Contents

• Introduction
• Eligibility
• Modified Adjusted Gross Income
Categorical Eligibility
• Financial Eligibility
• Additional Eligibility Requirements for LTSS Coverage
• Medicaid Enrollment Trends
• Share of Enrollment Versus Expenditures, by Population
• Benefits
• Traditional Medicaid Benefits
• Alternative Benefit Plans
• Long-Term Services and Supports
Comparing Traditional Medicaid Benefits to ABPs
• Medicaid Service Spending
• Beneficiary Cost Sharing
• Service Delivery Models
Systems
• Financing
• Federal Share
• State Share
• Expenditures
• Provider Payments
• Medicaid Program Waivers
• Program Integrity
• Selected Issues
• ACA Medicaid Expansion
• State Decisions
• Dual-Eligible Beneficiaries
• Impact of ACA Health Insurance Annual Fee on Medicaid
• Maintenance of Effort
• Medicaid Resources
Provider Payments
• Program Integrity
• Additional Medicaid Resources
• Selected CRS Products
• Laws
• Regulations
• More Information

Summary

Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports (LTSS) to an estimated 6575 million people at a cost to states and the federal government of $498616 billion in FY2014. In comparison, the Medicare program provided health care benefits to nearly 54 million seniors and certain individuals with disabilities in that same year at a cost of roughly $606 billion to the federal government. Because Medicaid represents a large component of federal mandatory spending, Congress is likely to continue its oversight of Medicaid's eligibility, benefits, and costsFY2018. Medicaid is one of the largest payers in the U.S. health care system, representing 17% of national health care spending in CY2017; in that year, private health insurance and Medicare accounted for 34% and 20% of national health care spending, respectively.

Participation in Medicaid is voluntary for states, though all states, the District of Columbia, and the territories choose to participate. The federal government requires states to cover certain mandatory populations and benefitsservices, but the federal government also allows states to cover other optional populations and services. Due to this flexibility, there is substantial variation among the states in terms of factors such as Medicaid eligibility, covered benefits, and provider payment rates. In addition, there are several waiver and demonstration authorities that allow states to operate their Medicaid programs outside of federal rules.

Historically, Medicaid eligibility generally has been limited to low-income children, pregnant women, parents of dependent children, the elderly, and individuals with disabilities; however, since 2014, states have had the option to cover nonelderly adults with income up to 133% of the federal poverty level (FPL) under the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) Medicaid expansion.

Medicaid coverage includes a variety of primary and acute-care services as well as LTSS. Not all Medicaid enrollees have access to the same set of services. An enrollee's eligibility pathway determines the available services within a benefit package. Federal law provides two primary benefit packages for state Medicaid programs: (1) traditional benefits and (2) alternative benefit plans (ABPs). Beneficiary cost sharing (e.g., premiums and co-payments) is limited under the Medicaid program.

Medicaid enrollees generally receive benefits via one of two service delivery systems: fee-for-service (FFS) or managed care. Under FFS, health care providers are paid by the state Medicaid program for each service provided to a Medicaid enrollee. Under managed care, Medicaid enrollees get most or all of their services through an organization under contract with the state. Most states use a combination of FFS and managed care.

The federal government and the states jointly finance Medicaid. The federal government reimburses states for a portion of each state's Medicaid program costs. Federal Medicaid funding is an open-ended entitlement to states, which means there is no upper limit or cap on the amount of federal Medicaid funds a state may receive.

The Social Security Act authorizes several waiver and demonstration authorities that allow states to operate their Medicaid programs outside of federal rules. The primary Medicaid waiver authorities include Section 1115, Section 1915(b), and Section 1915(c).

Medicaid provider payment rates are set by states within federal rules. In some cases, states make supplemental payments to Medicaid providers that are separate from, and in addition to, the payment rates for services rendered to Medicaid enrollees. Also, Medicaid program integrity initiatives are designed to combat fraud, waste, and abuse in the Medicaid program.

Introduction

Medicaid is a joint federal-state program that finances the delivery of primary and acute medical services, as well as long-term services and supports (LTSS), to a diverse low-income population, including children, pregnant women, adults, individuals with disabilities, and people aged 65 and older.

State participation in Medicaid is voluntary, although all states, the District of Columbia, and the territories¹ choose to participate. States must follow broad federal rules to receive federal matching funds, but they have flexibility to design their own versions of Medicaid within the federal statute's basic framework. This flexibility results in variability across state Medicaid programs.

The federal government and the states jointly finance the Medicaid program. Federal Medicaid spending is an entitlement, with total expenditures dependent on state policy decisions and use of services by enrollees. Medicaid is an entitlement for both states and individuals. The Medicaid entitlement to states ensures that, so long as states operate their programs within the federal requirements, states are entitled to federal Medicaid matching funds. Medicaid also is an individual entitlement, which means that anyone eligible and enrolled in Medicaid under his or her state's eligibility standards is guaranteed Medicaid coverage.

