The New World of MAGI Income Tricia Brooks Michigan Assister Training October 23, 2014
Warning! This training gets into the policy weeds of how household and income are counted under MAGI! 2
What is MAGI-based eligibility? Modified Adjusted Gross Income - Not a number; it s a methodology for determining eligibility - Determines who s counted in the household and whose income counts toward eligibility Rooted in tax law Replaced prior Medicaid income, disregards and household counting rules as of January 1, 2014 3
Why new rules? Eliminate potential gaps between coverage options by aligning eligibility for premium tax credits (PTCs) with Medicaid Simplify the eligibility process and provide consistent rules across states Move toward real time eligibility with reliance on electronic data sources 4
Which groups are subject to MAGI? Children Pregnant women Parents and caretaker relatives People with disabilities and seniors needing long term care Newly eligible adults (aka Medicaid expansion) 5
Michigan Medicaid/CHIP Eligibility States were required to convert old standards to new MAGI rules. (MAGI levels include 5 percentage point disregard.) Pre-MAGI Income Limit MAGI Income Limit Children < 1 year 200% FPL 200% FPL Children 1-19 150% FPL 165% FPL CHIP/Uninsured children, 0 19* 200% FPL 217% FPL Pregnant Women 185% FPL 200% FPL Adults Parents only - 37% FPL 138% FPL * Children can not have been enrolled in group health coverage in past 3 months. 6
2014 Eligibility Levels Monthly Children 1-19 Medicaid Pregnant Women and Children <1 year Adults (19-64) CHIP* Uninsured Children (0 19) Family Size 165% FPL 200% FPL 138% FPL 217% FPL 1 $1,605 $1,945 $1,342 $2,110 2 $2,163 $2,622 $1,809 $2,845 3 $2,721 $3,298 $2,276 $3,579 4 $3,279 $3,975 $2,743 $4,313 5 $3,838 $4,652 $3,210 $5,047 6 $4,396 $5,328 $3,677 $5,781 Annual 1 $19,256 $23,340 $16,105 $25,324 2 $25,955 $31,460 $21,707 $34,134 3 $32,654 $39,580 $27,310 $42,944 4 $39,353 $47,700 $32,913 $51,755 5 $46,052 $55,820 $38,516 $60,565 6 $52,751 $63,940 $44,119 $69,375 7
Verification and Reasonable Compatibility Standards The move to MAGI is accelerating state use of trusted, electronic data sources to determine eligibility Reported income does not have to exactly match data source If data source and person s reported income are both below the Medicaid cutoff, they are determined eligible. If income is above the Medicaid cutoff, they are denied. 8
Reasonable Compatibility If the person attests to income below but data source shows income above. If difference is < 10% If difference is > 10% Michigan will accept the Michigan will contact attestation and enroll in applicant for reasonable Medicaid. explanation or verification. Example: Medicaid cutoff is $2,276 for household of three: Applicant reports $2,200 Data source indicates $2,300 Difference is $100, less than 10% (4.4%) Family is enrolled in Medicaid Example: Medicaid cutoff is $2,276 for household of three: Applicant reports $2,050 Data source indicates $2,300 Difference is $250, more than 10% (12.2%) Additional information or verification is requested. 9
Reasonable Compatibility However, if person attests to income above the threshold, they will be deemed ineligible for Medicaid and assessed for PTCs.regardless of whether the data source indicates they may be eligible for Medicaid. This is why it s important to understand how income is counted. 10
Key Points about Michigan Medicaid and CHIP Eligibility Children receive 12-month continuous eligibility regardless of changes in income or family size. Young adults (under 26) who were in foster care and enrolled in Medicaid on their 18 th birthday, are eligible for Medicaid regardless of income Michigan covers pregnant women regardless of citizenship or immigration status up to 200% FPL. If urgent care is needed for someone who appears Medicaid eligible, they can be enrolled presumptively through 11
Three Steps for Assessing Eligibility Step 1 Step 2 Step 3 Determine if non-filer, tax-filer, or tax dependent or exception for Medicaid Determine household size based on applicable tax-filer, non-filer or exception rules Add the MAGI income of all the relevant members of the individual s household. 12
Step 1 Key Points about Household Size Rules are different for tax-filers and non-filers. Only tax-filers are eligible for PTCs/CSRs, and married couples must file jointly. Tax-filer rules apply to both PTCs/CSRs and Medicaid. Non-filer rules apply only to Medicaid. There are 5 exceptions for tax filers or tax dependents; non-filer rules apply to Medicaid in these situations. Household size may be different for different members of the family, and different for Marketplace vs. Medicaid. 13
