind, or disabled individuals
1902(a)(10)(A)(i )(I)
§435.210 or §435.230
financially eligible for SSI cash
assistance
Aged, blind, or disabled individuals
1902(a)(10)(A)(i )(IV) §435.211
who would be financially eligible for
SSI cash assistance if they were not
institutionalized
Individuals in institutions who are
1902(a)(10)(A)(i )(V) §435.236
eligible under a special income level
Individuals eligible for home and
1902(a)(10)(A)(i )(VI) §435.217
community-based waiver services
under institutional rules
Individuals receiving hospice care
1902(a)(10)(A)(i )(VII) and 1905(o)
NA
Poverty level (100% federal poverty
1902(a)(10)(A)(i )(X) and 1902(m)(1) NA
level) aged or disabled individuals
Aged, blind, or disabled individuals
1902(a)(10)(A)(i )(IV) and (XI)
§435.232 or §435.234
receiving only optional state
supplements
Work Incentives Eligibility Group
1902(a)(10)(A)(i )(XIII) NA
(BBA) with income less than 250%
FPL
Ticket to Work Basic Group
1902(a)(10)(A)(ii)(XV) NA
(TWWIIA) of working disabled
individuals
Ticket to Work Medical
1902(a)(10)(A)(ii)(XVI) NA
Improvements Group (TWWIIA MI)
of working disabled individuals
Family Opportunity Act for Children
1902(a)(10)(A)(ii)(XIX) NA
with Disabilities (FOA)
Individuals eligible for home and
1902(a)(10)(A)(i )(XXII) and 1915(i)
§435.219
community-based state plan services
(150% FPL)
Individuals eligible for home and
1902(a)(10)(A)(i )(XXII) and 1915(i)
§435.219
community-based state plan services
(special income level)
Qualified disabled children under the
1902(e)(3) §435.225
age of 19 who would be eligible for
Medicaid if they were in a medical
institution (Tax Equity and Fiscal
Responsibility Act of 1982 [TEFRA]
children)
Individuals participating in a Program
1934 NA
of All-inclusive Care for the Elderly
(PACE) program under institutional
rules
Medically Needy
Pregnant
women
1902(a)(10)(C)
§435.301
Children under the age of 18
1902(a)(10)(C)
§435.301
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Eligibility Category
Social Security Act Citation
Regulatory Citation (42 C.F.R.)
Individuals under the age of 21
1902(a)(10)(C) §435.308
(or under the ages of 20 or 19)
or reasonable classifications of
such individuals
Parents and other caretaker relatives 1902(a)(10)(C)
§435.310
Aged 1902(a)(10)(C)
§435.320,
§435.330
Blind
1902(a)(10)(C)
§435.322, §435.330, §435.340
Disabled
1902(a)(10)(C)
§435.324, §435.330, §435.340
Source: Centers for Medicare and Medicaid Services (CMS), Medicaid and Children’s Health Insurance Program
(CHIP) Eligibility Groups in 2014, September 2012. Available at http://www.medicaid.gov/AffordableCareAct/
Medicaid-Moving-Forward-2014/Downloads/Medicaid-and-CHIP-Eligibility-Groups-in-2014.pdf.
a. NA means not applicable.
b. Federal law gives states the option to use financial eligibility criteria for their aged, blind, and disabled
populations that are more restrictive than SSI. States that use this alternative to SSI program rules are
typically referred to as “209(b) states.”
c. Closed to new enrol ment.
d. Individuals are determined eligible for this pathway based on screening by Centers for Disease Control and
Prevention (CDC) program without an income test performed by Medicaid.
Author Contact Information
Evelyne P. Baumrucker, Coordinator
Annie L. Mach
Analyst in Health Care Financing
Analyst in Health Care Financing
ebaumrucker@crs.loc.gov, 7-8913
amach@crs.loc.gov, 7-7825
Patricia A. Davis
Carol A. Pettit
Specialist in Health Care Financing
Legislative Attorney
pdavis@crs.loc.gov, 7-7362
cpettit@crs.loc.gov, 7-9496
Bernadette Fernandez
Specialist in Health Care Financing
bfernandez@crs.loc.gov, 7-0322
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