In FY2018, Medicaid is estimated to have provided health care services to almost 75 million individuals at a total cost of $616 billion, with the federal government paying $386 billion of that total.² In comparison, the Medicare program provided health care benefits to nearly 59 million individuals in that same year at a cost of roughly $711 billion.³

Medicaid provides a health care safety net for low-income populations,⁴ with approximately 21% of the U.S. population with Medicaid coverage in 2017.⁵ Medicaid plays a more significant role for certain subpopulations. For example, in 2017, Medicaid provided health coverage for 39% of all children in the United States;⁶ in the same year, it provided health coverage for 61% of all nonelderly individuals with income below 100% of the federal poverty level (FPL).⁷

For some types of services, Medicaid is a significant payer. For instance, in 2017, Medicaid accounted for about 44% of national spending on LTSS.⁸ Medicaid paid for 43% of all births in the United States in 2017.⁹ In FY2015, Medicaid accounted for 75% of public family planning expenditures (including federal, state, and local government spending).¹⁰

Eligibility

Examples of This report describes the basic elements of Medicaid, focusing on who is eligible, what services are covered, how enrollees share in the cost of care, how the program is financed. The report also explains waivers, provider payments, and program integrity activities. At the end of the report is a section with additional Medicaid resources. Eligibility

Eligibility for Medicaid is determined by both federal and state law, whereby states set individual eligibility criteria within federal minimum standards. As a result, there is substantial variability in Medicaid eligibility across states. Therefore, the ways that an individual might qualify for Medicaid are largely reflective of state policy decisions within broad federal requirements.

In general, individuals qualify for Medicaid coverage by meeting the requirements of a specific eligibility pathway offered by the state. Some eligibility pathways are mandatory, meaning all states with a Medicaid program must cover them; others are optional. Within this framework, states are afforded discretion in determining certain eligibility criteria for both mandatory and optional eligibility groups. In addition, states may apply to the Centers for Medicare & Medicaid Services (CMS) for a waiver of federal law to expand health coverage beyond the mandatory and optional eligibility groups specified in federal statute (see the "Medicaid Program Waivers" section for more information).

An eligibility pathway is the federal statutory reference(s) under Title XIX of the Social Security Act (SSA) that extends Medicaid coverage to one or more groups of individuals.¹¹ Each eligibility pathway specifies the group of individuals covered by the pathway (i.e., categorical criteria), the financial requirements applicable to the group (i.e., financial criteria),¹² whether the pathway is mandatory or optional, and the extent of the state's discretion over the pathway's requirements. Individuals in need of Medicaid-covered LTSS must demonstrate the need for long-term care by meeting state-based eligibility criteria for services, and they also may be subject to a separate set of Medicaid financial eligibility rules in order to receive LTSS coverage. All Medicaid applicants regardless of their eligibility pathway must meet federal and state requirements regarding residency, immigration status, and documentation of U.S. citizenship.¹³

Often an applicant's eligibility pathway dictates the Medicaid state plan services that a given program enrollee is entitled to (e.g., women eligible due to their pregnancy status are entitled to Medicaid pregnancy-related services). When applying to Medicaid, an individual may be eligible for the program through more than one pathway. In this situation, an individual is generally permitted to choose the pathway that would be most beneficial in terms of the treatment of income and sometimes assets when determining Medicaid eligibility, but also in terms of the available benefits associated with each eligibility pathway.

Medicaid eligibility determinations generally apply for 12 months before an eligibility redetermination must occur. Individuals may be retroactively eligible for Medicaid up to three months prior to the month of application, if the individual received covered services and would have been eligible had he or she applied during that period.¹⁴

The following sections describe Medicaid's categorical and financial eligibility criteria as well as additional eligibility requirements for Medicaid covered-LTSS.

Medicaid categorical eligibility criteria are the characteristics that define the population qualifying for Medicaid coverage under a particular eligibility pathway; in other words, the nonfinancial requirements that an individual must meet to be considered eligible under an eligibility group. Medicaid covers several broad coverage groups, including children, pregnant women, adults, individuals with disabilities, and individuals 65 years of age and older (i.e., aged). There are a number of distinct Medicaid eligibility pathways within each of these broad coverage groups.

Historically, Medicaid eligibility was limited to poor families with dependent children who received cash assistance under the former Aid to Families with Dependent Children (AFDC) program, as well as poor aged, blind, or disabled individuals who received cash assistance under the Supplemental Security Income (SSI) program. Medicaid eligibility rules reflected these historical program linkages both in terms of the categories of individuals who were served and in that the financial eligibility rules were generally based on the most closely related social program for the group involved (e.g., AFDC program rules for low-income families with dependent children and pregnant women, and SSI program rules for aged, blind, or disabled).¹⁵ Over time, Medicaid eligibility has expanded to allow states to extend Medicaid coverage to individuals beyond those who were eligible based on receipt of cash assistance, including the most recent addition of the ACA Medicaid expansion population (i.e., nonelderly adults with income up to 133% of FPL).¹⁶ Medicaid's financial eligibility rules also have been modified over time for certain groups.¹⁷

If a state participates in Medicaid, the following are examples of eligibility groups that must be provided Medicaid coverage:

• certain low-income families, including parents, that meet the financial requirements of the former AFDC cash assistance program;
• pregnant women with annual income at or below 133% of FPL;
• children with family income at or below 133% of FPL;
• aged, blind, or disabled individuals who receive cash assistance under the SSI program;¹⁸
• children receiving foster care, adoption assistance, or kinship guardianship assistance under SSA Title IV–E;
• certain former foster care youth;¹⁹
• individuals eligible for the Qualified Medicare Beneficiary program;²⁰ and
• certain groups of legal permanent resident immigrants.²¹

Examples of eligibility groups to which states may provide Medicaid include the following:

• pregnant women and infants with family income between 133% and 185% of FPL;
• certain individuals who qualify for nursing facility or otherrequire institutional care and have incomes up to 300% of the SSI federal benefit rate;
• certain medically needy individuals (e.g., children, pregnant women, aged, blind, or disabled) who are otherwise eligible for Medicaid but who have incomes too high to qualify and spend down their income on medical care;²² and
• nonelderly adults with income at or below 133% of FPL (i.e., the ACA Medicaid expansion).²³

