Medicaid: A Primer
Medicaid: A Primer
Elicia J. Herz
Specialist in Health Care Financing
April 4, 2013
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Medicaid: A Primer
Summary
In existence for 48 years, Medicaid is a means-tested entitlement program that financed the
delivery of primary and acute medical services as well as long-term care to more than 71 million
people in FY2012. The estimated annual cost to the federal and state governments was roughly
$432 billion in FY2011. In comparison, the Medicare program provided health care benefits to
nearly 49 million seniors and certain persons with disabilities in CY2011, and cost roughly $560
billion in FY2011. Because Medicaid represents a large component of federal mandatory
spending, Congress is likely to continue its oversight of Medicaid’s eligibility, benefits, and costs.
Understanding the complex statutory and regulatory rules that govern Medicaid is further
complicated by the fact that each state designs and administers its own version of the program
under broad federal rules. State variability is the rule rather than the exception in terms of
eligibility levels, covered services, and how those services are reimbursed and delivered. The
Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) makes both
mandatory and optional changes to Medicaid along some of these dimensions.
This report describes the basic elements of Medicaid, focusing on the federal rules governing who
is eligible, what services are covered, how the program is financed, how beneficiaries share in the
cost of care, how providers are paid, and the role of special waivers in expanding eligibility and
modifying benefits. Examples of both mandatory and optional eligibility groups and benefits as
defined in the federal statute are described. Basic program statistics are also provided. Finally,
selected legislative changes at the federal level via the ACA, and the Supreme Court decision in
National Federation of Independent Business v. Sebelius announced on June 28, 2012, that affect
Medicaid in significant ways are also described.
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Medicaid: A Primer
Contents
Who Is Eligible for Medicaid? ......................................................................................................... 1
What Benefits Does Medicaid Cover? ............................................................................................. 5
Traditional Medicaid Benefits ................................................................................................... 5
Benchmark Benefit Packages .................................................................................................... 8
How Is Medicaid Financed? ............................................................................................................ 9
Do Beneficiaries Pay for Medicaid Services? ............................................................................... 11
Service-Based Cost Sharing Under Traditional Medicaid ....................................................... 11
Participation-Related Cost Sharing Under Traditional Medicaid ............................................ 12
Beneficiary Cost Sharing Under DRA .................................................................................... 12
How Are Providers Paid Under Medicaid? .................................................................................... 13
How Do Medicaid Research and Demonstration Waivers Work? ................................................. 14
Some Medicaid Statistics ............................................................................................................... 15
Medicaid Resources ....................................................................................................................... 16
Tables
Table 1. Coverage of the New Medicaid Group for Non-Elderly, Non-Pregnant
Individuals with Income Up to 133% FPL ................................................................................... 4
Contacts
Author Contact Information........................................................................................................... 16
Key Policy Staff ............................................................................................................................. 16
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Medicaid: A Primer
edicaid was enacted in 1965 in the same legislation that created the Medicare program
(i.e., the Social Security Amendments of 1965; P.L. 89-97). Medicaid grew out of and
Mreplaced two earlier programs of federal grants to states that provided medical care to
welfare recipients and the elderly. It has expanded in additional directions since that time, most
recently with the enactment of the Patient Protection and Affordable Care Act (ACA; P.L. 111-
148, as amended).1
In the federal budget, Medicaid is an entitlement program that constitutes a large share of
mandatory spending. Two other federally supported health programs—Medicare and the State
Children’s Health Insurance Program (CHIP)—are also entitlements,2 and are also components of
mandatory spending in the federal budget. All three programs finance the delivery of certain
health care services to specific populations. While Medicare is financed by the federal
government and premiums paid by beneficiaries, both Medicaid and CHIP are jointly financed by
the federal and state governments. Federal Medicaid spending is open-ended, with total outlays
dependent on the generosity of state Medicaid programs. In contrast, CHIP is a capped federal
grant to states.
Even though Medicaid is an entitlement program in federal budget terms, states choose whether
to participate, and all 50 states do so. If they choose to participate, states must follow federal rules
in order to receive federal reimbursement that offsets at least half of their Medicaid costs.
