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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