Dual-Eligible Beneficiaries In CY2013, there were 10.7 million dual-eligible beneficiaries (individuals enrolled in both Medicare and Medicaid), which was 14.5% of Medicaid enrollment.24 Although commonly addressed as a single population, dual-eligible beneficiaries are diverse. While dual-eligible beneficiaries tend to be sicker and poorer than the Medicaid population as a whole, not all dual-eligible beneficiaries are in poor health. There are numerous Medicaid eligibility pathways for dual-eligible beneficiaries with different types of Medicaid coverage, but the two main categories of dual-eligible individuals are full dual-eligible beneficiaries and partial dual-eligible beneficiaries. Full dual-eligible beneficiaries receive full benefits from Medicare, and Medicaid provides them with full benefits in addition to financial assistance with their Medicare premiums and cost sharing. Partial dual-eligible beneficiaries receive full benefits from Medicare and financial assistance from Medicaid for Medicare premiums and cost sharing. In CY2013, there were 7.7 million full duals, with Medicaid spending totaling $116.8 billion, and 3.0 million partial duals, with $2.1 billion in Medicaid spending.25

Some individuals who are eligible for Medicaid are also eligible for Medicare. Individuals enrolled in both Medicaid and Medicare are referred to as dual-eligible individuals. For more information about this population, see the textbox entitled "Dual-Eligible Beneficiaries."

Financial Eligibility

Medicaid is also a means-tested program that is limited to those with financial need. However, the criteria used to determine financial eligibility—income and sometimes resource (i.e., asset) tests—vary by eligibility group.

For most eligibility groups the criteria used to determine eligibility are based on modified adjusted gross income (MAGI) income counting rules. There is no resource or asset test used to determine Medicaid financial eligibility for MAGI-eligible individuals.²⁶

While MAGI applies to most Medicaid-eligible populations, certain populations such as older adults and individuals with disabilities are statutorily exempt from MAGI income counting rules. Instead, Medicaid financial eligibility for MAGI-exempted populations is based on the income counting rules that match the most closely related social program for the group involved (e.g., SSI program rules for aged, blind, or disabled eligibility groups). For MAGI-exempt eligibility groups, income disregards and assets or resource tests may apply.

Additional Eligibility Requirements for LTSS Coverage

Medicaid enrollees, many of whom qualify based on aged or disabled categorical criteria, may also have long-term care needs. In general, individuals in need of Medicaid-covered LTSS must also meet state-based functional and/or disease or condition-specific eligibility criteria. In other words, they must demonstrate the need for long-term care. There are certain pathways that establish eligibility to Medicaid-covered LTSS either for individuals receiving institutional care or for those who need the level of care provided in an institution and receive Medicaid-covered home and community-based services (HCBS).²⁷ Most states offer HCBS under waiver programs that operate outside of Medicaid state plan requirements (see the "Medicaid Program Waivers" section for more information).

Applicants seeking certain Medicaid-covered LTSS are also subject to a separate set of Medicaid financial eligibility rules in order to receive such services (e.g., limits on the value of home equity, asset transfer rules). These additional financial rules attempt to ensure that program applicants apply their assets toward the cost of their care and do not divest them to gain eligibility sooner than would occur otherwise.

In addition, Medicaid specifies rules for equitably allocating income and assets to non-Medicaid-covered spouses for the purposes of determining LTSS coverage eligibility for nursing facility services and some HCBS. Commonly referred to as spousal impoverishment rules, these rules are intended to prevent the impoverishment of the spouse who does not need LTSS.²⁸

Medicaid Enrollment Figure 1 shows historical and projected Medicaid enrollment for FY2000 through FY2026. The figure shows steady enrollment growth, especially among nondisabled children and adults as a result of the recessions in the early and late 2000s.²⁹ During periods of economic downturn, Medicaid programs face enrollment increases at a faster rate because job and income losses make more people eligible.
Figure 1. Past and Projected Medicaid Enrollment, by Population

(FY2000–FY2026)

Source: Christopher J. Truffer, Christian J. Wolfe, and Kathryn E. Rennie, 2017 Actuarial Report on the Financial Outlook for Medicaid, Office of the Actuary, Centers for Medicare & Medicaid Services (CMS), U.S. Department of Health & Human Services (HHS), 2018.

Notes: Enrollment is measured by person-year equivalents, which is the average enrollment over the course of the year.

For purposes of this figure, Expansion institutional care and have incomes up to 300% of SSI benefit level, referred to as the 300 percent rule;
• medically needy individuals who are members of one of the broad categories of Medicaid covered groups (i.e., are aged, have a disability, or are in families with children) and have high medical expense, but have income that exceed the applicable income requirements;¹⁵
• working people with disabilities; and
• non-elderly adults who otherwise are not eligible for Medicaid with income at or below 133% of FPL (i.e., the ACA Medicaid expansion). (For more information about the ACA Medicaid expansion, see "ACA Medicaid Expansion.")

Modified Adjusted Gross Income

Under the MAGI counting rules, the state looks at each individual's MAGI, deducts 5%, which the law provides as a standard disregard, and compares that income to the new income standards set by the state in coordination with CMS. See Table A-1 for the state-by-state MAGI-based eligibility levels adjusted for the 5% disregard effective January 1, 2015.

