Pre-MAGI Medicaid and CHIP financial eligibility standards vary among states and territories. Currently, subject to federal standards, states set their own rules with respect to income and the level of assets that qualify applicants for Medicaid. As part of this flexibility, states can determine sources and amounts of income that are counted when determining an individual’s financial eligibility for Medicaid or CHIP. The resulting net income is compared to an income eligibility standard (the “net income standard”) to determine eligibility for Medicaid or CHIP.
Under the law in effect prior to January 2014, states and territories may deduct or “disregard” from gross income certain amounts of earnings, and child support received, as well as other types of income, and they may adopt additional disregards at their discretion, when determining income for Medicaid and CHIP financial eligibility. Disregards vary by state, eligibility category, and income source. For example, when counting income for parents and children, states typically disregard $90 of earnings per worker in a household and disregard at least $50 in child support payments received.8
In addition to income disregards, states may also deduct certain expenses from counted income and may augment these deductions. In the case of determining eligibility for parents and children, states commonly deduct between $175 and $200 of monthly child care expenses (based on the age of the child) from counted income.
State net income eligibility standards and methodologies for determining Medicaid and CHIP income eligibility vary widely, primarily due to differences in the application of income disregards. In part because each state currently has considerable discretion to define its disregard rules, an individual financially qualifying for Medicaid in one state would not necessarily qualify for Medicaid in another state, even if the two states had the same net income standard, because of differences in state disregards.
Section 2002 of the Affordable Care Act requires states, beginning in 2014, to determine income eligibility for CHIP and for most nonelderly, nondisabled Medicaid beneficiaries by using Modified Adjusted Gross Income (MAGI) as the basis for determining income. As explained more fully in the CMS Guidance, the primary objective in establishing a methodology to convert from the current net income standard for a particular state and eligibility group to the converted standard for the same state and eligibility group is to produce no change in aggregate eligibility, though some individuals might gain or lose eligibility, or move from one eligibility group to another. The conversion process should not systematically increase or decrease eligibility overall.