MR #15.19: Modified Adjusted Gross Income (MAGI) Budgeting for Medical

Helping Families. Supporting Communities. Empowering Individuals.

Illinois Department of Healthcare and Family ServicesIllinois Department of Human Services

07/29/15 (updated 08/18/15)

Obsoletes Policy Memorandum, MAGI Budgeting for Medical, dated 09/26/13.

Summary:

  • Modified Adjusted Gross Income (MAGI) is a budgeting methodology used to determine who to include in each person's income standard or 'Eligibility Determination Group' (EDG), and how to count income.
  • The MAGI methodology is used for Family Health Plans (FHP) and the ACA Adult group.
  • This release places MAGI budgeting policy into the manual.
    • Policy regarding countable income and allowable income deductions under MAGI is placed in new chapter 08-03. Obsolete references are removed from chapter 08-01, which now covers the TANF program only.
    • Policy concerning who to include in a MAGI Eligibility Determination Group (EDG) and income budgeting is included in chapters 15-04, 15-05 and 15-06, and replaces obsolete policy.
  • Clarifies policy regarding how MAGI applies to 18 year olds who live with parent/stepparents, and policy regarding tax filers who are under age 19. 
  • Adds information about income deductions and income types that were not addressed in the 9/26/13 MAGI Budgeting policy memo.
  • Clarifies policy about whose income to count toward the spenddown obligation in a Family Health Spenddown EDG. 

  1. Background
  2. Who is subject to MAGI?
  3. MAGI Eligibility Determination Group (EDG)
    1. Tax Filer or Relationship Rules? - 3 Step Process
    2. Parent/Caretaker Relatives and 18 Year Old Children
    3. Tax Filers Under Age 19 Who Are Not Tax Dependents
  4. MAGI Income and Deductions
    1. Pre-Tax Income Deductions
    2. Income Counted/Not Counted Under MAGI
    3. Marketplace Budgeting Differences
    4. Income of a Child of Another Person in the EDG or a Tax Dependent
  5. Family Health Spenddown
  6. MANUAL REVISIONS

Background

The Affordable Care Act (ACA) requires that states apply a budget methodology based on Modified Adjusted Gross Income (MAGI) to determine eligibility for Family Health Plans and the ACA Adult program. The purpose of using the MAGI methodology is to align financial eligibility rules for MAGI groups with the Health Insurance Marketplace rules across all states. 

The MAGI-based methodology is used to determine how to count income and who to include in the income standard, or Eligibility Determination Group (EDG) for each applicant or recipient.

Who is subject to MAGI?

MAGI methodology applies to the following groups:

  • Family Health Plans
    • Parents and Caretaker Relatives (Family Assist, FamilyCare),
    • Children under age 19 (All Kids Assist, Share, Premium),
    • Pregnant Women (Assist, Moms & Babies),
  • Family Health Spenddown for Children and Pregnant Women (except that we cannot use the income of a non-responsible relative to determine the spenddown obligation amount), and
  • the ACA Adult Group, age 19-64.

MAGI Eligibility Determination Group (EDG)

To determine who to include in each person's income standard, or EDG, we must use either tax filer or relationship rules. The decision to use tax filer rules is based on the applicant or recipient's response to questions concerning whether they:

  • plan to file taxes for the current tax year,
  • plan to file taxes jointly with a spouse,
  • will claim dependents, or
  • will be claimed as a dependent on someone else's tax return.

Relationship rules apply if the person does not plan to file taxes or be claimed as a tax dependent, or does not know whether they will file taxes or be claimed as a dependent, or meets one of the  exceptions to the tax filer rules described below in the "3 Step Process" table.

Note: For pregnant women, count the number of babies expected toward any EDG in which the pregnant woman is counted.

Tax Filer or Relationship Rules? - 3 Step Process

Each EDG is formed around an individual. For each individual apply the following rules in order from Step 1 to Step 3, stopping at the first rule that applies to the individual:

Step 1

Does individual expect to file taxes and NOT be claimed as a dependent of someone else?

Step 2

Is individual expected to be  claimed as a tax dependent?

Step 3 Individual will not file taxes or be claimed as a tax dependent, or is a tax dependent who meets one of the exceptions in Step 2, or tax filing status is unknown.

If yes, apply Tax Filer Rule

EDG includes:

  • Tax payer
  • + all their claimed dependents
  • + spouse if living with tax payer
If yes, apply Tax Filer Rule unless one of the following exceptions apply:
  1. Individual is claimed as dependent by someone who is not their parent/step-parent.
  2. Individual is a child under 19 living with both parents (includes stepparent). One parent expects to claim the child and parents do not expect to file a joint return.
  3. Individual is a child under 19 who is claimed as a tax dependent by a non-custodial parent.

