What Is Medicaid and How Does Medicaid Work?

Medicaid is a public benefits program that provides health insurance to low-income children, seniors, and people with disabilities. In addition, it covers care in a nursing home for those who qualify. Different states may have different names for the program. For instance, California calls it “Medi-Cal,” Massachusetts refers to it as “MassHealth,” and Tennessee has “TennCare.”

Is Medicaid State or Federal?

Medicaid is a joint state-federal program. It provides millions of Americans with comprehensive health coverage and financial protection. As of October 2023, more than 80 million individuals were enrollees.

Medicaid began in 1965 as a cash assistance program for qualifying individuals or families. In the following years, Congress expanded federal minimum requirements to provide coverage types particularly for children, pregnant women, and people with disabilities. In 2010, the broader health care coverage of the Affordable Care Act (ACA) expanded the program further. It came to include non-elderly adults with qualifying low incomes and continues to meet changing needs.

Although Medicaid funding is a federal-state partnership, states administer the programs and have some flexibility. They can determine who to cover, delivery models, and payment methods for physicians and hospitals. (Note that states can change the criteria to qualify from year to year.) States also may apply for a waiver to experiment with different programs and decide what should become permanent.

Medicaid entitlement has two basic guarantees. First, all Americans who qualify for Medicaid get guaranteed health care coverage. Second, states receive guarantees for federally matched funds without a cap for enrollees’ qualified services.

Under current law, nearly all Medicaid federal funding is open-ended, although this may change. As mentioned above, each state operates its own system. Yet these systems must conform to federal guidelines if the state wants to receive federal money.

The federal government pays anywhere from 54 percent to 79 percent of each state’s annual Medicaid costs. The state picks up the remainder.

Optional Services

In addition to the Medicaid federal law service requirements, many states provide optional services. These services include physical therapy, prescription drugs, eyeglasses, and dental care. Medicaid expansion for adults is part of the ACA’s 10 “essential health benefits,” which include the following:

• Outpatient care

• Emergency services

• Surgery and overnight hospital stays

• Pregnancy, maternity, and newborn care

• Mental health and substance abuse disorders

• Prescription drugs

• Rehabilitative services and devices

• Laboratory services

• Preventative and wellness services

Medicaid covers the cost of long-term care, including nursing homes and many community-based long-term services. More than half of all Medicaid long-term care spending is for home and community-based services (HCBS). These services enable seniors and people with disabilities to live with more independence. Emphasis has been shifting away from institutional settings, although intermediate care facilities for certain populations remain a priority.

Privately Managed Care Plans for Enrollees

Nearly three-quarters of Medicaid recipients today are in privately managed care plans. With Medicaid managed care, states contract with managed care organizations, or MCOs to provide services.

Most states cover long-term care services through this kind of arrangement to help contain costs. MCOs comprise various entities; some involve physicians, while others combine physicians, hospitals, and other providers. Other enrollees receive their care in a fee-for-service system.

Medicaid recipients have far better access to health care than the uninsured. The program helps them access medical care before health problems become severe and more costly. The satisfaction ratings of recipients are comparable to those rates for individuals with private health insurance.

Long-Term Care Services

Without any other public program covering long-term care, Medicaid has become the default nursing home insurance of the American middle class. Most people lack access to alternatives, such as paying privately or having a long-term care insurance policy. They often have no choice but to pay out of their own pockets for long-term care until they become eligible for Medicaid.

Recognizing that home care costs far less than nursing home care, states are providing Medicaid-covered services to those who remain in their homes. These in-home care options are typically available through waiver programs. Note that each state has its own rules in place with regard to these waiver programs.

What Is the Difference Between Medicare and Medicaid?

Their names are confusingly alike. But Medicaid and Medicare are quite different programs.

For one thing, all retirees who receive Social Security benefits also receive Medicare as their health insurance. Medicare is an "entitlement" program, whereas Medicaid is a "needs-based" program. To be eligible for the latter, you must become "impoverished" under the program's guidelines.

Also, unlike Medicare, which is totally federal, Medicaid is, as mentioned, a joint federal-state program. This complicates matters, since the rules to qualify for Medicaid are somewhat different from state to state and they keep changing. To be certain of your rights, consult an expert. They can guide you through the complicated rules of the different programs and help you plan ahead.

Work With an Elder Law Attorney

Medicaid planning with a professional can save you a great deal of heartache. The rules of this program can vary widely across states and often undergo changes. Connect with a qualified elder law attorney when researching your options. Find an elder law attorney near you today who is familiar with the laws of your state.

For additional reading on the ins and outs of this public health insurance program, refer to the following articles:

• How Much Money Can You Have and Still Qualify for Medicaid?
• Medicaid's Benefits for Assisted Living Residents
• How to Get Medicaid Coverage for Care at Home
• Home Care Waivers Can Help You Avoid a Nursing Home, But the Line Can Be Long
• Bill Advocates for Seniors Who Seek at-Home Care