H.R. 2576: To amend the Internal Revenue Code of 1986 to modify the calculation of modified adjusted gross income for purposes of determining eligibility for certain healthcare-related programs

H.R. 2576

To amend the Internal Revenue Code of 1986 to modify the calculation of modified adjusted gross income for purposes of determining eligibility for certain healthcare-related programs

Date
October 26, 2011 (112th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

On Wednesday, October 26, 2011, the House is scheduled to begin consideration of H.R. 2576, a bill to amend the Internal Revenue Code of 1986 to modify the calculation of modified adjusted gross income for purposes of determining eligibility for certain healthcare-related programs, under a rule.  Under the rule, H.R. 2576 and H.R. 674 would be combined into one measure following passage. H.R. 2576 was introduced by Rep. Diane Black (R-TN) on July 18, 2011, and was referred to the House Committee on Ways and Means.  On October 13, 2011, the Ways and Means Committee held a mark-up and reported the bill by a vote of 23-12.

Bill Summary

H.R. 2576 would require all Social Security and Tier 1 Railroad Retirement benefits to be included as part of modified adjusted gross income (MAGI) for purposes of determining eligibility for certain Medicaid applicants and subsidies for health insurance purchased through the new health insurance exchanges to be established under the Patient Protection and Affordable Care Act (the Democrats’ healthcare takeover, P.L. 111-148).

According to CBO, the net impact of the bill would be to reduce Medicaid enrollment, increase the number of people who purchase health insurance through the health insurance exchanges, and slightly increase the number of people with employer based coverage and the number who are uninsured.  As a result, CBO estimates that the bill would reduce deficits by $13 billion over the 2012 – 2021 period.

Background

On March 23, 2010, the president signed the Patient Protection and Affordable Care Act (P.L. 111-148), otherwise known as the government takeover of healthcare. The legislation provides a refundable tax credit known as the “premium assistance credit” for eligible individuals and families who purchase health insurance through an exchange. The premium assistance credit is available for those with household incomes between 100 and 400 percent of the Federal poverty level (“FPL”) for families who do not receive health insurance through an employer.  According the Joint Committee on Taxation (JCT), “The premium assistance credit amount is determined based on the percentage of income the cost of premiums represents, rising from two percent of income for those at 100 percent of FPL for the family size involved to 9.5 percent of income for those at 400 percent of FPL for the family size involved.” 

Under the legislation, the definition of income for eligibility for certain Medicaid populations and premium credits in the exchanges is based on modified adjusted gross income (MAGI).  Under the bill’s definition of income, some types of income including non-taxable Social Security and pension benefits are excluded from the calculation of MAGI when determining eligibility for Medicaid and premium subsidy benefits.  According to the Congressional Research Service (CRS), “By excluding some types of income, individuals and families with a higher percentage of total income relative to the federal poverty level may qualify for Medicaid and premium credits.”

According to the bill’s sponsor, the Affordable Care Act’s exclusion of Social Security benefits as income when determining the subsidy for health insurance deviates from other eligibility requirements for federal assistance.  According to the opening statement made by the bill’s sponsor, Rep. Black (R-TN), at the bill’s markup, “Supplemental Security Income, Supplemental Nutrition Assistance Program (food stamps), Temporary Assistance to Needy Families, Low-Income Home Energy Assistance Program, and public housing, all include the entire Social Security benefit as income.” 

By not including certain benefits as income when calculating eligibility under the government takeover of healthcare, concerns have been raised that many people far beyond the intended poverty level will be eligible to participate in Medicaid or receive insurance subsidies.  According to House Report 112-254:

Among the numerous concerns about PPACA and HCERA that have been discovered since their enactment in 2010, are concerns about the definition of modified adjusted gross income used to determine eligibility for the exchange subsidies, Medicaid, and other health programs. Since enactment, press reports have revealed that the law's definition of income excludes the non-taxable portion of Social Security benefits, significantly understating the financial resources available to certain households. Subsequently, Administration officials, including the Chief Actuary at the Centers for Medicare and Medicaid Services, have confirmed that millions of such households will be eligible for subsidized health insurance that, in many cases, was designed for those with fewer financial resources. In contrast, many other Federal means-tested programs define income, for purposes of determining income eligibility, to include the entire Social Security benefit, rather than just the taxable portion.

Treating Social Security income as modified adjusted gross income for health insurance assistance programs was recommended in a larger deficit reduction plan submitted by the White house in September.  According to the Obama Administration, “Starting in 2014, eligibility for Exchange tax credits and cost sharing reductions, Medicaid, and CHIP will be determined based on an individual’s or families’ MAGI, as defined under the Affordable Care Act. Similar to legislation currently under consideration by the Congress, the Administration proposes to amend that definition to include the total amount of Social Security benefits in the calculation of MAGI, rather than just the taxable portion, when determining eligibility for these programs to better target those in need.”  H.R. 2576 would include Social Security benefits when calculating MAGI.

 

Cost

According to the Joint Committee on Taxation, including Social Security and Tier 1 Railroad Retirement benefits as modified adjusted gross income when calculating benefits for healthcare assistance would reduce deficits by almost $3 billion over the 2012-2016 period and by about $13 billion over the 2012-2021 period. Deficit reduction as a result of H.R. 2576 would offset the revenue reduction caused by H.R. 674, a bill to repeal 3 percent withholding on payments from the government to private vendors.