Apply Relationship Rule

EDG includes Individual + if living with individual:

  • individual's spouse +
  • individual's children/step-children under age 19.
  • For children under 19, their parents/stepparents + siblings/step siblings under 19
STOP if individual fits this profile, otherwise go to step 2.

If one of the exceptions apply go to Step 3, otherwise, under Tax Filer Rule:

EDG = EDG of tax payer claiming this tax dependent.

The Health Insurance Marketplace Uses Tax-filer Rules Only - Eligibility determinations for financial assistance to buy insurance on the Health Insurance Marketplace are also based on MAGI methodology. However, the Marketplace uses only tax filer rules to determine the household size. Relationship rules are not used by the Marketplace. This is because the financial help is in the form of tax credits, so only tax filers can receive the benefits.

Policy about using tax filer or relationship rules to create a MAGI EDG is in PM 15-06-01-f. Here is a link to the MAGI EDG Desk Aid (pdf).

Parent/Caretaker Relatives and 18 Year Old Children

Under MAGI, the Caretaker Relative is a person who lives with and assumes primary responsibility for a dependent child's care and is related to the dependent child by blood, adoption or marriage. A 'dependent child' is defined as a child under 18 years old. For example, a parent who's only child is 18 years old would not qualify for the FamilyCare program as a parent/caretaker relative. Rather, that parent may qualify for the ACA Adult program.

For medical programs, when a dependent child lives with a parent or parents, that parent(s) shall be considered as the caretaker relative(s). For FHPs, 'parents' are defined as biological, adoptive or stepparents.

This policy is updated in PM 03-05-00 and PM 03-05-01.

Tax Filers Under Age 19 Who Are Not Tax Dependents

In most situations when a child age 18 or younger lives with their parents, their parents' are included in the child's EDG and their income is counted toward the child's eligibility. This is true when using:

  • tax filer rules when the parent/stepparent claims their child as a dependent, or
  • when relationship rules are used.

However, under the 3 step process described above, tax filers who are not claimed as a dependent by another person stop at Step 1. Their EDG includes only the persons in their own tax unit, and their spouse who lives with them if married. This is true for tax filers of any age.

Example: An employed 18 year old is living with employed Mom. The application says they will both file their own taxes and neither one is being claimed as a tax dependent. Tax filer rules apply. They each have their own EDGs, and only their own income is budgeted in each EDG.

Note: An 18 year old who has a disability and is claimed as a dependent on his parent's income tax may be financially ineligible for FHP due to the parent's income. In this situation, determine eligibility under AABD for the 18 year old. Use IPACS until system supports are available in IES to certify an AABD case for a child under age 19.

This policy is updated in PM 15-06-01-k.

MAGI Income and Deductions

Modified Adjusted Gross Income (MAGI) income counting is based on IRS taxable income rules with some modifications. MAGI is an income counting methodology, not a number on a tax return. The MAGI income counting methodology is used for FHP and ACA Adult EDGs whether or not the individuals plan to file a federal tax return.

Countable income under MAGI budgeting methodology is determined by:

  1. adding taxable income (these are the types of income that are considered in lines 7-22 of the 1040 for tax year 2014), 
  2. subtracting the allowable deductions (these are the deductions that are considered in lines 23-36 on the 1040 for tax year 2014) to get Adjusted Gross Income, and
  3. adding the following non-taxable income back in to get Modified Adjusted Gross Income:
    • budgetable Social Security income,
    • foreign earned income,
    • tax-exempt interest, and
    • the portion of scholarships, awards or fellowship grants used for living expenses.

Pre-Tax Income Deductions

Taxable income may differ from gross pay when pre-tax deductions are subtracted from the gross amount. Common pre-tax deductions include deductions for health insurance premiums, contributions to 401(k) retirement plans, life insurance premiums, clergy housing allowance, and non-taxable per diem payments received for travel expenses.

Policy regarding pre-tax deductions, as well as other allowable deductions is in PM 08-03-03.

Income Counted/Not Counted Under MAGI 

Policy about the types of income that do and do not count under MAGI is included in PM 08-03-00. In addition to the income types that were identified in the 9/26/13 MAGI policy memo, this chapter adds information about the following types of income:

  • Federal Work Study (counted)
  • Income In-kind/Bartering (counted)
  • Adoption/Foster care subsidies (exempt)
  • Clergy Housing Allowance (exempt)
  • Contributions, gifts and inheritances (exempt)
  • Life Insurance Accelerated Benefits (exempt)
  • Loans (exempt)
  • Personal Injury Settlements (exempt)
  • Reverse Mortgages (exempt)

Note: This list is not all inclusive and the manual will continue be updated as additional income sources are defined.

Marketplace Budgeting Differences

The Health Insurance Marketplace uses MAGI budgeting to determine eligibility for financial assistance to buy health insurance. However, while eligibility for FHPs and ACA Adults is based on current monthly income, the Marketplace determines eligibility based on the applicant's projected annual income for the tax year.

