How does Michigan apply the 5% income disregard when calculating Medicaid eligibility in 2026?
Executive summary
Michigan applies the federal “5% income disregard” primarily through MAGI-based Medicaid rules by effectively allowing applicants to be tested against a threshold that is 5 percentage points higher than the nominal federal poverty-level (FPL) cutoff (turning 133% into about 138% of FPL for expansion adults), but the state’s administrative guidance clarifies that the disregard is not a simple flat subtraction from reported income and different Medicaid pathways (especially long‑term‑care, aged/disabled programs) use other counting rules and asset tests [1] [2] [3] [4]. Existing public guides and calculators reflect that Michigan’s Healthy Michigan Plan and other MAGI groups incorporate the built‑in 5% adjustment, while non‑MAGI pathways involve separate income conversions, spousal allowances, and asset limits [5] [6] [7].
1. How the federal 5% “disregard” shows up in Michigan’s MAGI eligibility numbers
For MAGI‑based coverage groups — including expansion adults under the Healthy Michigan Plan — federal guidance and state practice treat income standards as if applicants receive an income “adjustment” equivalent to 5% of the FPL, which is why eligibility thresholds are commonly described as 138% of FPL even though statutes often list 133%: the 5% disregard is folded into the standard and reflected in published eligibility tables and consumer calculators [1] [2] [5].
2. What “not a flat 5%” means in practice under Michigan administrative rules
Michigan’s policy manual (BEM 500) warns that the 5% disregard is not applied as a flat 5% cut directly to an applicant’s reported dollar income; instead the state applies MAGI conversion and then adjusts standards or compares income to income standards that already incorporate the disregard concept — in short, the disregard functions as an administrative adjustment to the poverty‑level benchmark rather than a straight dollar subtraction from wages or benefits [3].
3. Where the 5% rule matters most — expansion and children/pregnancy groups
Practically, the effect is most visible for adults under the ACA expansion and many child/pregnancy groups: published eligibility rules and outreach materials list income thresholds that include the built‑in 5% buffer so that people whose incomes would otherwise exceed a plain 133% FPL line may still qualify under the effective 138% standard used by Michigan’s eligibility determinations [5] [7] [1].
4. When the 5% disregard does not tell the whole story — long‑term care and asset‑tested programs
Long‑term‑care Medicaid and aged/disabled pathways in Michigan use different tests: they involve asset limits, a five‑year look‑back on transfers, spousal income allowances, and SSI‑ or Federal Benefit Rate‑linked thresholds rather than MAGI percentage tables, so the simple 5% MAGI disregard is not the operative mechanic for those programs and income counting can include both spouses or separate conversions [4] [6] [8].
5. How consumers see this on the ground and where confusion arises
Consumer sites, calculators, and legal‑planning firms often simplify the mechanics by saying “you can earn slightly more” because the official thresholds already reflect the disregard, which is accurate for MAGI groups but can be misleading if applied to non‑MAGI cases where different conversions, spend‑down rules, and spousal allowances determine eligibility [7] [8] [4].
6. Limits of available reporting and what remains unclear
Publicly available summaries and calculators document the practical result — thresholds that reflect the 5% adjustment — and Michigan’s BEM warns the adjustment isn’t a flat subtraction, but sources here do not provide a step‑by‑step MDHHS numeric worksheet for converting an individual applicant’s specific income flows into the MAGI test for 2026; for an exact per‑case computation the state’s MDHHS guidance or a caseworker/MMAP counselor is the only authoritative source [3] [6].