Definition of Income in ACA 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

Under the Patient Protection and Affordable Care Act (ACA; 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.

On November 21, 2011, President Obama signed into law P.L. 112-56, which will change the definition of income for these programs and include non-taxable Social Security in the definition of MAGI. The new law, however, does not address other forms of non-taxable income that are not currently in the MAGI definition. In evaluating the definition of MAGI, 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, the recent enactment of P.L. 112-56 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.


Date of Report: January 13, 2012
Number of Pages: 24
Order Number: R41997
Price: $29.95

Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.