Although this report describes federal Medicaid requirements, a number of these requirements
can be waived, with approval from the Secretary of Health and Human Services (HHS), as
discussed in the subsection on research and demonstration waivers.
Who Is Eligible for Medicaid?
The federal Medicaid statute (Title XIX of the Social Security Act) defines more than 50 distinct
population groups as being potentially eligible. Historically, Medicaid eligibility was subject to
categorical restrictions that generally limited coverage to the elderly, persons with disabilities (as
generally defined under the federal Supplemental Security Income Program, or SSI),3 members of
families with dependent children, certain other pregnant women and children, certain women with
breast or cervical cancer, and uninsured individuals with tuberculosis. Recent changes in law
(described below) provide eligibility for nonelderly, childless adults who do not fit into these
traditional categories.
In addition, to qualify for Medicaid coverage, applicants’ income (e.g., wages, Social Security
benefits) and sometimes their resources, or assets (e.g., value of a car, savings accounts), must
1 For more information on the Medicaid changes under ACA, see CRS Report R41210, Medicaid and the State
Children’s Health Insurance Program (CHIP) Provisions in ACA: Summary and Timeline.
2 The term “entitlement” has two meanings in this context. To receive federal matching funds, states must meet federal
minimum requirements with respect to beneficiary eligibility and benefits (among other requirements). Individuals who
meet state eligibility requirements are entitled to Medicaid. Similarly, individuals who meet federal eligibility
requirements are entitled to Medicare. In contrast, states that meet certain federal requirements are entitled, or have
access to, federal CHIP grants. All states have qualified for CHIP. There is no individual entitlement under CHIP.
3 SSI is a needs-based program that provides cash benefits to ensure a minimum income to aged, blind, or disabled
persons with limited income and assets. It is a means-tested program that does not have work or contribution
requirements, but restricts benefits to those who meet asset and resource limitations. For more information about SSI,
see CRS Report 94-486, Supplemental Security Income (SSI).
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Medicaid: A Primer
meet program financial requirements. Medicaid began with eligibility based on receipt of cash
assistance under other programs such as Aid to Families with Dependent Children (AFDC), or the
SSI program, as noted above. In recent years, Medicaid has shifted largely to eligibility based on
income, and most enrollees do not receive cash assistance. However, states are still required to
apply rules used by their former AFDC programs4 or the federal SSI program when determining
countable income for Medicaid. Generally, SSI rules are applicable to the elderly and those with
disabilities, while AFDC rules are applicable to other groups. These programs differ on what
counts as income and how much is disregarded (ignored) for determining financial eligibility for
Medicaid. States have the option to apply additional disregards in order to reduce countable
income.
Some eligibility groups are mandatory, meaning that all states with a Medicaid program must
cover them; others are optional. Examples of groups that states must provide Medicaid to include
• poor families that meet the financial requirements (based on family size) of the
former AFDC cash assistance program;5
• families losing Medicaid eligibility due to increased earnings from work who
receive up to 12 months of Medicaid coverage;6
• pregnant women and children through age 6 with family income at or below
133% of the federal poverty level (FPL);7
• children ages 6 through 18 with family income at or below 100% FPL, rising to
133% FPL beginning in 2014 (or sooner at state option);
• low-income individuals who are age 65 and older, or blind, or under age 65 and
disabled who qualify for cash assistance under the SSI program;8
• certain groups of legal permanent resident immigrants (e.g., refugees for the first
seven years after entry into the United States.; asylees for the first seven years
after asylum is granted; lawful permanent aliens with 40 quarters of creditable
coverage under Social Security; immigrants who are honorably discharged U.S.
military veterans) who meet all other financial and categorical Medicaid
eligibility requirements; and
• beginning in 2014, certain individuals who age out of foster care, up to age 26,
and do not qualify under one of the other mandatory groups noted above.
Additionally, the ACA expanded Medicaid to include a new mandatory eligibility group.
Beginning in 2014 (or sooner at state option) all non-elderly, non-pregnant adults with modified
4 Under the 1996 welfare reform law (The Personal Responsibility and Work Opportunity Reconciliation Act of 1996,
P.L. 104-193), AFDC was replaced with the Temporary Assistance for Needy Families (TANF) program.
