Medicaid is the safety net healthcare program for low-income individuals.
Medicaid has been in the news thanks to the One Big Beautiful Bill Act (HR 1), the budget reconciliation bill Congress has been working on this year. Since it's a popular topic in the news, we here at the IC thought it might be a good idea to explain a few things about this program. This post will serve as the first part of a series on different aspects of Medicaid. You could easily fill a small library with books on Medicaid policy, its history, descriptions of state programs, and more. Here, we'll provide a bird's-eye view of the program, covering the basics of how it functions and who is eligible.
Quick Definition
Medicaid is the safety net healthcare program for low-income individuals. Medicaid eligibility generally has been limited to low-income children, pregnant women, parents of dependent children, the elderly, and individuals with disabilities. The Patient Protection and Affordable Care Act (PPACA) allowed expansion to non-elderly adults with an annual income up to 133% of the federal poverty level (FPL). Additionally, anyone with end-stage renal disease is eligible for coverage through the End-Stage Renal Disease Program.
History
Congress established Medicaid in 1965 as a voluntary program for the states. If state programs met specific federal requirements, they received federal funding to help cover the costs of the program. Not all states adopted the Medicaid program until 1982. Similarly, Medicaid expansion, as authorized under the Patient Protection and Affordable Care Act, has not yet been implemented in all fifty states. As of this writing, ten states have not expanded Medicaid coverage. Medicaid has undergone numerous amendments throughout its 60-year existence and will continue to evolve in the future.
Overview
In 2023, Medicaid covered 21.2% of the population, Medicare covered 14.7%, employer-based healthcare covered 48.6% with the remaining being non-group coverage, military-based healthcare, and uninsured.1 Medicaid, unlike Medicare, functions as a partnership between the federal government and the states. Some states may categorize this relationship as abusive, while others may describe it as strained. In general, "it's complicated" covers all the states' perspectives. The Centers for Medicare and Medicaid Services (CMS) within the Department of Health and Human Services (HHS) administers the program at the federal level. At the state level, the Laboratory of the States is at work. In Medicaid circles, it's common to hear the phrase "Once you've seen one Medicaid program, you've seen one Medicaid program." The first decision states must make is whether to adopt a fee-for-service model, where a doctor is paid for specific services rendered, a managed care model, where the provider performs various tasks while the insurer manages costs and improves health outcomes, or a blend of the two. The states only get more different from there.
Medicaid presents some unique challenges, and due to its patient mix, it has some interesting statistics. For instance, in 2023, 41% of all births nationally were paid for by Medicaid. In 2022, it covered 46% of the long-term services and supports nationwide. Arizona has specific policies regarding reimbursement for equine-based medical transport due to the presence of communities in and around the Grand Canyon. Rural areas see a higher amount of spending from Medicaid. Due to the dispersed nature of rural regions, Federally Qualified Health Centers, Indian Health Services, and Rural Health Clinics rely on Medicaid payments to remain open and provide care to patients.
Although each state has its own unique population traits, like Louisiana where a third of its residents are on Medicaid and Medicaid covers two-thirds of all births in the state, there are some common features among programs. From a federal point of view, there is a basic set of coverage requirements and a minimum threshold that communities must meet. Income eligibility is based on the Federal Poverty Level (FPL). The groups of populations that must be covered are:
- certain low-income families, including parents, that meet the financial requirements of the former Aid to Families with Dependent Children 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;
- children receiving foster care, adoption assistance, or kinship guardianship assistance under SSA Title IV–E;
- certain former foster care youth;
- individuals eligible for the Qualified Medicare Beneficiary program; and
- certain groups of legal permanent resident immigrants.
Meanwhile, states have the option to cover:
- pregnant women with annual income between 133% and 185% of FPL;
- infants with family income between 133% and 185% of FPL;
- certain individuals who require 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; and
- non-elderly adults with income at or below 133% of FPL (i.e., the ACA Medicaid expansion).
In terms of available coverage options, they are too numerous to list here; however, Medicaid.gov provides a comprehensive list of required coverages here. There are two general categories of benefits. There are traditional Medicaid benefits and the Alternative Benefits Plan (ABP). The ABP enables states to customize their plan offerings for their populations. The gist of the ABP is that states must offer comparable coverage to one of four plans named in statute: the Federal employee health benefit program, the state's employee benefit plan, the commercial health maintenance organization (HMO) with the largest insured commercial, non-Medicaid enrollment in the state, or "Secretary-approved coverage." The ABP enables states to develop tailored plans to cover specific populations on their Medicaid rolls, to lower costs and improve outcomes for those populations. States are also able to offer multiple ABPs for different populations.
Funding for Medicaid programs comes from both the state and federal governments. One of the terms being discussed in the news is FMAP, or the Federal Medical Assistance Percentage. According to KFF, FMAP "is computed from a formula that takes into account the average per capita income for each State relative to the national average. By law, the FMAP cannot be less than 50%." This means that, at a minimum, the federal government is covering half of the program's costs. For FY2026, Mississippi has the highest FMAP rate of states at 76.9%, while American Samoa, Guam, the US Virgin Islands, and the Northern Mariana Islands all have the highest FMAP in the program at 83%. Ten states have a minimum 50%. The PPACA added additional funding to cover the cost of expansion. This assistance began as a 100% match and is now a 90% match for the expansion population.
One last topic to cover in this basic overview of Medicaid is demonstration waivers. Section 1115 waivers enable states to experiment with different approaches for pilot or demonstration projects that, in the Secretary's opinion, help achieve the goals of the Medicaid program. Waivers can be used to expand coverage for specific populations, restructure coverage outside the minimum requirements to meet the geographic needs of states, to enable work or community involvement requirements as a condition of coverage, or to offer coverage for things that are not typically covered, such as temporary housing assistance or other social supports. CMS maintains a database of all approved state waiver programs.
Medicaid is an extensive federal program with 56 separate implementations (50 states, DC, and five territories). It covers 1 in 5 Americans and pays for 2 in 5 live births in the United States. Hopefully, Part 1 of our series has helped provide some context around an incredibly complex healthcare program.