Medicaid Enrollment Trends

Figure 1 shows historical and projected Medicaid enrollment for FY2000 through FY2023 (see Table B-1 for state-by-state Medicaid enrollment for FY2012). The figure shows steady enrollment growth, especially among nondisabled children and adults as a result of the recessions.²¹ During periods of economic downturns, Medicaid programs face enrollment increases at a faster rate because job and income losses make more people eligible. One study estimated that for every 1% increase in the national unemployment rate, Medicaid enrollment increases by 1 million individuals.²²

Figure 1. Past and Projected Medicaid Enrollment, by Population (FY2000–FY2023)

Source: Christopher J. Truffer, Christian J. Wolfe, and Kathryn E. Rennie, 2014 Actuarial Report on the Financial Outlook for Medicaid, Office of the Actuary, Centers for Medicare & Medicaid Services (CMS), U.S. Department of Health & Human Services (HHS), 2015. Notes: Enrollment is measured by person-year equivalents, which is the average enrollment over the course of the year. For purposes of this figure, Newly Eligible Adults are adult enrollees who are newly eligible in 2014 and later as a result of the expanded eligibility criteria in the Patient Protection and Affordable Care Act (ACA; 111-148, as amended). Other eligible adults who become enrolled as a result of the publicity and outreach efforts associated with the ACA are included with Adults,Non-Expansion Adults, and their dependent children are included with Children in this figure.

Since the implementation of the ACA Medicaid expansion in 2014, most of the growth in Medicaid enrollment is attributed to the expansion. Excluding the expansion adults, Medicaid enrollment was relatively flat due to low unemployment rates over the past couple years.³⁰ For FY2017 through FY2026, the aged population is projected to be the fastest-growing Medicaid population due to baby boomers reaching the age of 65.³¹

Share of Enrollment Versus Expenditures, by Population

Different Medicaid enrollment groups have very different service utilization patterns. Larger enrollment groups account for a smaller proportion of Medicaid expenditures, while some smaller enrollment groups are responsible for a larger proportion of Medicaid expenditures. As shown in Figure 2, for FY2012, roughly half of Medicaid enrollees were children without disabilities, who accounted for only about 20% of Medicaid's total benefit spending. The next-largest enrollee group—adults—accounted for about 25% of all enrollees but only about 16% of benefit expenditures. In contrast, individuals with disabilities represented about 17% of Medicaid enrollees but accounted for the largest share of Medicaid benefit spending (about 44%). Finally, the elderly represented about 9% of Medicaid enrollees but about 21% of all benefit spending. for FY2016, together Medicaid enrollment for children, non-expansion adults, and expansion adults comprised 77% of Medicaid enrollment but accounted for only 46% of Medicaid's total benefit spending. In contrast, together the disabled and aged populations represented about 23% of Medicaid enrollment but accounted for a larger share of Medicaid benefit spending (54%). While these statistics vary somewhat from year to year and state to state, the patterns described above generally hold true across years.

Figure 2. Estimated Medicaid Enrollment and Expenditures for Benefits, by Enrollment Group as a Share of Total (FY2013FY2016)

Source: Christopher J. Truffer, Christian J. Wolfe, and Kathryn E. Rennie, 20142017 Actuarial Report on the Financial Outlook for Medicaid, Office of the Actuary, CMS, HHS, 20152018. Notes: Totals and components exclude disproportionate share hospital expenditures (i.e., payments to hospitals treating large numbers of low-income patients), territory enrollees and expenditures, and other adjustments. May not sum to totals due to rounding.

Benefits

Medicaid coverage includes a wide variety of preventive, primary, and acute care services as well as LTSS (see "Long-Term Services and Supports" for more information about LTSS).²⁴.³² Not everyone enrolled in Medicaid has access to the same set of services. Different eligibility classifications determine available benefitsAn enrollee's eligibility pathway determines the available services within a benefit package. Federal law provides two primary benefit packages for state Medicaid programs: (1) traditional benefits and (2) alternative benefit plans (ABPs). ²⁵ Each of these packages is summarized in Table 1. For the medically needy subgroup, states may offer a more restrictive benefit package than is available to other enrollees. In addition, states can use waiver authority (e.g., SSA Section 1115 of the Social Security Act) to tailor benefit packages to specified Medicaid subgroups as well as offer services outside traditional or ABP coverage, such as LTSS (see "Medicaid Program Waivers" for more information about Section 1115 waivers).

Traditional Medicaid Benefits

In general, when Medicaid enrollees have other sources of insurance/payment (including Medicare), Medicaid is the payer of last resort. States can provide Medicaid coverage to individuals whose existing health insurance is limited (sometimes referred to as underinsured). In these cases, Medicaid wraps around that coverage (i.e., additional coverage for services covered under Medicaid but not under the other source of coverage).³³

The following sections summarize Medicaid traditional benefits and ABPs. Then, there is a section comparing benefits included in traditional Medicaid coverage and those that are commonly included in ABPs.

States define the specific features of each covered benefit within four broad federal guidelines:

• Each service must be sufficient in amount, duration, and scope to reasonably achieve its purpose. States may place appropriate limits on a service based on such criteria as medical necessity.
• Within a state, services available to the various population groups must be equal in amount, duration, and scope. This requirement is the comparability rule.
• With certain exceptions, the amount, duration, and scope of benefits must be the same statewide, referred to as the statewideness rule.
• With certain exceptions, enrollees must have freedom of choice among health care providers or managed care entities participating in Medicaid. (See "Service Delivery ModelsSystems" for information about managed care.)

The breadth of coverage for a given benefit can, and does, vary from state to state, even for mandatory services. For example, states may place different limits on the amount of inpatient hospital services a beneficiary can receive in a year (e.g., up to 15 inpatient days per year in one state versus unlimited inpatient days in another state)—as long as applicable requirements are met regarding comparability; statewideness; sufficiency of amount, duration, and scope; comparability; statewideness; and freedom of choice. Exceptions to state limits may be permitted under circumstances defined by the state.

