West Virginia fully "expanded" Medicaid. That means they only look at your Adjusted Gross Income (line 11 of your Form 1040), which is your income AFTER all business deduction and some other deductions (including the 1/2 SE tax deduction on Schedule 1 of your tax return).
I am unsure if CHIP follows the same rule, but I've always seen CHIP to be the same or more lenient of income than Medicaid.
Other programs may have different rules, but I am almost certain that none of them would use your "gross" business income, rather than your "net" business income.
As you said, it seems like you are just talking with people who are unfamiliar with the rules. You may be able to ask for a supervisor (or even the supervisor's supervisor) to find someone that is more knowledgable. If you get denied, there should be an appeal process that should get to someone that actually knows what they are talking about.
