Summary: Medicaid is a US government assistance program providing medical assistance to low-income or disabled adults.

The nearly 200 countries in the world use different healthcare systems that vary between those with public and private insurance, those with universal systems, and those without.

The United States has a mixed system of non-universal health care that includes public and private coverage. It can get complicated and expensive, and Medicaid is one of the many puzzle pieces that complete this system. We’re going to explain what Medicaid is, how it works, and what it means for the American people.

What is Medicaid?

Medicaid is a government program that provides health insurance to qualifying recipients. This program is jointly funded by the federal and state governments and operated at the state level.

The purpose of Medicaid is to provide health insurance coverage for the most vulnerable people in American society, including low-income adults and children, people with disabilities, and the elderly.

This program is for  American citizens, but also permanent residents and qualifying immigrants. It helps to cover the costs of hospital care, visits to the doctor, and long-term medical costs.

History of the Medicaid Program

Medicaid was created in 1965 during the administration of President Lyndon B. Johnson as an extension to the Social Security Act of 1935. This program saw federal funds distributed to match state funds for the provision of health insurance to people who couldn’t afford private insurance. 

The Medicaid Drug Rebate Program, started in 1990, required pharmaceutical companies to provide rebates to state Medicaid agencies prescribing their drugs, helping to greatly lower the program’s costs.

The 2010 Affordable Care Act (ACA) helped to expand the Medicaid program by raising the threshold for coverage to people who earn up to 138% of the Federal Poverty Level (FPL). This expansion was not mandatory and was only accepted by 40 states, though it grew the number of insured people significantly.

By mid-2024, over 83 million people in America were enrolled in Medicare programs. The numbers for 2024 are not yet available, but spending on Medicaid in 2023 reached $871.7 billion. This is clearly a significant program that provides health insurance and, by extension, health care, for more than a fifth of the American people.

Who Has Access to Medicaid?

Determining who has access to Medicaid can be confusing. While the ACA pushed to expand Medicaid enrollment to all people who only make up to 138% of the FPL, this isn’t exactly how qualification works.

MAGI Groups

Income is the most significant criterion, however, and this is based on a person’s modified gross adjusted income (MAGI) status for most groups of people. This number gives the person’s gross income less their allowable adjustments (AGI), then adds back certain adjustments to find their MAGI.

The MAGI is the income level used for individuals or their dependent children. It is compared to the FPL, and if it is less than or exceeds the FPL by less than a set threshold, the person may be eligible for Medicare.

While the ACA pushed for all adults who make up to 133% of the FPL to qualify for Medicare, ten states have rejected this expansion. Some of these ten do not let people qualify for Medicare if they’re not disabled, pregnant, or caregivers, no matter what their income is. Only the District of Columbia (210% FPL), New York (200%), and Minnesota (200%) exceed this federal threshold.

States set their own thresholds for eligibility for different groups of people, including children, pregnant women, parents, and caretakers. These levels can vary widely. For example:

  • Alabama’s threshold for children is 141% of FPL; Illinois’ is 313%
  • Louisiana’s threshold for pregnant women is 133% of FPL; Iowa’s is 375%
  • Texas’ threshold for parents/caretakers is 12% of FPL; New York’s is 133%

Other Groups

Seniors and people living with disabilities are not judged on their MAGI levels, however. People with certain disabilities and seniors over 65 instead have their eligibility based on their Supplemental Security Income (SSI). The level of their Social Security benefits, as well as the assets they own, determines whether or not they’ll receive Medicare.

Some groups are automatically eligible for Medicare, including children in foster care. Children can also be eligible for Medicare even if their parents are not, especially if they live with another caregiver.

Finally, states use residency as an important criterion for eligibility. People’s immigration and citizenship statuses are also checked to determine if they qualify for Medicare.

How Does Medicaid Work?

Rather than governments paying directly for health care costs, they provide insurance coverage through the Medicaid program. The federal government pays for a large proportion of Medicaid, and the federal agency CMS (Centers for Medicare & Medicaid Services) administers this program at the federal level.