Alternative Benefit Plans

As an alternative to providing all the mandatory and selected optional benefits under traditional Medicaid, the Deficit Reduction Act of 2005 (DRA; P.L. 109-171) gave states the option to enroll state-specified groups in what was referred to as benchmark or benchmark-equivalent coverage but currently are called ABPs. The ACA made significant changes to both ABP design and requirements.²⁶

Long-Term Services and Supports

As the largest single payer of LTSS in the United States, Medicaid plays a key role in providing these services. In FY2014, Medicaid LTSS accounted for 26% of all Medicaid spending despite the fact that LTSS recipients represent a relatively small share of the total Medicaid population (See Figure 3).³⁰ An estimated 4.2 million Medicaid beneficiaries (or 6.4%) of the 66 million total enrolled Medicaid population received LTSS in FY2010.³¹

Medicaid Service Spending

Figure 3 below shows the nationwide distribution of Medicaid expenditures across broad categories of service for FY2014. These data illustrate that 37% of benefit spending is for capitated payments under managed care arrangements (see "Service Delivery Models" for information about managed care), while LTSS account for a little more than a quarter and acute care services represent another quarter of Medicaid benefit payments. In general, when other sources of insurance/payment are available (including Medicare), Medicaid wraps around that coverage (i.e., additional coverage for services covered under Medicaid but not under the other source of coverage).³³

Figure 3. Medicaid Medical Assistance Payments, by Service Category (FY2014alternative benefit plans (ABPs).34 Under ABPs, states must provide comprehensive benefit coverage that is based on a coverage benchmark rather than a list of discrete items and services as under traditional Medicaid. ABPs must qualify as either benchmark or benchmark-equivalent coverage. Under benchmark coverage, ABP benefits are at least equal to one of the statutorily specified benchmark plans (i.e., one of three commercial health insurance products, or a fourth "Secretary-approved" coverage option).35 Under benchmark-equivalent coverage, ABP benefits include certain specified services and the overall benefits are at least actuarially equivalent to one of the statutorily specified benchmark coverage packages. Unlike traditional Medicaid benefit coverage, coverage under an ABP must include at least the essential health benefits (EHBs) that most plans in the private health insurance market are required to furnish.36 In addition, ABPs must include a variety of specific services, including services under Medicaid's early and periodic screening, diagnostic, and testing (EPSDT) benefit; family planning services and supplies; and both emergency and nonemergency transportation to and from providers. In general, the EHBs do not include LTSS. However, states may choose to include LTSS in their ABPs. Under ABPs, states are permitted to waive the statewideness and comparability requirements that apply to traditional Medicaid benefits. This flexibility permits the state to define populations that are served and the specific benefit packages that apply. However, states that choose to implement the ACA Medicaid expansion are required to provide ABP coverage to the individuals eligible for Medicaid through the expansion (with exceptions for selected special-needs subgroups). Specific populations are exempt from mandatory enrollment in ABPs (e.g., those with special health care needs such as disabling mental disorders or serious and complex medical conditions). These individuals must be offered the option of a benefit plan that includes traditional Medicaid state plan services, which may include LTSS. Comparing Traditional Medicaid Benefits to ABPs It is difficult to draw comparisons about the ways in which traditional Medicaid benefits are similar to and different from ABP benefits, because the scope of each type of benefit package varies from state to state. This variability is largely a reflection of state choices in covering optional benefits, in addition to the mandatory Medicaid state plan benefits, as well as state choices for the base-benchmark for the EHBs that must be covered under ABPs. However, differences in the federal laws regarding the scope of required benefits under traditional Medicaid and those required under ABPs highlight some common differences between the two types of benefits packages. For example, care in a nursing facility for individuals over the age of 21 is a required benefit under traditional Medicaid, whereas nursing home care is not a required benefit under ABPs. Conversely, rehabilitative and habilitative services and devices, preventive and wellness services, and mental health and substance use disorder services are all required benefits under ABPs. By contrast, these APB benefit categories do not correspond to specific benefit categories under traditional Medicaid. Rather, services in these benefit categories could be covered under different benefit categories, such as physician services or physical, occupational, and speech therapy services. To further illustrate this point, behavioral health (or any similar term) is not explicitly included among the required benefit categories under traditional Medicaid. Instead, most types of behavioral health benefits (e.g., the services of clinical psychologists and licensed clinical social workers and prescription drugs) are optional. By contrast, behavioral health benefits are mandatory under ABPs because "mental health and substance use disorder services, including behavioral health treatment" are included among the EHBs. Medicaid Service Spending Figure 3 below shows the nationwide distribution of Medicaid expenditures across broad categories of service for FY2017. These data illustrate that 49% of benefit spending was for capitated payments under managed care arrangements (see "Service Delivery Systems" for information about managed care). The remaining 51% of benefit spending was FFS, and FFS spending on LTSS and acute care services accounted for 21% and 20%, respectively, of Medicaid benefit spending. Figure 3. Medicaid Medical Assistance Expenditures, by Service Category (FY2018)

