MEMORANDUM

DISCUSSION:

This memorandum introduces new manual sections defining Modified Adjusted Gross Income (MAGI). Effective January 1, 2014, income calculations for the MO HealthNet programs listed below use the Modified Adjusted Gross Income (MAGI) methodology as defined by the Patient Protection and Affordable Care Act (PPACA) of March 23, 2010.

This memo discusses:

• MO HealthNet Programs Using MAGI
• MAGI
• Determining MAGI for Each Household
• Income Included Under MAGI
• Income Excluded Under MAGI
• Allowable Deductions

MO HealthNet Programs Using MAGI

These income eligibility rules will apply to all participants eligible for the following MO HealthNet programs:

• MO HealthNet for Families (MHF),
• MO HealthNet for Kids (MHK),
• MO HealthNet for Newborns (NBN),
• Children’s Health Insurance Program (CHIP),
• MO HealthNet for Pregnant Women (MPW),
• Extended Women’s Health Services (EWHS).
• Uninsured Women’s Health Services (UWHS), and
• Gateway to Better Health (GTBH).

NOTE: The Patient Protection and Affordable Care Act (PPACA) does not change MO HealthNet eligibility rules for MO HealthNet for Aged, Blind and Disabled (MAHBD) participants who are 65 years of age or older, blind, or disabled. MHABD does not use MAGI methodology.

MAGI

MAGI is a new methodology for determining MO HealthNet eligibility based on federal income tax rules for how income is counted and family size is determined. MAGI considers the adjusted gross taxable income plus any foreign earned income, tax-exempt interest, and tax-exempt social security income, during the period under consideration for benefits. Use the household’s current monthly income to evaluate eligibility for MO HealthNet for individual’s applying for coverage.

NOTE: Examples of income included are wages, salaries, tips, taxable interest, certain dividends, business income, capital gains, annuities, and unemployment compensation, as well as Social Security payments and some pensions.

Determining MAGI For Each Household

The general rule for MAGI determinations, is taxable income is included and non-taxable income is excluded.

Usually the MAGI of all individuals in an individual’s household must be counted toward household income, but there are two exceptions:

1. Child’s income does not count toward household income if child is included in household of his/her parent unless the child is required to file a federal tax return. (This includes adult children who are tax dependents.)

   NOTE: This exception does not apply to a tax dependent’s income when the tax dependent’s parents are not part of the household. If a child who is a tax dependent has a child of his or her own, the child’s income would count when determining eligibility for his or her child.

   NOTE: If a child does not live with his or her parent and is not claimed as a tax dependent by his or her parent, the child’s income will count for his or her own eligibility and the eligibility of the child’s other household members such as siblings, regardless of whether the child’s income is high enough to require a tax return to be filed.

2. Tax dependents’ income does not count toward household income unless tax dependent is required to file a federal tax return.

   NOTE: These rules are based on whether or not an individual is expected to be required to file taxes for the year coverage is received; it does not matter whether the individual eventually does or does not file taxes.

Income Included Under MAGI

Types of included income under MAGI are:

• Taxable wages, salaries and tips

  EXCEPTION: Pretax contributions to dependent care accounts, health insurance premiums, flexible spending accounts, retirement accounts and commuter expenses are NOT included as income;

• Foreign earned income;
• Interest, including tax-exempt interest;
• Self-employment income minus allowable expenses;
• Net capital gains (profit after subtracting capital losses);
• Most investment income such as annuities, interest and dividends;
• Unemployment compensation;
• Social Security benefits and some pensions;
• Rental or royalty income; and
• Other taxable income such as canceled debts, court awards, jury duty pay not given to an employer, cash support, and gambling prizes or awards.

Income Excluded Under MAGI

Types of excluded income under MAGI are:

• Child Support;
• Earned income from a child whose income is under the tax filer threshold and the child is not required to file a tax return when the child is included in household of his/her parent;
• Scholarships and grants for educational purposes (income associated with room and board expenses is included under MAGI);
• Certain Alaskan and American Indian incomes (income derived from distributions, payments, ownership interests, and real property usage rights);
• Lump sum payments (an amount received as a lump sum is counted as income in the month received):

  EXCEPTION: Gifts and inheritances are not included, except when there is income generated from the gifts or inheritances such as rent received from property as that income is taxable and counted under MAGI.

• Supplemental Security Income (SSI);
• Veteran’s Disability Benefits;
• Temporary Assistance and other government cash assistance;
• Worker’s Compensation Payments;
• Federal tax credits and federal income tax refunds; and
• Proceeds from life insurance, accident insurance, or health insurance.

Allowable Deductions

Allow the following expenses as deductions from an individual’s Adjusted Gross Income:

• Self-employment business expenses, including depreciation;
• Alimony paid;
• Portion of interest on student loans;
• Most contributions to individual retirement arrangements (IRAs);
• Tuition and fees;
• Penalties on the early withdrawal of savings;
• Educator expenses;
• Moving expenses related to a job change;
• Business expenses of performing artists, reservists, and fee-basis government officials; and
• Health savings account contributions.

NECESSARY ACTION:

• Review this memorandum with appropriate staff.

AC/pc