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Updated November 21, 2018
Medicaid Primer
Medicaid is a joint federal-state program that finances the
To be eligible for Medicaid, individuals must meet both
delivery of primary and acute medical services, as well as
categorical (e.g., elderly, children, or pregnant women) and
long-term services and supports (LTSS), to a diverse low-
financial (i.e., income and sometimes assets limits) criteria
income population, including children, pregnant women,
in addition to requirements regarding residency,
adults, individuals with disabilities, and people aged 65 and
immigration status, and U.S. citizenship. Some eligibility
older. In FY2017, Medicaid provided health care services to
groups are mandatory, meaning all states with a Medicaid
an estimated 74 million individuals at an estimated cost of
program must cover them; others are optional.
$600 billion, with the federal government paying about
$370 billion of that amount.
Benefits
Medicaid coverage includes a variety of primary and acute-
Participation in Medicaid is voluntary for states, though all
care services as well as LTSS. Not all Medicaid enrollees
states, the District of Columbia, and the territories choose to
have access to the same set of services. Different eligibility
participate. The federal government requires states to cover
classifications determine available benefits.
certain mandatory populations and benefits but allows
states to cover other optional populations and services. Due
For traditional Medicaid benefits, states are required to
to this flexibility, there is substantial state variation in
cover a wide array of mandatory services (e.g., inpatient
factors such as Medicaid eligibility, covered benefits, and
hospital, physician, and nursing facility care). States may
provider payment rates. In addition, several waiver and
provide optional additional services, such as personal care
demonstration authorities in statute allow states to operate
services, prescription drugs, and physical therapy.
their Medicaid programs outside of certain federal rules.
Alternative Benefit Plan (ABP) coverage is required for
Eligibility
enrollees in the ACA Medicaid expansion and optional for
Historically, Medicaid eligibility generally has been limited
other Medicaid enrollees. Under ABPs, states have more
to low-income children, pregnant women, parents of
flexibility to define which populations are served and what
dependent children, the elderly, and individuals with
specific benefit packages enrollees will receive. In general,
disabilities. However, the Patient Protection and Affordable
ABPs may cover fewer benefits than traditional Medicaid,
Care Act (ACA; P.L. 111-148, as amended) included the
but there are some requirements that might make ABPs
ACA Medicaid expansion, which expands Medicaid
more generous than private insurance (e.g., family planning
eligibility to non-elderly adults with income up to 133% of
services and nonemergency transportation).
the federal poverty level (FPL) (effectively 138% of FPL
with an income disregard of 5% of FPL) at state option.
Service-Delivery Systems
Figure 1 shows historical and projected Medicaid
Medicaid enrollees generally receive benefits via one of
enrollment for FY2000 through FY2026.
two service-delivery systems: fee-for-service (FFS) or
managed care. Under FFS, health care providers are paid by
Figure 1. Medicaid Enrollment
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. States
traditionally used FFS for Medicaid. However, since the
1990s, the share of Medicaid enrollees covered by managed
care has increased, with about 81% of Medicaid enrollees
covered by some form of managed care as of July 1, 2016.
Cost Sharing
In general, premiums and enrollment fees are prohibited in
Medicaid. 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 nominal

co-payments, coinsurance, or deductibles on most
Source: Centers for Medicare & Medicaid Services (CMS), 2017
Medicaid-covered benefits up to federal limits. The
Actuarial Report on the Financial Outlook for Medicaid, 2018.
aggregate cap on out-of-pocket cost sharing is generally 5%
of monthly or quarterly household income.
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Medicaid Primer
Provider Payments
managed-care arrangements accounted for 49% of benefit
For the most part, states establish their own payment rates
spending, while LTSS and acute-care services each
for Medicaid providers. Federal statute requires that these
represented about 20% of Medicaid benefit spending.
rates be consistent with efficiency, economy, and quality of
care and sufficient to enlist enough providers so that
Figure 3. Medicaid Benefit Spending, by Service
Medicaid enrollees have access to covered benefits at least
(FY2017)
to the same extent that the general population in the same
geographic area has access to these benefits. However, low
Medicaid payment rates and their impact on provider
participation have been perennial policy concerns.
Financing
The federal government and the states share the cost of
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.
Figure 2. Federal and State Medicaid Expenditures

Source: Congressional Research Service analysis of Form CMS-64
data for FY2017, as of September 2018.
Notes: DSH = disproportionate share hospital payments to hospitals
treating large numbers of low-income patients.
Enrollment Versus Expenditures
Different Medicaid enrollment groups have different
service-utilization patterns. As shown in Figure 4, for
FY2016, an estimated 40% of all Medicaid enrollees were
children, but they accounted for only an estimated 19% of
Medicaid’s total benefit spending. In contrast, individuals
with disabilities represented an estimated 15% of all
Medicaid enrollees but accounted for the largest share of

Source: Actual expenditures are from Form CMS-64 data as of
Medicaid benefit spending (an estimated 39%), due in part
September 2018. Projected expenditures are from CMS, 2017
to the utilization of LTSS.
Actuarial Report on the Financial Outlook for Medicaid, 2018.
Figure 4. Estimated Medicaid Enrollment and
Figure 2 shows historical and projected Medicaid
Expenditures for Benefits, by Enrollment Group
expenditures from FY1997 through FY2026. In FY2017,
(FY2016)
Medicaid spending on services and administrative activities
in the 50 states, the District of Columbia, and the territories
totaled $600 billion. Medicaid expenditures are estimated to
grow to $1,006 billion in FY2026.
The federal government’s share for most Medicaid
expenditures is called the federal medical assistance
percentage (FMAP). The FMAP formula is designed so that
the federal government pays a larger portion of Medicaid
costs in states with lower per capita incomes relative to the
national average (and vice versa for states with higher per
capita incomes). In FY2019, FMAP rates range from 50%
(14 states) to 76.4% (Mississippi). Other federal Medicaid

matching rates are provided for certain states, situations,
Source: CMS, 2017 Actuarial Report on the Financial Outlook for
Medicaid
, 2018.
populations, providers, and services.
Medicaid Benefit Spending
Alison Mitchell, Analyst in Health Care Financing
Figure 3 shows the distribution of Medicaid expenditures
IF10322
on benefits by type of service for FY2017. Capitated
payments (i.e., predetermined fixed amounts) under


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Medicaid Primer


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
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