Source: CRS analysis of CMS, CMS-64 Data (base expenditures), FY2014FY2018 as of March 30, 2015April 29, 2019. Notes: Medical assistance expenditures exclude Medicaid expenditures for administrative activities. DSH stands for disproportionate share hospital payments, which are one type of supplemental payments. Supplemental payments are Medicaid payments made to providers that are separate from and in addition to the standard payment rates for services rendered to Medicaid enrollees. Acute care services include prescription drugs. Capitated payments are those payments made under managed care arrangements (see "Service Delivery Models" for information about managed care). Managed care includes capitated payments under which Medicaid enrollees get most or all of their services through an organization under contract with the state (see "Service Delivery Systems" for information about managed care). Supplemental payments are Medicaid payments made to providers that are separate from and in addition to the standard payment rates for services rendered to Medicaid enrollees, and disproportionate share hospital (DSH) payments are one type of supplemental payments. Acute care services include prescription drugs. DSH = Disproportionate share hospital LTSS = Long-term services and supports

Beneficiary Cost Sharing

Federal statutes and regulations address the circumstances under which enrollees may share in the costs of Medicaid, both in terms of participation-related cost sharing (e.g., monthly premiums) and point-of-service cost sharing (e.g., co-payments [i.e., flat dollar amounts paid directly to providers for services rendered]).³⁴37 States can require certain beneficiaries to share in the cost of Medicaid services, but there are limits on (1) the amounts that states can impose, (2) the beneficiary groups that can be required to pay, and (3) the services for which cost sharing can be charged.³⁸

In general, premiums and enrollment fees often are prohibited. However, premiums may be imposed on certain enrollees, such as individuals with incomes above 150% of FPL, certain working individuals with disabilities, and certain children with disabilities.

States can impose cost sharing at the point of service, such as co-payments,³⁵39 coinsurance,³⁶40 deductibles,³⁷41 and other similar charges, on most Medicaid-covered benefits up to federal limits that vary by income. Some subgroups of beneficiaries are exempt from cost sharing (e.g., children under 18 years of age and pregnant women).

The aggregate cap on all out-of-pocket cost sharing participation-related cost sharing (e.g., monthly premiums) and point-of-service cost sharing (e.g., co-payments) is generally up to 5% of monthly or quarterly household income.³⁸

Service Delivery Models

In general, benefits are made available to Medicaid enrollees via two service delivery systems: fee-for-service or managed care. Under the fee-for-service42

In addition, beneficiaries receiving certain Medicaid-covered LTSS are required to apply their income exceeding specified amounts toward the cost of their care. These reductions from a beneficiary's income are referred to as post-eligibility treatment of income and are not subject to the 5% aggregate cost-sharing cap described above.⁴³ The amounts a beneficiary may retain for their personal use vary by care setting (i.e., nursing facility versus home and community-based).

• Managed care organizations (MCOs)—states contract with MCOsInitially, states used managed care to deliver health care services to the healthiest Medicaid populations, including children and parents. However, recently, more states are turning to managed care for their aged and disabled populations.

  There are three main types of Medicaid managed care:

  Comprehensive risk-based managed care—states contract with managed care organizations (MCOs) to provide a comprehensive package of benefits to certain Medicaid enrollees. States usually pay the MCOs on a capitated basis, which means the states prospectively pay the MCOs a fixed monthly rate per enrollee to provide or arrange for most health care services. MCOs then pay providers for services to enrollees.
• Primary care case management (PCCM)—states contract with primary care providers to provide case management services to Medicaid enrollees. Typically, under PCCM, the primary care provider receives a monthly case management fee per enrollee for coordination of care, but the provider continues to receive fee-for-service payments for the medical care services utilized by Medicaid enrollees.
• Limited benefit plans—these plans look like MCOs in that states usually contract with a plan and pay it on a capitated basis. The difference is that limited benefit plans provide only one or two Medicaid services (e.g., behavioral health or dental services).

Financing

The federal government and the states jointly finance Medicaid.⁴⁴As of July 1, 2017, about 82% of Medicaid enrollees were covered by some form of managed care.⁴⁴ Two states (South Carolina and Washington) covered all Medicaid enrollees under managed care, and two states (Alaska and Connecticut) did not have any managed care coverage. The rest of the states use some combination of managed care and FFS coverage.⁴⁵ The most prevalent type of managed care is the comprehensive risk-based managed care that is provided through MCOs, with 69% of Medicaid enrollees with comprehensive risk-based managed care as of July 1, 2017.⁴⁶ States' use of comprehensive risk-based managed care varies significantly, as shown in Figure 4.

(As of July 1, 2017)

Source: CMS, Medicaid Managed Care Enrollment and Program Characteristics, 2017, Table 4, Winter 2019.

Notes: Medicaid enrollment in comprehensive managed care represents an unduplicated count of Medicaid beneficiaries enrolled in a managed care plan that provides comprehensive benefits (acute, primary care, specialty, and any other), as well as Programs for All-Inclusive Care for the Elderly (PACE). It excludes enrollees who are enrolled in a Financial Alignment Initiative Medicare-Medicaid Plan as their only form of managed care.

Federal Share

The federal government's share of most Medicaid expenditures is established by the federal medical assistance percentage (FMAP) rate, which generally is determined annually and varies by state according to each state's per capita income relative to the U.S. per capita income.⁴⁶49 The formula provides higher FMAP rates, or federal reimbursement rates, to states with lower per capita incomes, and it provides lower FMAP rates to states with higher per capita incomes.

FMAP rates have a statutory minimum of 50% and a statutory maximum of 83%.⁴⁷ In FY2015, 13 states have the statutory minimum FMAP rate of 50%, and Mississippi has the highest FMAP rate of 74% (see Table B-1 for each state's FY2015 FMAP rate50 For a state with an FMAP of 60%, the state gets 60 cents back from the federal government for every dollar the state spends on its Medicaid program. In FY2019, FMAP rates range from 50% (14 states) to 76% (Mississippi).

