October 7, 2021
What is Medicaid?
One in four Americans are enrolled in Medicaid, but with the exception of policy experts, most people don’t know much about what Medicaid is, how it works, and who the program is designed to help.
Let’s take a look.
Medicaid is a government program that provides healthcare coverage to Americans who can’t afford care on their own—including children, parents, seniors, and people with disabilities.
All states have Medicaid programs, but each one is different. States must follow some Medicaid requirements set out by the federal government, but those requirements are broad—giving states flexibility in how they design and administer their programs.
Medicare is a federal program run by the Centers for Medicare & Medicaid Services that provides healthcare coverage to elderly people older than 65. Medicare is like a trust fund, and Americans pay into through payroll taxes. Medicare also covers some younger people with disabilities. Medicaid is also a federal program, but largely run by the states. It provides healthcare coverage to people who can’t afford health insurance, regardless of their age.
In 1965, President Johnson signed legislation that created the Medicaid and Medicare programs. Lawmakers created Medicaid to provide healthcare coverage for low-income families. When it was first enacted, Medicaid gave health insurance to people who were already receiving cash assistance from the government. Now, eligibility requirements have been expanded to include many more people.
As of April 2021, more than 75 million Americans were enrolled in Medicaid.
Healthcare is expensive, and not everyone has access to employer-provided healthcare plans. Medicaid helps the poor and disadvantaged communities who can’t afford medical care.
Both. States control their Medicaid program and decide its policies, including eligibility requirements, covered services, and how to pay doctors and hospitals. But states do have to follow certain requirements from the federal government, including what groups of people they have to cover and what benefits they have to offer. For example, all states have to provide physician, hospital, and nursing home services through Medicaid but adult dental care is optional.
Both the states and the federal government pay for Medicaid. In FY 2019, the government (both federal and state) spent $627 billion on Medicaid. The federal government spent $405 billion and the states spent $222 billion.
The federal government reimburses states for a portion of their Medicaid costs. Notably, there is no spending cap on this reimbursement—which means there’s no limit to how much federal money a state can receive from the federal government for Medicaid. How much money the federal government spends versus the state government varies by state. The amount is determined by something called the federal medical assistance percentage (FMAP) rate—which is established by comparing a state’s per capita income with the US per capita income.
Some policy experts point out Medicaid’s tremendous cost, which has been steadily increasing since lawmakers created the program in 1965. From 1988 to 2018, for example, Medicaid spending increased from $98.7 billion to $585.3 billion—an increase of 500 percent.
Others point out the problematic way Medicaid is funded (jointly by both the federal and state governments). Because the federal government picks up most of the tab, states are incentivized to implement loose eligibility requirements and offer generous coverage. Or in other words, they don’t have an incentive to cut down on costs. And then there’s the impact on state budgets. States spend a big portion of their budget on Medicaid. More money spent on Medicaid means less money a state has to spend on other priorities, including education and infrastructure.
In addition, healthcare expert Brian Blase argued Medicaid has become to large and unwieldly to serve those who truly need it. Research shows that Americans on Medicaid have less access to healthcare—and when they do have access the care is lower quality than what similar patients receive.
Medicaid also has a problem with improper payments. In fact, more than one in every four dollars spent on Medicaid is in violation of program rules. In most cases, it’s in violation because people are receiving Medicaid who don’t qualify because of their high income. A The Centers for Medicare and Medicaid Services (CMS) noted these improper payments happen because states aren’t doing a good job verifying applicant incomes.
The Affordable Care Act (ACA) expanded who was eligible for Medicaid—mostly to childless, working-age, non-disabled adults. Specifically, individuals who make less than 153 percent of the federal poverty level were not eligible to receive Medicaid. The federal poverty level is an income level set by the government that determines if someone is eligible for federal benefits. In 2021, the federal poverty level is $12,880 for individuals. So, 153 percent of $12, 880 would mean people who earn up to $19,706 are now eligible for Medicaid.
The ACA gave states the decision of whether or not to expand Medicaid to this newly eligible group. When the legislation passed, it promised states it would pay 100 percent of the cost of expanding this new group for three years. After those three years were up, the federal assistance fell to 95 percent in 2017, and then 90 percent in 2020—where it remains today and will remain in the future.
As of 2021, only 12 states have chosen not to expand their Medicaid programs. Those states are Texas, Wyoming, Kansas, South Dakota, Wisconsin, Mississippi, Alabama, Tennessee, Georgia, Florida, South Carolina, and North Carolina.
Inside the proposed $3.5 trillion spending bill under consideration in Washington is a provision that would create a federal Medicaid program covering the newly eligible group under the ACA (able-bodied, childless adults) in those 12 states that have refused to expand their Medicaid programs. This program is basically a workaround for getting non expansion states to expand their Medicaid program to this new population. Some experts have argued that if passed, this new federal program will give Washington even more power over our healthcare system.
Medicaid: An Overview
Congressional Research Service
How to Fix Medicaid
John Locke Foundation
