People have been trying to wrap their heads around the new modified adjusted gross income standard – or MAGI – since it was first introduced as part of the Affordable Care Act (ACA). It’s no wonder why – these standards are complicated.
A brief released this week by the Colorado Health Institute, A MAGI Primer: Understanding New Income Eligibility Rules for Colorado’s Public Insurance Programs, demystifies the complexities of MAGI. It explores the reasons for the new standard, explains how MAGI affects eligibility thresholds and looks at the potential impact on Coloradans.
In a nutshell, MAGI standardizes the way financial eligibility is determined for public health insurance and tax credits through Connect for Health Colorado.
Before the ACA, Colorado calculated net income on an individual basis, disregarding certain expenditures such as child care and work-related expenses. These disregards could affect a person’s eligibility for public insurance, because net income plays a central role in eligibility determination.
Under the new law, there are no individual disregards. Instead, there is a flat 5 percentage point disregard applied to Coloradans’ federal poverty level (FPL), a measure based on income and the number of people in a household.
Colorado law says that people are eligible for Medicaid if their income is below 133 percent of FPL. When the five percentage point disregard is applied, 133 percent becomes 138 percent.
To ensure that there was not a net loss in the number of children and pregnant women eligible for Medicaid or CHP+ as a result of the new standard, states were required to increase their eligibility threshold for children and pregnant women. The federal government provided states with options to calculate the new income standards for these groups; the formula that Colorado elected to use is complicated, but the end result is summarized in Figure 1.
The full impact of the new MAGI standard will become clearer moving forward. In the meantime, the new CHI brief boils down the intricacies of the new standards so that you have a go-to MAGI reference.