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Issue Alert - State illegally budgeting income for MAGI

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Apr 27, 2016

Program Area:

Marketplace, Medicaid, and MIChild.

Issue Summary:

Different rules determine children’s income eligibility for Medicaid and Marketplace coverage. A unique situation arises when children of unmarried parents who live together are found over income for Medicaid and under-income for Marketplace coverage. The State must use a special Medicaid MAGI exception under 42 C.F.R. 435.603(i) to re-determine the child’s eligibility for Medicaid.

Persons Affected:

Minor children of unmarried parents living together applying for or receiving Marketplace, Medicaid, or MIChild insurance.

For More Information:

Lisa Ruby
Michigan Poverty Law Program
220 E. Huron #600A
Ann Arbor, MI 48104
(734) 998-6100 ext. 117

Marie DeFer
Center for Civil Justice
436 S. Saginaw St., Suite 400
Flint, MI 48502
(810) 244-8044


The Affordable Care Act requires use of the Modified Adjusted Gross Income (MAGI) methodology to determine individuals’ eligibility for premium tax credits and cost sharing reduction payments (also referred to as “financial assistance”) on the Marketplace, and for Medicaid eligibility for certain categories (e.g. Children under 19, Pregnant Women, Parents and Caretakers, Healthy Michigan Plan, Former Foster Children, MOMS, and MIChild). MAGI is based on IRS rules and aims to simplify Marketplace and Medicaid rules for financial eligibility. 


Under the Marketplace rules, married couples must file joint tax returns to be eligible for financial assistance. To determine an individual’s eligibility for financial assistance in the Marketplace, only the income of the tax filer and the tax filer’s qualifying dependents apply. Unmarried couples, even those with children who live together, may not file a joint tax return, and therefore cannot qualify for financial assistance through the Marketplace as a family unit. (26 C.F.R. 1.36B-1.)


Unlike the Marketplace, Medicaid counts the income of unmarried parents who live together with their children (e.g. unmarried partners legally responsible for a minor) when determining the income eligibility of a minor child. (BEM 211.)


A special situation arises when a child lives in a household with unmarried parents and is found ineligible for both Marketplace and Medicaid coverage under MAGI rules. There is a special MAGI exception rule for this situation, found at 42 C.F.R. 435.603(i).



What's Happening?

Federal MAGI rules require that if (1) the child’s household income places him/her over income for Medicaid coverage, and (2) the child’s household income for Marketplace coverage is under 100% of the FPL (making the child ineligible for financial assistance on the Marketplace), then (3) DHHS must redetermine the child’s Medicaid eligibility using a different methodology from what was initially used to determine the child’s Medicaid eligibility (described in (1), above). Instead, DHHS must borrow the Marketplace income rules to determine the child’s Medicaid eligibility.


In this unique situation, 42 C.F.R. 435.603(i) requires the State to redetermine a child’s Medicaid eligibility using Marketplace income rules.


Here’s an example of this scenario:


A.    Alicia and Michael are unmarried and live together with their 5 year old son, Tamir. Michael claims Tamir as a dependent.


B.    Tamir’s Medicaid household is 3 (Alicia, Michael, and Tamir). Tamir’s household income is 220%, over Michigan’s threshold for Medicaid eligibility.


Note: here, Tamir would be found eligible for Medicaid with a spenddown. The State should treat eligibility for Medicaid with a spenddown as “financial ineligibility” for Medicaid because the individual does not have Medicaid coverage until the spenddown limit is met. Additionally, Medicaid with a spenddown is not minimum essential coverage (MEC) the Affordable Care Act requires. Individuals without MEC may face tax penalties.  


C.   Because Tamir is financially ineligible for Medicaid (B, above), his family seeks to determine if he is eligible for Marketplace coverage. Tamir’s Marketplace household is 2 (Michael and Tamir) using methodology found in 42 C.F.R. 435.603(f). Because the household income is found to be $1,000, which is < 100% FPL, Tamir is not eligible for financial assistance on the Marketplace.


D.   42 C.F.R. 435.603(i) is triggered. The State must use Marketplace MAGI methodology to determine Tamir’s Medicaid eligibility. Using Tamir’s Marketplace income (< 100% FPL) (B, above), Tamir is now income eligible for Medicaid.



What Should Advocates Do?

1.    Determine whether the correct MAGI rules and exceptions are applied to determine a child’s eligibility for Marketplace, Medicaid, and MIChild when the child has unmarried parents who live together.


2.    Alert the Michigan Poverty Law Program and Center for Civil Justice about possible misapplications of 42 C.F.R. 435.603(i).

What Should Clients Do?

1.    Give accurate information regarding the source of income for all members of your family.

2.    If you feel that income is being incorrectly counted due the reasons described in this issue alert, request a hearing and contact an attorney. 

3.    The Michigan Poverty Law Program and Center for Civil Justice are interested in hearing about these cases and may be able to assist you.


4.    Your local Legal Aid office is also a good source for advice and possible representation.

Finding Help

Most legal aid and legal services offices handle these types of cases, and they do not charge a fee. You can locate various sources of legal and related services, including the free legal aid office that serves your county, at You can also look in the yellow pages under "attorneys" or call the toll-free lawyer referral number, (800) 968-0738.