5 AFDC income standards are well below the federal poverty level, but states can modify (liberalize or potentially
further restrict) these criteria. Although TANF recipients are not automatically eligible for Medicaid, some states have
aligned income rules for TANF and Medicaid, thus facilitating Medicaid coverage for some TANF recipients.
6 This provision has been extended by several federal laws over time. Most recently, the American Taxpayer Relief Act
of 2012 (P.L. 112-240) made this provision effective through December 31, 2013.
7 For example, in 2013, the FPL for a family of four is $23,550—133% of FPL for such a family would equal
$31,321.50. See http://www.gpo.gov/fdsys/pkg/FR-2013-01-24/pdf/2013-01422.pdf.
8 Some states use income, resource and disability standards that differ from current SSI standards.
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Medicaid: A Primer
adjusted gross income (MAGI)9 at or below 133% FPL who do not qualify under one of the other
mandatory groups noted above will be eligible for Medicaid.10 As shown in Table 1, some states
have elected to cover this group prior to 2014.
However, on June 28, 2012, the United States Supreme Court issued a decision in National
Federation of Independent Business v. Sebelius. The Court held that the federal government
cannot terminate current Medicaid federal matching funds if a state refuses to expand its
Medicaid program to include non-elderly, non-pregnant adults with income under 133% of the
federal poverty level. If a state accepts the new ACA Medicaid expansion funds, it must abide by
the new expansion coverage rules, but, based on the Court’s opinion, it appears that a state can
refuse to participate in the expansion without losing any of its current federal Medicaid matching
funds.11 The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT)
estimated that coverage expansion provisions in the ACA would increase enrollment by about 7
million in FY2014, rising to 11 million by FY2022 in both the Medicaid and the State Children’s
Health Insurance Programs (Congressional Budget Office, Estimates for the Insurance Coverage
Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision, July
2012). Many of these new enrollees will get Medicaid benchmark benefits, described further
below.
9 MAGI is defined as the Internal Revenue Code’s Adjusted Gross Income (AGI, which reflects a number of
deductions, including trade and business deductions, losses from sale of property, and alimony payments) increased (if
applicable) by tax-exempt interest and income earned by U.S. citizens or residents living abroad. While the Internal
Revenue Service’s definition of MAGI excludes non-taxable social security benefits, P.L. 112-56, enacted on
November 21, 2011, changed the definition of income for Medicaid eligibility to include such non-taxable social
security benefits. For more information, see CRS Report R41997, Definition of Income for Certain Medicaid
Provisions and Premium Credits in ACA, coordinated by Janemarie Mulvey.
10 On March 29, 2013, the Centers for Medicare and Medicaid Services (CMS) issued a final rule implementing the
ACA’s increased federal matching rate applicable to this new ACA eligibility group, beginning on January 1, 2014. For
additional information, see http://www.cms.gov/apps/media/press/factsheet.asp?Counter=4567&intNumPerPage=10&
checkDate=&checkKey=&srchType=1&numDays=3500&srchOpt=0&srchData=&keywordType=All&
chkNewsType=6&intPage=&showAll=&pYear=&year=&desc=&cboOrder=date.
11 There are a number of additional questions associated with the Supreme Court decision. For a more detailed
discussion, see the CRS Congressional Distribution Memo, Selected Issues Related to the Effect of NFIB v. Sebelius on
the Medicaid Expansion Requirements in Section 2001 of the Affordable Care Act by Kathleen S. Swendiman and
Evelyne P. Baumrucker. Also, see http://www.crs.gov/analysis/legalsidebar/pages/details.aspx?ProdId=117, and
http://www.crs.gov/analysis/legalsidebar/pages/details.aspx?ProdId=121.