Tax Filers: Household Composition Household = all individuals in the tax filing unit - Tax-filer - Spouse - Tax dependents Qualifying child Qualified relatives 14
Non-Filers: Household Composition General Rule: Household = all individuals living together who are related (more like old Medicaid rules) Adults Adult Spouse Children under 19 Biological, adopted or step Children Child Child s parents (including step-parents) Children s siblings Biological, adopted or step Child s spouse if married and living with the child. The child s children, if living with the child. 15
Determining Household Size Is the each individual in the household a tax filer, tax dependent or non-filer? If a tax dependent and also files taxes, is the individual actually required to file a tax return for themselves? - $6,100 for a qualifying child - $3,900 for a qualifying relative Does the individual meet one of the 5 exceptions? 16
1 2 3 4 5 Exceptions to tax-filer rules for Medicaid: Non-filer rules apply in these situations Child claimed on non-custodial parent taxes Child living with both parents who are unmarried or file separate tax returns Any tax dependent (child or qualified relative) claimed by someone not their parent or spouse Married couples living together filing separately Pregnant women 17
1 Child (under 19) claimed as tax dependent by non-custodial parent Medicaid/CHIP eligibility for the child only is based on the custodial parent s household. If child is NOT eligible for Medicaid/CHIP, eligibility for premium tax credits will be based on the household size and income of the parent who claims the child. 18
Exception 1 (child is claimed by non-custodial parent) Alan, Judith and Jake Alan and Judith are divorced and both file taxes. They have a son, Jake, who lives with Alan, but is claimed by Judith on her tax return. 19
2 Child living with both parents who are unmarried or file taxes separately Both parents are included in the child s household for Medicaid For PTCs, the child s eligibility is based on the tax filing parent s household and income if the parents are unmarried If married filing separately, the family is not eligible for PTC 20
Exception 2 (child lives with both parents who are unmarried or file separately) - Ross and Rachel Ross and Rachel are not married. They live together with daughter, Emma. Ross claims Emma on his taxes. Rachel 1) files separately; 2) does not file a tax. 21
Exception 2 (child lives with both parents who are unmarried or file separately) - Ross and Rachel Ross and Rachel are not married. They live together with daughter, Emma. Ross claims Emma on his taxes. Rachel 1) files separately; 2) does not file a tax. 22
3 Individual claimed as tax dependent by someone other than a parent or spouse Qualifying child - For example, child living with a grandparent Other qualifying relative - For example, grandmother living with son s family For Medicaid, use non-filer rules for that person only 23
Exception 3 (tax dependent of someone not parent or spouse) Fresh Prince of Belair Will Smith lives with his Uncle Phillip s family. The Banks have 3 biological children. Will is claimed as a tax dependent on the Banks tax return, in addition to the other 5 members of the family. Marketplace Household Medicaid Household Will Household of 6, Will and all 5 Banks Household of 1, Will Banks Family Members Household of 6, Will and all 5 Banks Household of 6, Will and all 5 Banks 24
4 Married couples living together but filing taxes separately For Medicaid, married couples living together are included in each other s household regardless of whether they are tax-filers or non-filers Married couples must file jointly to qualify for PTCs Marketplace Household Medicaid Household Meredith Not eligible, not filing jointly Household of 2 Derek Not eligible, not filing jointly Household of 2 25
5 Pregnant Women For Medicaid, the pregnant woman s household includes the number of babies expected Michigan also counts the number of babies toward the household size of other family members If the pregnant woman files taxes or is a tax dependent, tax-filer rules apply, you just increase the household size for the number of babies in determining her eligibility 26
Example Exception 5 (pregnant woman) Ross and Rachel Ross and Rachel are not married but live together with their daughter Emma, who is claimed on Ross taxes. Rachel is pregnant. 1)Rachel files separately. 2)Rachel does not file taxes. 27