However, states also share some of the costs of Medicaid and administer this program through state agencies. These may also administer the Children’s Health Insurance Program (CHIP) as well. People who may qualify for Medicare can sign up through their state agencies and may need to renew their coverage annually.

Managed Care Programs

Most recipients of Medicaid benefits are covered by managed care programs. These are pre-packaged plans offered by private insurance providers that offer specific states of benefits depending on the needs of the individual. Rather than the individual paying the premiums for these plans, however, the state pays them.

This means that beneficiaries generally don’t have any health care costs, although some plans require beneficiaries to pay deductibles, coinsurance, or copayments.

Fee-For-Service Programs

Some states use fee-for-service programs instead of managed care programs for all of their Medicaid recipients, while others focus on these programs for the elderly and people with disabilities.

Instead of providing set plans, these programs focus on the services provided and billed to Medicaid. They may be more equitable and provide better coverage for people who expect high healthcare costs.

What’s Covered Under Medicaid?

The choice of what to cover for Medicaid programs is largely up to the different states, meaning that each one provides very different benefits. This can include the types of benefits provided, the amount of care covered, and the duration of this care.

However, the federal government issues guidelines for mandatory benefits that all states are required to provide. States then choose whether to offer any additional benefits.

Mandatory Benefits

The federal government requires all state Medicaid programs to provide benefits that include:

  • Transportation to health care
  • Outpatient hospital services
  • Inpatient services
  • Laboratory services
  • X-rays
  • Physician services
  • Home health care

Additional Benefits

States can also decide whether or not they’ll provide optional benefits through their Medicaid programs. These benefits can include:

  • Case management
  • Prescription drugs
  • Physical therapy
  • Occupational therapy
  • Eyeglasses
  • Dentures
  • Private nursing services
  • Prosthetics
  • Hospice care

Medicaid vs Medicare

While they have similar names, Medicaid and Medicare are two separate programs that make up part of the American healthcare system.

As we’ve discussed, Medicaid is a program that provides health insurance to low-income and disabled adults and children. It’s a joint program funded by the federal and state governments and administered at the state level.

Medicare, on the other hand, is a universal health insurance program for people over the age of 65 and younger people with certain disabilities. This is a federal program, and income level has no bearing on eligibility. Like Medicaid, Medicare allows beneficiaries to choose from a fee-for-service program (Medicare Parts A and B) or a plan provided by a private insurer (Part C).

Medicare beneficiaries generally have to pay some expenses for their health care, which can include deductibles and co-payments.

Some people may be eligible for both Medicaid and Medicare. In these cases, Medicare pays first and any leftover costs may be covered by Medicaid. Medicare also covers the cost of prescription drugs for such beneficiaries.

There are also joint plans that combine payments from both payers, Medicare and Medicaid, available in some states.

Medicaid vs CHIP

CHIP (Children’s Health Insurance Program) is also different from Medicaid, but it is a related program. It provides health insurance coverage for children (aged 0-18) who are not eligible for benefits through Medicaid because their family incomes are too high, but who can’t afford private insurance. CHIP also provides coverage for pregnant women.

Like Medicaid, CHIP is funded by the federal and state governments and administered at the state level. States set thresholds as they do for Medicaid, and these can vary from 185-400% of FPL for children and 200-300% for women, depending on the state.

Medicaid and America

Medicaid is a federally and state-funded program that provides health insurance for low-income and disabled American adults and children. It’s administered at the state level, which means that eligibility and the types and amounts of benefits provided can vary considerably from state to state.

However, federal guidelines and mandatory benefits help to ensure that the most vulnerable of Americans gain access to the critical healthcare services they require.

FAQ

Medicaid is funded by the states and the federal government. The health care benefits Medicaid provides are mostly free, but may require copayments and deductibles in some circumstances.

No, the funding for this program comes from general federal and state budgets. This is in contrast with Medicare, which is taken from employee paychecks at the rate of 1.45% and contributed by employers at a matching rate.