This budgeting difference could result in an applicant who is found ineligible for Medicaid due to excess current monthly income, to also be found ineligible for financial help on the Marketplace based on projected annual income that is under 100% of FPL. When this happens we must do a second determination of eligibility using projected annual income. This process is described in PM 15-04-02.

Income of a Child of Another Person in the EDG or a Tax Dependent

For each EDG, IES will use the total countable income of each person included in the EDG, except that there are special rules concerning whether to count the income of a child of another person in the EDG or a tax dependent. The rule about whether to count this income is based on whether the person is expected to be required to file a tax return for the current tax year.

The income amounts that determine whether a tax dependent may be required to file a tax return are based on IRS rules and are subject to change. The earned income threshold for which a tax dependent would be required to file a tax return has increased from over $508 per month to equal to or greater than $517 per month. The taxable unearned income amount remains at $83 per month.

Since SSA income is generally not taxable, it is not considered when determining whether a person will be required to file a tax return.

  • If the person's taxable income is over the 'required to file' threshold, all their income is counted, including SSA income.
  • If their taxable income is under the threshold then their SSA income is excluded as well.

This policy is in PM 15-06-01-h. The following table shows how this rule works in IES:

Step 1

Is the person a child or stepchild (of any age) of another person in this EDG?

If yes, the below rules apply even if the person is also a tax dependent.

If not, go to Step 2.

Step 2

Is the person a tax dependent?

NOT Expected to be Required to file The person's income is not counted toward any person who is included in this EDG.

The tax dependent's income is not counted toward the EDG of the taxpayer.

However, if the dependent is in a separate EDG from the taxpayer, his income is counted

  • in his own EDG, and
  • any other EDG in which he is included (in which the tax payer is not included).
Expected to be required to file The person's income is counted for all persons included in this EDG. The dependent's income is counted in
  • the EDG of the taxpayer,
  • his own EDG, and
  • any EDG in which he is included.

Family Health Spenddown

For Family Health Spenddown, income of a non-responsible relative is not counted when determining the spenddown obligation.

For purposes of this rule, a responsible relative is defined as:

  • a spouse, or
  • a biological or adoptive parent of a child under age 19.

If the only income is that of a non-responsible relative (such as a stepparent or sibling), the result is a spenddown case with a zero spenddown amount. With a '0' SPD obligation, the family does not need to submit any medical expenses. In this situation, spenddown is met. This policy is updated in PM 15-06-01-g.

MANUAL REVISIONS

PM 03-05-00

PM 03-05-01

PM 06-08-02-d

PM 08-01-00

PM 08-01-01-e 

PM 08-01-03-a (deleted)

PM 08-01-07-e

PM 08-03-00

PM 08-03-01 (new)

PM 08-03-01-a (new)

PM 08-03-01-b (new)

PM 08-03-02 (new)

PM 08-03-02-a (new)

PM 08-03-02-b (new)

PM 08-03-03 (new)

PM 08-03-04 (new)

PM 09-02-03-a

PM 15-04-02

PM 15-04-02-a (deleted)

PM 15-04-02-b (deleted)

PM 15-04-02-c (deleted)

PM 15-04-02-d (deleted)

PM 15-04-02-e (deleted)

PM 15-04-02-f (deleted)

PM 15-05-00

PM 15-05-01

PM 15-05-01-a (deleted)

PM 15-05-01-b (deleted)

PM 15-05-02

PM 15-06-01

PM 15-06-01-b

PM 15-06-01-c

PM 15-06-01-f

PM 15-06-01-g

PM 15-06-01-h

PM 15-06-01-k

PM 15-06-01-l (deleted)

PM 15-08-01

PM 17-01-02-a

PM 18-02-02

WAG 06-08-02-d

WAG 08-01-00 

WAG 08-01-01-e 

WAG 08-01-03-a (deleted)

WAG 08-03-00

WAG 08-03-03 (new)

WAG 15-04-02

WAG 15-04-02-a (deleted)

WAG 15-04-02-b (deleted)

WAG 15-04-02-c (deleted)

WAG 15-04-02-d (deleted)

WAG 15-04-02-e (deleted)

WAG 15-04-02-f (deleted)

WAG 15-05-00

WAG 15-05-01

WAG 15-05-01-a (deleted)

WAG 15-05-01-b (deleted)

WAG 15-05-01-c (deleted)

WAG 15-05-01-d (deleted)

WAG 15-05-02

WAG 15-06-01

WAG 15-06-01-f

WAG 15-06-01-g

WAG 15-06-01-h

WAG 15-06-01-k

WAG 15-06-01-l (deleted)

WAG 17-01-02-a

WAG 18-05-06-b

[signed copy on file]

James T. Dimas

Secretary-designate, Illinois Department of Human Services

Felicia F. Norwood

Director, Illinois Department of Healthcare and Family Services