Example Exception 5 (pregnant woman) Ross and Rachel 1) Rachel files separately. 2) Rachel does not file taxes. 28
Step 2A Who s income counts? Generally, the MAGI income of all individuals must be counted toward household income Income of tax dependents is NOT included if they are not EXPECTED to file taxes (unless Medicaid exception #3 (slide 16) applies) The filing threshold for children for 2014 is $6,200 for earned income, $1,000 for unearned income; for other tax dependents, it s $3,950 29
What income counts? Counted Wages and tips Unemployment Pensions and annuities Net business/farm income Dividends and taxable interest Alimony received Rents and royalties received Social Security retirement or survivor benefits (both taxable and non-taxable) Think taxable income 30
Step 2B MAGI from a tax return Adjusted Gross Income from line 31 on 1040 + Excluded foreign income + Tax exempt interest + Non-taxable Social Security benefits = MAGI For non-filers, MAGI is calculated in the same way! Taxable Income Sources Adjustments to Income Adjusted Gross Income (AGI) 31
What deductions/adjustments count? Most common: Alimony paid Student interest IRA contribution Moving expenses Other deductions are listed (lines 23-35 on 1040) 32
Changes to How Income is Counted in Medicaid INCOME SOURCE PRE-MAGI MEDICAID MAGI MEDICAID Self-employment Pre-tax deductions or salary deferrals (flex spending accounts, childcare, 401(k)) Not all business expenses (i.e. depreciation) were deductible Included in gross income NET INCOME/PROFIT Counted with all tax deductible expenses and business losses (line 31 of schedule C or line 34 from schedule F) Not included in gross income Child support received Counted as income Not counted as income Alimony paid Not deducted from income Deducted from income Veterans benefits Counted as income Not counted as income Workers compensation Counted as income Not counted as income Step-parent income State option but not always counted toward child s eligibility Counted as household income TANF and SSI Counted as income Not counted as income 33
Eligibility rules/changes that trip people up (including eligibility workers) 34
Alimony vs. Child Support Alimony received is taxable income Alimony paid is tax deductible Remember tax-related income & deductions Child support is not counted toward MAGI whether received nor paid This is change for many states 35
Deduct pre-tax contributions/salary deferrals when reporting income Certain employee contribution to benefits that are deducted from wages before federal taxes are calculated. Taxes are calculated on the reduced wage and are therefore lower. Common pre-tax contributions Dependent Care Medical Flex Spending Accounts 401(k) or 403(b) Retirement Accounts 36
How to identify pre-tax deductions? On Pay Stubs: Difference between gross wages and gross taxable wages. Or list of deductions taken. 37
Examples Pre-tax Deductions Example 1 Mary is a single Mom with a 2-year daughter. She earns $1,900 per month and receives $500 per month in child support. She also has $400 per month taken out for childcare. What is Mary s income based on MAGI? Example 2 John is a single male. He earns $45,000 per year but contributes $5,000 to his retirement account. What is John s income based on MAGI? Example 3 John is single and earns $17,000. The company he works for doesn t offer a retirement program but he deposits $1200 annually into an IRA and deducts this on his tax return. What is John s income based on MAGI? 38
What s the difference between SSI and Social Security Disability? Supplemental Security Income (SSI) A federal income supplement program funded by general tax revenues (not Social Security taxes) - It is designed to help aged, blind, and disabled people, who have little or no income - Based on financial need Social Security Disability Income (SSDI) Provides disability funded through Social Security benefits It is designed to help those who are totally disabled Based on having worked long enough and paid social security taxes 39
How about Social Security income? For adults All social security benefits (not SSI) whether taxable or not count toward MAGI Social security retirement Social security survivor benefits Social security disability income (SSDI) Could mean adult who is not required to file taxes, is over Medicaid income threshold, and would need to file taxes to get PTCs For children When a child is claimed as a tax dependent, the child s survivor benefits or SSDI count toward household income only if the child has other income that requires them to file taxes. If child is in own household, (Medicaid exception 3) all of his/her income counts toward his/her eligibility 40