The FMAP rate is used to reimburse states for the federal share of most Medicaid expenditures, but exceptions to the regular FMAP rate have been made for certain states (e.g., the District of Columbia and the territories), situations (e.g., during economic downturns), populations (e.g., the ACA Medicaid expansion population and certain women with breast or cervical cancer and individuals in the Qualifying Individual⁴⁸ program), providers (e.g., Indian Health Service facilities), and services (e.g., family planning and home health services). In addition, the federal share for most Medicaid administrative costs does not vary by state and is generally 50%.

The ACA included FMAP exceptions, including the newly eligible federal matching rates and the expansion state federal matching rates. Under the newly eligible federal matching rate, from 2014 through 2016, states receive a 100% federal matching rate for the cost of individuals who are newly eligible for Medicaid due to the ACA expansion. As shown in Table 2, this newly eligible federal matching rate phases down to 95% in 2017, 94% in 2018, 93% in 2019, and 90% thereafter.⁴⁹ The expansion state federal matching rate is available for individuals in expansion states⁵⁰ who were eligible for Medicaid on March 23, 2010, and are in the new eligibility group for non-elderly, nonpregnant adults at or below 133% of FPL. The formula⁵¹ used to calculate the expansion state federal matching rates is based on a state's regular federal matching rate, so the expansion state federal matching rates will vary from state to state until 2019, at which point the newly eligible and the expansion state federal matching rates will converge at 93% and phase down to 90% for 2020 and subsequent years.

While most federal Medicaid funding is provided on an open-ended basis, certain types of federal Medicaid funding are capped. For instance, federal disproportionate share hospital (DSH)⁵²While most federal Medicaid funding is provided on an open-ended basis, certain types of federal Medicaid funding are capped. For instance, federal disproportionate share hospital (DSH)⁵¹ funding to states cannot exceed a state-specific annual allotment. Also, Medicaid programs in the territories (i.e., American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the Virgin Islands) are subject to annual spending caps.⁵²

State Share

The federal government provides broad guidelines to states regarding allowable funding sources for the state share (also referred to as the nonfederal share) of Medicaid expenditures. However, to a large extent, states are free to determine how to fund their share of Medicaid expenditures. As a result, there is significant variation from state to state in funding sources.

States can use state general funds (i.e., personal income, sales, and corporate income taxes) and other state funds (e.g., provider taxes,⁵³ local government funds, tobacco settlement funds, etc.) to finance the state share of Medicaid.⁵⁴ Federal statute⁵⁵ allows as much as 60% of the state share to come from local government funding.⁵⁶54 Federal regulations also stipulate that the state share not be funded with federal funds (Medicaid or otherwise).⁵⁷55 In state fiscal year 20132017, on average, 7372% of the state share of Medicaid expenditures was financed by state general funds, and the remaining 2728% was financed by other state funds.⁵⁸

56 Expenditures

The cost of Medicaid, like most health expenditures, generally hashistorically increased at a rate significantly faster than the overall rate of U.S. economic growth, as measured by gross domestic product. In the past, much of Medicaid's expenditure growth has been due to federal or state expansions of Medicaid eligibility criteria,⁶² but per enrollee costs for Medicaid also have increased faster than the economy. However, when compared to other forms of health insurance, Medicaid per enrollee expenditures are relatively low such as the ACA Medicaid expansion.

Medicaid expenditures are influenced by economic, demographic, and programmatic factors. Economic factors include health care prices, unemployment rates (see the "Medicaid Enrollment Trends" section for a discussion of the impact of the unemployment rate on Medicaid enrollment, which also impacts expenditures), and individuals' wages. Demographic factors include population growth and the age distribution of the population. Programmatic factors include state decisions regarding optional eligibility groups, optional services, and provider payment rates. Other factors include the number of eligible individuals who enroll, utilization of covered services, and enrollment in other health insurance programs (including Medicare and private health insurance).

Figure 45 shows actual Medicaid expenditures from FY1997 to FY2014FY2017 and projected Medicaid expenditures from FY2015FY2018 through FY2026 through FY2023 (see Table B-1 for state-by-state expenditures for FY2014). These figures are broken down by state and federal expenditures. In FY2014FY2018, Medicaid spending on services and administrative activities in the 50 states, the District of Columbia, and the territories totaled $494616 billion.⁶³57 Medicaid expenditures are estimated to grow to $8351,006 billion in FY2023.⁶⁴

Figure 45. Federal and State Actual and Projected Medicaid Expenditures (FY1997-FY2023FY2026)

SourcesSources: Actual expenditures are from Form CMS-64 Data as of March 30, 2015April 29, 2019, and projected expenditures are from Christopher J. Truffer, Christian J. Wolfe, and Kathryn E. Rennie, 20142017 Actuarial Report on the Financial Outlook for Medicaid, Office of the Actuary, CMS, HHS, 20152018. Note: The expenditures shown in this figure are total Medicaid expenditures, which include both administrative and benefit spending.

