Medicaid Primer

Medicaid Primer

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Updated April 20, 2023
Medicaid Primer
Medicaid is a joint federal-state program that finances the
financial (i.e., income and sometimes assets limits) criteria.
delivery of primary and acute medical services, as well as
Some eligibility groups are mandatory for states to cover
long-term services and supports (LTSS), to a diverse low-
under their Medicaid programs; others are optional.
income population, including children, pregnant women,
adults, individuals with disabilities, and people aged 65 and
Individuals in need of Medicaid-covered LTSS must
older. In FY2021, Medicaid covered health care services for
demonstrate the need for long-term care by meeting state-
an estimated 85 million individuals at an estimated cost of
based eligibility criteria for services, and they also may be
$748 billion.
subject to a separate set of Medicaid financial eligibility
rules in order to receive LTSS coverage.
Participation in Medicaid is voluntary for states, though all
states, the District of Columbia, and the territories choose to
All Medicaid applicants must meet federal and state
participate. The federal government requires states to cover
requirements regarding residency, immigration status, and
certain mandatory populations and benefits but allows
documentation of U.S. citizenship.
states to cover other optional populations and benefits. Due
to this flexibility, there is substantial state variation in
Benefits
factors such as Medicaid eligibility, covered benefits, and
Medicaid coverage includes a variety of primary and acute-
provider payment rates. In addition, several waiver and
care services as well as LTSS. Not all Medicaid enrollees
demonstration authorities in statute allow states to operate
have coverage of the same set of services. Different
their Medicaid programs outside of certain federal rules.
eligibility classifications determine the covered services.
Eligibility
For traditional Medicaid benefits, states are required to
Historically, Medicaid eligibility generally has been limited
cover a wide array of mandatory services (e.g., inpatient
to low-income children, pregnant women, parents of
hospital, physician, and nursing facility care). States may
dependent children, the elderly, and individuals with
cover optional additional services, such as personal care
disabilities. However, the Patient Protection and Affordable
services, prescription drugs, and physical therapy.
Care Act (ACA; P.L. 111-148, as amended) included the
ACA Medicaid expansion, which expands Medicaid
Alternative Benefit Plan (ABP) coverage is generally
eligibility to non-elderly adults with income up to 133% of
required for enrollees in the ACA Medicaid expansion and
the federal poverty level (FPL) at state option. Figure 1
optional for other Medicaid enrollees. Under ABPs, states
shows Medicaid enrollment for FY1970 through FY2021.
have more flexibility to define which populations are served
and what specific benefit packages enrollees will receive. In
Figure 1. Medicaid Enrollment
general, ABPs may cover fewer benefits than traditional
Medicaid, but there are some requirements that might make
ABPs more generous than private insurance (e.g.,
nonemergency transportation).
Service-Delivery Systems
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

Source: Medicaid and CHIP Payment and Access Commission
enrollees receive services through a managed care
(MACPAC), MACStats: Medicaid and CHIP Data Book, Exhibit 10,
organization under contract with the state. States
December 15, 2022.
traditionally used FFS for Medicaid. However, since the
1990s, the share of Medicaid enrollees covered by managed
Note: Comparable actual Medicaid enrol ment data is not available
care has increased. Almost 84% of Medicaid enrollees are
for FY2013-FY2021. The FY2021 increased enrol ment is mainly due
covered by some form of managed care as of July 1, 2020,
to the continuous coverage requirement for the Family First
Coronavirus Response Act (P.L. 116-127) federal medical assistance
and most of them (72% of Medicaid enrollees) are covered
percentage (FMAP) increase.
with comprehensive risk-based managed care.
To be eligible for Medicaid, individuals must meet both
categorical (e.g., elderly, children, or pregnant women) and
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Medicaid Primer
Cost Sharing
national average (and vice versa for states with higher per
In general, premiums and enrollment fees are prohibited in
capita incomes). In FY2023, FMAP rates range from 50%
Medicaid. However, premiums may be imposed on certain
(12 states) to 77.86% (Mississippi). Other federal Medicaid
enrollees, such as individuals with incomes above 150% of
matching rates are provided for certain states, situations,
FPL. States can impose nominal co-payments, coinsurance,
populations, providers, and services.
or deductibles on most Medicaid-covered benefits, but there
are limits on the amounts states can impose, the eligibility
Medicaid Benefit Spending
groups that can be required to pay, and the services for
Figure 3 shows the distribution of Medicaid expenditures
which service-related cost sharing can be charged. The
on benefits by type of service for FY2021. Capitated
aggregate cap on most enrollee out-of-pocket cost sharing is
payments (i.e., predetermined fixed amounts) under
generally 5% of monthly or quarterly household income.
managed-care arrangements accounted for 55% of benefit
Certain enrollees receiving Medicaid-covered LTSS are
spending. The remaining 45% of benefit spending was FFS,
required to share in the cost of certain LTSS, which is
and FFS spending on acute care services and LTSS each
outside of the aggregate cap.
accounted for 18% of Medicaid benefit spending.
Provider Payments
Figure 3. Medicaid Benefit Spending, by Service
For the most part, states establish their own payment rates
for Medicaid providers. Federal statute requires that these
rates be consistent with efficiency, economy, and quality of
care and sufficient to enlist enough providers so that
Medicaid enrollees have access to covered services at least
to the same extent that the general population in the same
geographic area has access to these services. However, low
Medicaid payment rates and their impact on provider
participation have been perennial policy concerns. In some

Source: CRS analysis of Form CMS-64 data as reported by states to
cases, states make supplemental payments to Medicaid
the Medicaid Budget and Expenditure System, as of July 19, 2022.
providers that are separate from, and in addition to, the
payment rates for services rendered to Medicaid enrollees.
Enrollment Versus Expenditures
Financing
Different Medicaid enrollment groups have different
service-utilization patterns. For calendar years 2018 and
The federal government and the states share the cost of
2019, Figure 4 shows together Medicaid enrollment for
Medicaid. The federal government reimburses states for a
children, nonexpansion adults, and expansion adults
portion of each state’s Medicaid program costs. Federal
comprised 77% of Medicaid enrollment but accounted for
Medicaid funding is an open-ended entitlement to states,
only 44% of Medicaid’s total benefit spending. In contrast,
which means there is no upper limit or cap on the amount of
together individuals with disabilities and the aged
federal Medicaid funds a state may receive.
populations represented less than a quarter (23%) of
Figure 2. Federal and State Medicaid Expenditures
Medicaid enrollment but accounted for more than a half of
Medicaid benefit spending (56%). These patterns generally
hold true across years.
Figure 4. Estimated Medicaid Enrollment and
Expenditures for Benefits, by Enrollment Group

Source: Centers for Medicare & Medicaid, Form CMS-64 data as
reported by states to the Medicaid Budget and Expenditure System.
Figure 2 shows Medicaid expenditures for FY1997 through
FY2021. In FY2021, Medicaid spending on services and

Source: CMS, 2022 Medicaid and CHIP Beneficiary Profile: Enrollment,
administrative activities in the 50 states, the District of
Expenditures, Characteristics, Health Status, and Experience, July 2022.
Columbia, and the territories totaled $748 billion with the
federal government paying $518 billion of that amount.
For more information about the Medicaid program, see
CRS Report R43357, Medicaid: An Overview and CRS
The federal government’s share for most Medicaid
Report R42640, Medicaid Financing and Expenditures.
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
Alison Mitchell, Specialist in Health Care Financing
costs in states with lower per capita incomes relative to the
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Medicaid Primer

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