• A good question on the opt out state Medicaid donut hole

    A question was raised by An Observer in comments to Austin’s post about the new Medicaid donut hole. In the ACA as passed (HR 3590), the refundable premium tax credits only defined “applicable percentage” for taxpayers with household income above 100% FPL. Sec. 1401(a) [Sec. 36B(b)(3)(A)(ii) of the Internal Revenue Code].

    In Section 1001 of the Reconciliation Bill (HR 4872), ACA Sec. 1401 was amended. Now the definition of “applicable percentage” uses the operative language “up to 133%.”

    This led the commenter to question the existence of the Medicaid donut hole in states that opt out of the Expansion. I think they are wrong, so here we go.

    IRC Sec. 36B, as amended, is the statute granting the refundable credit for coverage under a qualified health plan. The key definition for this issue is “applicable taxpayer,” found in IRC Sec. 36B(c)(1). Households with income below 100% FPL are not “applicable taxpayers” and therefore do not get the credit under IRC Sec. 36B. The text:

    (c) Definition and rules relating to applicable taxpayers, coverage months, and qualified health plan.–For purposes of this section–
    (1) Applicable taxpayer.–
    (A) In general.–The term “applicable taxpayer” means, with respect to any taxable year, a taxpayer whose household income for the taxable year equals or exceeds 100 percent but does not exceed 400 percent of an amount equal to the poverty line for a family of the size involved.
    (B) Special rule for certain individuals lawfully present in the United States.–If–
    (i) a taxpayer has a household income which is not greater than 100 percent of an amount equal to the poverty line for a family of the size involved, and
    (ii) the taxpayer is an alien lawfully present in the United States, but is not eligible for the medicaid program under title XIX of the Social Security Act by reason of such alien status,
    the taxpayer shall, for purposes of the credit under this section, be treated as an applicable taxpayer with a household income which is equal to 100 percent of the poverty line for a family of the size involved.

    Note also the special rule for lawful residents (non-citizens) who live in a Medicaid opt out state and have household income below 100% FPL. They are “treated as an applicable taxpayer” despite being below 100% FPL. But I see one clarification worth making. I posted earlier that legal immigrants get the credits, but the text is more subtle. They get them only if they are ineligible for Medicaid because of their alien status. I have now updated that post.

    Happy to have more comments!

    @koutterson

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    • Uhhhhh….some of us who love your posts are civilians…even artists! I have no idea what you are talking about. Hahahaha….

      Although I do understand that there will be states that don’t take the Medicaid money to expand their rolls. And people will fall through the cracks. After that, well, I haven’t developed those particular grooves in my brain where the info in this piece make sense.

    • So, help me out here on the Medicaid “donut hole” – are you stating a “donut hole” will not exist for non-disabled, low income (under 100% of FPL) adults without dependent children in states that don’t cover those individuals today, but opt out of the Medicaid expansion under PPACA? That is, since the “applicable taxpayer” includes only those who have earnings from 100% to 400% FPL, how would someone with no income or a very low income qualify for the taxpayer-financed credits when enrolling in the state-based exchange?

      Won’t they simply remain uninsured, if only because the individual mandate under IRC 5000A provides an exemption under 5000A(e)(1)(A) where the lowest cost option (bronze) has contributions > 8% of household income, or an exemption under 5000A(e)(2) where the individual has income below the gross income specified under 6012(a)(1) – essentially the filing threshold?

      For comparison, in Massachusetts, with their Section 1115 Medicaid waiver that applies to childless adults up to 133% of FPL, they already have a participation rate of 80.1% for that group … so, no gap there… but gaps in other states… right?