Medicaid Primer

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Updated November 30, 2020
Medicaid Primer
Medicaid is a joint federal-state program that finances the
in addition to requirements regarding residency,
delivery of primary and acute medical services, as well as
immigration status, and U.S. citizenship. Some eligibility
long-term services and supports (LTSS), to a diverse low-
groups are mandatory, meaning all states with a Medicaid
income population, including children, pregnant women,
program must cover them; others are optional.
adults, individuals with disabilities, and people aged 65 and
older. In FY2019, Medicaid provided health care services to
an estimated 75 million individuals at an estimated cost of
Medicaid coverage includes a variety of primary and acute-
$627 billion, with the federal government paying about
care services as well as LTSS. Not all Medicaid enrollees
$405 billion of that amount.
have access to the same set of services. Different eligibility
classifications determine available benefits.
Participation in Medicaid is voluntary for states, though all
states, the District of Columbia, and the territories choose to
For traditional Medicaid benefits, states are required to
participate. The federal government requires states to cover
cover a wide array of mandatory services (e.g., inpatient
certain mandatory populations and benefits but allows
hospital, physician, and nursing facility care). States may
states to cover other optional populations and services. Due
provide optional additional services, such as personal care
to this flexibility, there is substantial state variation in
services, prescription drugs, and physical therapy.
factors such as Medicaid eligibility, covered benefits, and
provider payment rates. In addition, several waiver and
Alternative Benefit Plan (ABP) coverage is required for
demonstration authorities in statute allow states to operate
enrollees in the ACA Medicaid expansion and optional for
their Medicaid programs outside of certain federal rules.
other Medicaid enrollees. Under ABPs, states have more
flexibility to define which populations are served and what
specific benefit packages enrollees will receive. In general,
Historically, Medicaid eligibility generally has been limited
ABPs may cover fewer benefits than traditional Medicaid,
to low-income children, pregnant women, parents of
but there are some requirements that might make ABPs
dependent children, the elderly, and individuals with
more generous than private insurance (e.g., family planning
disabilities. However, the Patient Protection and Affordable
services and nonemergency transportation).
Care Act (ACA; P.L. 111-148, as amended) included the
ACA Medicaid expansion, which expands Medicaid
Service-Delivery Systems
eligibility to non-elderly adults with income up to 133% of
Medicaid enrollees generally receive benefits via one of
the federal poverty level (FPL) at state option. Figure 1
two service-delivery systems: fee-for-service (FFS) or
shows historical and projected Medicaid enrollment for
managed care. Under FFS, health care providers are paid by
FY2000 through FY2020.
the state Medicaid program for each service provided to a
Medicaid enrollee. Under managed care, Medicaid
Figure 1. Medicaid Enrollment
enrollees receive 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. About
83% of Medicaid enrollees are covered by some form of
managed care as of July 1, 2018, and most of them (70% of
Medicaid enrollees) are covered with comprehensive risk-
based managed care.
Cost Sharing
In general, premiums and enrollment fees are prohibited in
Medicaid. However, premiums may be imposed on certain
Source: Centers for Medicare & Medicaid Services (CMS), 2018
enrollees, such as individuals with incomes above 150% of
Actuarial Report on the Financial Outlook for Medicaid, 2020. Hereinafter
FPL, certain working individuals with disabilities, and
CMS, 2018 Actuarial Report, 2020.
certain children with disabilities. States can impose nominal
Note: Projected enrol ment was prepared prior to the Coronavirus
co-payments, coinsurance, or deductibles on most
Disease 2019 (COVID-19) pandemic.
Medicaid-covered benefits up to federal limits. The
aggregate cap on out-of-pocket cost sharing is generally 5%
To be eligible for Medicaid, individuals must meet both
of monthly or quarterly household income.
categorical (e.g., elderly, children, or pregnant women) and
financial (i.e., income and sometimes assets limits) criteria

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Medicaid Primer
Provider Payments
Medicaid Benefit Spending
For the most part, states establish their own payment rates
Figure 3 shows the distribution of Medicaid expenditures
for Medicaid providers. Federal statute requires that these
on benefits by type of service for FY2019. Capitated
rates be consistent with efficiency, economy, and quality of
payments (i.e., predetermined fixed amounts) under
care and sufficient to enlist enough providers so that
managed-care arrangements accounted for 49% of benefit
Medicaid enrollees have access to covered benefits at least
spending, while acute-care services and LTSS each
to the same extent that the general population in the same
represented about 20% of Medicaid benefit spending.
geographic area has access to these benefits. However, low
Medicaid payment rates and their impact on provider
Figure 3. Medicaid Benefit Spending, by Service
participation have been perennial policy concerns. 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.
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 FY2019, as of September, 15 2020.
Notes: May not sum to totals due to rounding. DSH =
disproportionate share hospital.
Enrollment Versus Expenditures
Different Medicaid enrollment groups have different
service-utilization patterns. For FY2017, Figure 4 shows an
estimated 39% of all Medicaid enrollees were children but
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 Medicaid benefit
Source: Actual expenditures are from Form CMS-64 data as of
spending (an estimated 38%).
September 15, 2020. Projected expenditures are from CMS, 2018
Actuarial Report, 2020, prepared prior to the COVID-19 pandemic.
Figure 4. Estimated Medicaid Enrollment and
Expenditures for Benefits, by Enrollment Group
Figure 2 shows historical and projected Medicaid
expenditures from FY1997 through FY2027. In FY2019,
Medicaid spending on services and administrative activities
in the 50 states, the District of Columbia, and the territories
totaled $627 billion. Medicaid expenditures are estimated to
grow to $1,008 billion in FY2027. CMS prepared these
projected expenditures prior to the COVID-19 pandemic.
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
Source: CMS, 2018 Actuarial Report, 2020.
capita incomes). In FY2021, FMAP rates range from 50%
(13 states) to 77.76% (Mississippi). States are receiving a
For more information about the Medicaid program, s ee
6.2-percentage-point increase to FMAP rates during the
CRS Report R43357, Medicaid: An Overview and CRS
COVID-19 public health emergency period. Other federal
Report R42640, Medicaid Financing and Expenditures.
Medicaid matching rates are provided for certain states,
situations, populations, providers, and services.
Alison Mitchell, Specialist in Health Care Financing

Medicaid Primer

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