Examples Social Security Income Example 1 Mary earns $800 per month working parttime and receives $600 per month in SS survivor benefits. Mary has a 17-year old daughter, Jane, who also receives $600 per month in SS survivor benefits. What is the family s household income based on MAGI? Example 2 Same scenario as Example 1 but Jane also earns $600 per month working parttime after school. What is the family s household income based on MAGI? Example 3 Bonnie lives with her grandmother who claims Bonnie as a tax dependent. Bonnie s parents are deceased and she receives $1,200 in SS survivor benefits. What is Bonnie s household size and income? 41
Time to Practice: Calculating Household Size and MAGI Income 42
Exception 1 (child is claimed by non-custodial parent) Alan, Judith and Jake Alan and Judith are divorced and both file taxes. They have a son, Jake, who lives with Alan, but is claimed by Judith on her tax return. Marketplace Household Medicaid Household Alan Household of 1, Alan Household 1, Alan Jake Household of 2, Judith and Jake Household of 2, Alan and Jake Judith Household of 2, Judith and Jake Household of 2, Judith and Jake 43
Alan earns $30,000 and pays $10,000 to Judith in alimony. Judith earns $30,000. 44
Alan earns $30,000 and pays $10,000 to Judith in alimony. Judith earns $30,000. 45
Exceptions 2/5 (pregnant woman, child living with both parents unmarried) Ross and Rachel Ross and Rachel are not married but live together with their daughter Emma, who is claimed on Ross taxes. Rachel is pregnant. 1)Rachel files separately. 2)Rachel does not file taxes. Marketplace Household Medicaid Household Ross Household of 2, Ross and Emma Household of 2, Ross and Emma Emma Household of 2, Ross and Emma Household of 4, Ross, Rachel, Emma and baby Rachel (tax filer) Household of 1, Rachel Household of 2, Rachel Rachel (no taxes) Not eligible, does not file taxes Household of 3, Rachel, Emma, and baby 46
Rachel filing taxes - Ross earns $25,000 per year and Rachel earns $25,000 per year. Ross has 4,000 deducted for a dependent care account. 47
Rachel filing taxes - Ross earns $25,000 per year and Rachel earns $25,000 per year. Ross has 4,000 deducted for a dependent care account. 48
Rachel does not file taxes - Ross earns $50,000 per year and Rachel earns $9,500 per year. Ross has $4,000 deducted for a dependent care (childcare) account. 49
Rachel does not file taxes - Ross earns $50,000 per year and Rachel earns $9,500 per year. Ross has $4,000 deducted for a dependent care (childcare) account. 50
Exception 3 (tax dependent of someone not parent or spouse) Fresh Prince of Bel Air Will Smith lives with his Uncle Phillip s family. The Banks have 3 biological children. Will is claimed as a tax dependent on the Banks tax return, in addition to the other 5 members of the family. Marketplace Household Medicaid Household Will Household of 6, Will and all 5 Banks Household of 1, Will Banks Family Members Household of 6, Will and all 5 Banks Household of 6, Will and all 5 Banks 51
Phillip Banks files taxes with his wife Vivian. They have 3 children, whom they claim as dependents, along with Phillip s nephew, Will Smith, who lives with them. Phillip earns $65,000 per year and Vivian is a homemaker. He contributes $5,000 to his 401(k) retirement account. Son and college student, Carlton, earns $8,000 as a waiter. Will receives $12,000 in social security survivor benefits. 52
Phillip Banks files taxes with his wife Vivian. They have 3 children, whom they claim as dependents, along with Phillip s nephew, Will Smith, who lives with them. Phillip earns $65,000 per year and Vivian is a homemaker. He contributes $5,000 to his 401(k) retirement account. Son and college student, Carlton, earns $8,000 as a waiter. Will receives $12,000 in social security survivor benefits. 53
Great work! This is brain-cramping work. Give yourselves a round of applause or high five or whatever makes you feel accomplished! 54
Georgetown McCourt School of Public Policy Health Policy Institute Center for Children and Families Center on Health Insurance Reforms Tricia Brooks Tricia.Brooks@georgetown.edu JoAnn Volk Joann.Volk@georgetown.edu Website: http://ccf.georgetown.edu/ Say Ahhh! a child health policy blog: http://ccf.georgetown.edu/bl og/ Website: http://chir.georgetown.edu/ CHIR Blog: http://chirblog.org/ 55