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Medicaid: A Primer
Table 1. Coverage of the New Medicaid Group for Non-Elderly, Non-Pregnant
Individuals with Income Up to 133% FPL
Upper Income Level
States
(% FPL)
Method of Adoptiona Effective
Month
California 200%
(varies
by
Section 1115 waiver
November 2010
county)
Colorado
10% (with limited
Section 1115 waiver
March 2012
enrol ment)
Connecticut
56%
State plan amendment
April 2010
District of Columbia
Action 1
133%
State plan amendment
May 2010
Action 2
133%-200%
Section 1115 waiver
November 2010
Illinois (Cook
133%
Section 1115 waiver
October 2012
County/Greater Chicago
Area)
Minnesota
Action 1
75%
State plan amendment
March 2011
Action 2
75%-250%
Section 1115 waiver
August 2011
New Jersey
24%
Section 1115 waiver
April 2011
Ohio (Cuyahoga
133%
Section 1115 waiver
February 2013
County/Greater Cleveland
Area)
Washington State
133%
Section 1115 waiver
January 2011
Source: Centers for Medicare & Medicaid Services, Office of Legislation, personal communication, February, 6
2013.
Notes: In addition to these states, Guam was approved to cover such individuals up to 100% FPL effective
January 2012, and Puerto Rico was approved to cover such individuals with income up to 43% FPL effective July
2011. There may be additional states not represented in this table that extended Medicaid eligibility to low-
income childless adults via Section 1115 waiver authority prior to enactment of the ACA. FPL = federal poverty
level.
a. Section 1115 of the Social Security Act provides authority for research and demonstration waivers. Under
such authority, the Secretary can waive certain elements of a Medicaid state plan.
Examples of groups that states may choose to cover under Medicaid include
• parents with income above AFDC financial levels;
• pregnant women and infants with family income exceeding 133% FPL up to and
including 185% FPL;
• individuals who are ages 65 and over, or blind, or under age 65 and disabled
whose income exceeds the SSI level (about 75% FPL nationwide) up to and
including 100% FPL;
• certain children with disabilities who live at home but need the level of care
provided in an institution; in these cases, children whose income meets the SSI
level may qualify for Medicaid, and parental income and assets are ignored for
the purposes of determining eligibility;
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Medicaid: A Primer
• individuals who are living in institutions (e.g., nursing facilities or other medical
institutions) with income up to and including 300% of the maximum SSI benefit
(about 220% FPL);
• the “medically needy” who are individuals in categories selected by the state
(e.g., age 65 and above, the disabled, families with dependent children) whose
income is too high to qualify as categorically needy. For states that elect the
medically needy option, coverage must be provided to certain pregnant women
and children under age 18. Medically needy coverage is particularly important
for the elderly and persons with disabilities, since this pathway allows deductions
for medical expenses that lower the amount of income counted in the
determination of financial eligibility for Medicaid.12
• legal immigrants after their first five years (or earlier for children and pregnant
women) in this country; and
• beginning in 2014, all non-elderly, non-pregnant individuals with MAGI above
133% FPL.13
As of January 1, 2014, modified adjusted gross income (MAGI) rules14 will apply to most
Medicaid enrollees (beyond the expansion group that was a focus of the Supreme Court decision).
Also, no asset test will apply. In addition, for certain eligibility groups, states must disregard
dollar amounts equal to 5% FPL, and states are prohibited from applying additional income
disregards. MAGI will not apply for specific exempted populations (e.g., those eligible for
Medicaid based on their eligibility through another federal or state program such as SSI or foster
care, the elderly, certain disabled individuals, and medically needy populations). For such
exempted populations, AFDC and SSI income counting rules will continue to apply.
What Benefits Does Medicaid Cover?
Prior to 2006, in general, states provided mandatory and state-selected optional benefits to their
Medicaid beneficiaries. In this report, these are referred to as “traditional” benefits. Beginning in
2006, as an alterative to traditional benefits, states were given the option to provide what are
called “benchmark” benefit packages to certain Medicaid subpopulations. These plans can also be
limited to substate areas. When certain conditions are met, states can also offer premium
assistance for health insurance offered through employer-based plans for Medicaid children and
their parents.
Traditional Medicaid Benefits
Like eligibility, federal rules require states with Medicaid programs to cover certain benefits
under the traditional Medicaid program. Certain other services may also be offered at state option.
States define the specific features of each covered benefit within four broad federal guidelines:
12 For additional information about medically needy coverage, see http://www.medicaid.gov/Medicaid-CHIP-Program-
Information/By-Population/Adults/Non-Disabled-Adults.html.
13 It is unclear how many states will elect this option given that, beginning in 2014, these individuals will be eligible for
coverage through state-based exchanges.