Historically, in a typical year, the average federal share of Medicaid expenditures was about 57%, which means the average state share iswas about 43%. However, the federal government's share of Medicaid expenditures increased with the implementation of the ACA Medicaid expansion, because the federal government is funding a vast majority of the cost of the expansion through the newly eligible and expansion stateenhanced federal matching rates.⁵⁹ In FY2018 In FY2014, the average federal share of Medicaid increased to 60%, and the federal share of Medicaidis estimated to have been 62%, and it is expected to remain at that level through FY2023.⁶⁵

Provider Payments

Medicaid Program Waivers

The Social Security Act authorizes several waiver and demonstration authorities to provide states with the flexibility to operate their Medicaid programs. Waiver authorities permit states to disregard certain requirements and operate their programs outside of Medicaid rules. Each waiver authority has a distinct purpose and specific requirements. Under the various waiver authorities, states may try new or different approaches to the delivery of health care services or adapt their programs to the special needs of particular geographic areas or groups of Medicaid enrollees. The primary Medicaid waiver authorities include the following:

• Section 1115 Research and Demonstration Projects—UnderSSA Section 1115 of the Social Security Act, the Secretary of HHS mayauthorizes the HHS Secretary to waive Medicaid requirements contained in SSA Section 1902 (including but not limited to what is known asrules regarding freedom of choice of provider, comparability of services, and statewideness). States use this waiver authority to change eligibility criteria to offer coverage to new groups of people, and/or provide expenditure authority for expenditures that do not otherwise qualify for federal financial participation under SSA Section 1903 (referred to as costs not otherwise matchable) in order to permit states to conduct experimental, pilot, or demonstration projects that, in the judgment of the Secretary of HHS, are likely to assist in promoting the objectives of the Medicaid program. States use this waiver authority in a variety of ways, for example, to change eligibility criteria to offer coverage to new groups of people; to condition Medicaid eligibility on an enrollee's ability to meet work or other community engagement requirements; to provide services that are not otherwise covered, to offer different service packages or a combination of services in different parts of the state, (e.g., coverage of nonelderly adults who are patients in institutions for mental disease);⁶⁵ to cap program enrollment, and to implement innovative service delivery systems, among other purposes.
• Section 1915(b) Managed Care/Freedom of Choice Waivers—SSA Section 1915(b) of the Social Security Act permits statesauthorizes the HHS Secretary to waive the freedom of choice of provider requirement to establish mandatory managed care programs or otherwise limit enrollees' choice of providers.⁷¹
66
• Section 1915(c) Home- and Community-Based Services (HCBS) Waivers—SSA Section 1915(c) authorizes the Secretary of HHSHHS Secretary to waive certain requirements of Medicaid law, allowing states to coverrequirements regarding comparability of services and statewideness in covering a broad range of HCBS (including services not available under the Medicaid state plan) for certain persons with LTSS needs. Specifically, under Section 1915(c) states can waive rules regarding statewideness and comparability of services. States also may applyStates also may waive certain income counting rules to persons in HCBS waivers that allow an individual who otherwise might not qualify to be eligible for Medicaid.
• Section 1915(b)/(c) Waivers—Section 1915(b) and (c) waivers allow states to provide HCBS to disabled and elderly populations in a managed care setting or within a limited pool of providers. States must apply for each waiver authority concurrently and comply with the individual requirements of each waiver.

and resource rules applicable to persons in the community, which means that a spouse's or parent's income and, to some extent, resources are not considered available to the applicant for the purposes of determining Medicaid financial eligibility. States may use Section 1915(c) concurrently with other waiver authorities. For example, states may combine Sections 1915(b) and 1915(c) authorities to offer mandatory managed care for HCBS.States often operate multiple waiver programs with their state plans. Key characteristics of these primary Medicaid waiver authorities compared with state plan requirements are summarized in Table 32. The statutory requirements that may be waived under each type of waiver are different, but all types of waivers are time limited and approvals are subject to reporting and evaluation requirements. In addition, all types of waivers must comply with various financing requirements (e.g., budget neutrality,⁷²67 cost-effectiveness,⁷³68 or cost-neutrality⁶⁹).).⁷⁴

Program Integrity

Selected Issues

ACA Medicaid Expansion

State Decisions

On January 1, 2014, when the ACA Medicaid expansion went into effect, 24 states and the District of Columbia included the ACA Medicaid expansion as part of their Medicaid programs. The following states implemented the expansion on later dates: Michigan (April 1, 2014), New Hampshire (August 15, 2014), Pennsylvania (January 1, 2015), and Indiana (February 1, 2015). In addition, Montana Governor Bullock signed the bill adopting the ACA Medicaid expansion on April 29, 2015, but the law directs the state to apply for a Section 1115 waiver to implement the expansion that requires federal government approval. In July 2015, the governor of Alaska informed the legislature of his intent to accept federal Medicaid funding for the ACA Medicaid expansion.⁸⁰ In addition, Utah currently is debating the ACA Medicaid expansion.⁸¹ Figure 5 shows state decisions about implementing the ACA Medicaid expansion as of July 2015.

Figure 5. State Decisions Whether to Implement the ACA Medicaid Expansion (as of July 2015)

Source: CRS. Notes: Most states implemented the ACA Medicaid expansion on January 1, 2014, but the following states implemented the expansion on later dates: Michigan (April 1, 2014), New Hampshire (August 15, 2014), Pennsylvania (January 1, 2015), and Indiana (February 1, 2015). Montana Governor Bullock signed the bill adopting the ACA Medicaid expansion on April 29, 2015, but the law directs the state to apply for a Section 1115 waiver to implement the expansion.

Dual-Eligible Beneficiaries

Impact of ACA Health Insurance Annual Fee on Medicaid

Maintenance of Effort

Medicaid Resources

Appendix A. State Medicaid and CHIP Income Eligibility Standards

Table A-1 depicts the modified adjusted gross income (MAGI)-based eligibility levels for Medicaid as of January 1, 2015, based on findings from a 50-state survey.⁹⁴ The table expresses these standards as a percentage of the federal poverty level (FPL).⁹⁵

Appendix B. State-by-State Medicaid Data

Table B-1 provides the most recent available data for state-by-state Medicaid enrollment, expenditures (including both the federal and state shares), and federal medical assistance percentage (FMAP) rates.