American Rescue Plan is Lifting Children Out of Poverty: Will it Affect Their Medicaid Eligibility?

An extraordinary and historic moment happened last week for children and families when President Biden signed the American Rescue Plan into law. The bill is the 3rd piece of emergency legislation enacted since the advent of the COVID-19 global pandemic, which has upended the country in so many ways. It is hard to imagine that any family has been untouched by the many tentacles of the crisis. The impact of the pandemic on children in the short- and long-term will continue to unfold; we remain concerned that more children have become uninsured in 2020 – worsening a trend that began during the Trump Administration.

Maintaining health coverage is just one aspect of the crisis that families have been facing. (Our colleagues Edwin Park and Sabrina Corlette have written a brief explaining the health coverage provisions of the new law.)  The pandemic-related recession had very mixed impacts with many higher income folks doing fine and those in certain low-wage industries getting crushed. Sadly, as is too often the case, communities of color are bearing a disproportionate burden of the various pandemic impacts.

So it was with enormous joy that we saw President Biden sign a bill that, according to researchers at Columbia University, will cut the child poverty rate in half. This is a staggering accomplishment that is effectuated by a variety of financial supports directed at working families. With the highest child poverty rate in the developed world, the U.S. is long overdue for this kind of investment in children.

Families will receive a range of financial and other supports including stimulus checks, child tax credits, and additional emergency-related unemployment benefits.  While the two previous COVID-related bills provided stimulus payments and boosted unemployment compensation, the American Rescue Plan is the first to expand the child tax credit. Families will receive $3,600 annually for each child younger than 6, and $3,000 for each child, ages 6 – 17. And unlike the current child tax credit, families will receive the full credit regardless of low earnings, although it is phased out for higher income families ($150,000 for married couples filing joint returns; $112,500 for single head of household filers). For more about some of these provisions read this report by colleagues at the Center on Budget and Policy Priorities. The financial supports are only temporary and in the case of the child tax credit work will need to be extended beyond 2021. But they are a game changer in recognizing that children need and deserve serious investment.

So that’s the big picture of the forest – but we know readers of the SayAhhh! health policy blog come to us for what’s happening under the tree canopy. One question that may cross some people’s minds is whether this rise in income will affect children’s eligibility for Medicaid. The short answer is no but let’s unpack that a bit.

For the most part, only taxable income counts toward the modified adjusted gross income (MAGI) standard used to determine Medicaid and CHIP eligibility.  (MAGI applies to all children, parents and other adults who are not eligible for Medicaid as a result of disability).

Although unemployment is typically taxable and therefore counts toward income for Medicaid eligibility, Congress expressly excluded the pandemic emergency bump in unemployment for the purposes of determining income eligibility for Medicaid or CHIP. That means that only the regular unemployment compensation based on earnings – and not the emergency unemployment bump of $300, which has been extended until September – counts toward Medicaid and CHIP income eligibility. Similarly, neither the stimulus payments nor the child tax credit is taxable, and therefore do not count toward Medicaid eligibility.

So even as children and families are lifted out of poverty, their eligibility for health insurance through Medicaid and CHIP should remain intact. Low-income families, families of color, and rural families have been hardest hit with the health and economic impacts of the pandemic. More than one-third of children now get their health insurance through Medicaid, and while the majority of children covered by Medicaid are white, it disproportionately serves communities of color. The additional financial support from the American Rescue Plan provides greater financial stability and peace of mind for families as the nation grapples with taming the pandemic and recovering from its lingering effects.  Let’s hope, though, that this historic commitment to investing in children is maintained as the country emerges from the worst of the crisis and looks forward to a future where all children – regardless of income or race – can grow and thrive.