14 The recent Supreme Court decision on the ACA did not affect the new MAGI rules.
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Medicaid: A Primer
• 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 categorically needy groups15 must
be equal in amount, duration, and scope. These requirements are called 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, beneficiaries must have “freedom of choice” among
health care providers or managed care entities participating in Medicaid.
Standard benefits identified in the federal statute and regulations include a wide range of medical
care and services. Some benefits are specific items, such as eyeglasses and prosthetic devices.
Other benefits are defined in terms of specific types of providers (e.g., physicians, hospitals)
whose array of services are designated as coverable under Medicaid. Still other benefits define
specific types of service (e.g., family planning services and supplies, pregnancy-related services)
that may be delivered by any qualified medical provider that participates in Medicaid.
Examples of benefits that are mandatory for most Medicaid groups include
• inpatient hospital services (excluding services for mental disease);
• services provided by federally qualified health centers;
• services provided by free-standing birthing centers;
• laboratory and x-ray services;
• physician services;
• pregnancy-related services;
• smoking cessation services for pregnant women (i.e., counseling and
pharmacotherapy) with no beneficiary cost-sharing;
• nursing facility services for individuals age 21 and over; and
• home health care for those entitled to nursing home care.
Examples of optional benefits for most Medicaid groups include
• prescribed drugs (covered by all states);
• routine dental care;
• physician-directed clinic services;
• services of other licensed practitioners (e.g., optometrists, podiatrists,
psychologists);
15 Categorically needy groups include families with children, the elderly, persons with disabilities, and certain other
pregnant women and children who meet former AFDC- and SSI-related financial standards, or have income below
specified percentages of the FPL. Beginning in 2014, or earlier at state option, this group will also include non-elderly,
non-pregnant adults.
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Medicaid: A Primer
• beginning in 2013, certain preventive care services recommended by the U.S.
Preventive Services Task Force and adult immunizations recommended by the
Advisory Committee on Immunization Practices;
• inpatient psychiatric care for the elderly and for individuals under age 21;16
• nursing facility services for individuals under age 21;
• consumer-directed personal care attendant services for persons with income up to
150% FPL, or higher when certain conditions are met;
• physical therapy; and
• prosthetic devices.
The optional traditional benefits offered vary across states. In addition, 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)—again, as long as applicable requirements are met
regarding comparability, statewideness and sufficiency of amount, duration and scope within the
state. Exceptions to stated limits may be permitted under circumstances defined by the state.
The federal Medicaid statute also specifies special benefits or special rules regarding certain
benefits for targeted populations. For example:
• Most Medicaid children under age 21 are entitled to Early and Periodic
Screening, Diagnostic and Treatment (EPSDT) services. Under EPSDT, children
receive well-child visits, immunizations, laboratory tests, and other screening
services at regular intervals. In addition, medical care that is necessary to correct
or ameliorate identified defects, physical and mental illness, and other conditions
must be provided, including optional services that states do not otherwise cover
in their Medicaid programs.
• Unauthorized aliens (i.e., illegal aliens, foreign nationals who are not lawfully
present in the United States) are ineligible for Medicaid. Such individuals who
meet the eligibility requirements for Medicaid, but are ineligible due to
immigration status, may receive Medicaid coverage for emergency conditions
(i.e., emergency Medicaid) only, which includes costs associated with emergency
labor and delivery for pregnant women and excludes costs for organ transplants.
• Special benefit rules apply to optional medically needy populations. States may
offer a more restrictive benefit package than is provided to categorically needy
populations, but at a minimum, must offer (1) prenatal, delivery, and postpartum
services for pregnant women; (2) ambulatory services as defined in the state
Medicaid plan for individuals under 18 and those entitled to institutional
16 The ACA established a three-year, $75 million Medicaid emergency psychiatric demonstration project. Eligible
states will reimburse certain private institutions for mental disease (IMDs) for services rendered to adults (ages 21 to
64) to stabilize a psychiatric emergency medical condition. For more information about this demonstration, see CRS
Report R41210, Medicaid and the State Children’s Health Insurance Program (CHIP) Provisions in ACA: Summary
and Timeline, and the following link to the CMS website at http://innovations.cms.gov/initiatives/medicaid-emergency-
psychiatric-demo/index.html.
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