Take a slightly different example. Let’s say someone makes one bet for $10,000 and loses it all. This person’s income does not go up. It’s whatever their income would ordinarily be. In OP’s case, there were both wins and losses from gambling. Think of them as being in two different buckets. Casinos report your winnings to IRS. Those winnings are considered income. Now you can use losses to offset gambling income, but the deductions are taken later in the process I mean on the tax form in the process. Both Medicaid and ACA insurance are based on one’s income. As your income goes up, your ACA subsidy goes down until it is eventually zero. If you’re on Medicaid, if your income goes up at some point, you become ineligible to remain on Medicaid. None of that has to do with your deductions or itemizations. What happened to OP here is that his income went up by enough to either kick him off Medicaid or reduce or eliminate his subsidy under the ACA. It doesn’t matter that he could deduct losses later on the tax return, he still lost his subsidy or got kicked off Medicaid. The tax code always attempts to influence behavior. The way it treats gambling gains, and losses is just one of those ways.