What is Medicaid?

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Medicaid is a government program that provides free or low-cost health insurance coverage to eligible low-income Americans.

🤔 Understanding Medicaid

Signed into law by President Lyndon Johnson in 1965, Medicaid is a public program that provides health coverage to qualifying low-income Americans. States and the federal government fund the program jointly. In order to receive federal dollars, states have to cover specific services and certain groups, including children, pregnant women, elderly people, and people with disabilities that fall below a certain income threshold. Beyond that, states have flexibility to determine which other people and services to cover. As of December 2019, the program provided health insurance for 63.9M Americans. Some Medicaid recipients also qualify for Medicare, a separate federal health insurance program for seniors and certain people with disabilities.


Suppose you get laid off and lose your health insurance. If you can’t find another job with health benefits or afford to buy health insurance yourself, you can apply for Medicaid. The requirements to qualify vary depending on the state you live in. If you’re eligible, coverage might be free, or you might have to pay deductibles, premiums, or copays.


Medicaid is basically the government acting like an insurance company…

Many full-time employees get health insurance coverage through their jobs. They pay insurance premiums, and their employers may shoulder some of the cost. But many people aren’t able to work or have jobs that don’t offer health benefits. Medicaid is there for low-income people who can’t afford to purchase insurance coverage another way. We all pay into the program through our tax dollars, and qualifying participants have access to affordable medical care when they need it.

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Who pays for Medicaid?

Medicaid is costly. As of 2018, $597.4B of national health expenditures (16 percent) went toward Medicaid.

Federal law doesn’t require that states participate in Medicaid, but all states do. The federal government provides grants to states to help pay for the program — Overall, they cover about 60 percent of total Medicaid costs. The share each state gets is determined by a formula based on its per capita income, with the federal government chipping in more in poorer states). States report their Medicaid spending each quarter, and the federal government contributes at each state’s matching rate. Most states pay for their share of out of their general funds.

The federal government pays more for certain Medicaid recipients and services. The Affordable Care Act passed in 2010 allowed states to expand Medicaid to people under age 65 earning up to 138 percent of the federal poverty level (expansion was a requirement until a 2012 Supreme Court ruling). The federal government pays 90 percent of Medicaid costs for individuals who became eligible under the expansion (until 2016, it paid 100 percent).

Because the government funds Medicaid, tax dollars ultimately pay for it. There is no specific tax financing the program, as there is with Medicare and Social Security. Rather, the money comes from general revenues in the form of tax dollars. The largest source of tax revenue for the federal government is income taxes. For state governments, tax revenue comes from income, property, and sales taxes. Some states also impose a tax on health providers to help fund Medicaid.

Depending on what state you’re in, Medicaid recipients might also help pay for the program. Some states require recipients to pay a small copay toward medical care. For example, Wisconsin requires patients to pay between $0.50 and $3.00 per service. Individuals in some states also pay premiums and deductibles.

What is the difference between Medicaid and Medicare?

Medicaid and Medicare are both health insurance programs that the government runs and funds, but they’re different. Medicaid covers people with low incomes, and federal and state governments jointly operate and pay for the program.

Medicare, on the other hand, provides coverage to individuals who are 65 or older or have certain disabilities and diseases, regardless of income. To be eligible, recipients must be US citizens or legal permanent residents who have lived in the country for five straight yeras. To avoid premiums, the recipient or his or her spouse must have worked and paid Medicare taxes for at least 10 years.

Medicare has several components:

  • Part A covers hospital inpatient services, lab tests, surgery, and more
  • Part B covers medical services, like doctor visits
  • Part D covers prescription drugs

Part A is usually free, while Parts B and D are not. Depending on your plan and the state in which you live, Medicare plans might include some out-of-pocket costs, such as:

  • Premiums: A monthly cost you pay for your plan
  • Copays: A small fee you pay for each visit
  • Deductibles: The amount you must pay annually before your full coverage kicks in

Medicare is funded through a special payroll tax. In 2020, the Medicare tax is 1.45 percent of income. Together with the Social Security tax, it makes up the Federal Insurance Contributions Act (FICA) tax, which is 7.65 percent of each worker’s pay and split evenly between employers and employees.

The two programs vary slightly in what services they cover. For example, Medicare Part A covers hospital care, skilled nursing facilities, and hospice, while Part B covers outpatient medical services and preventative care. Medicaid coverage varies by state, but all states must cover specific inpatient and outpatient services, nursing facilities, laboratory and X-ray services, and physician services. States can choose to cover other services, like prescription drugs, physical therapy, and dental services.

How does Medicaid work with the Affordable Care Act?

In the past, millions of Americans went without health insurance because they didn’t qualify for Medicaid and couldn’t afford coverage on the private market.

In March 2010, President Obama signed into law the Affordable Care Act, which sought to improve access to affordable healthcare. One of the provisions created a federally run health insurance marketplace. The bill also created subsidies to help people under a certain income threshold pay for health insurance.

Another critical element of the Affordable Care Act was that it expanded Medicaid eligibility to anyone under age 65 with income up to 138 percent of the federal poverty line. Previously, states were only required to cover certain people, such as children, pregnant women, and those with disabilities, who fell under this threshold. In 2012, a Supreme Court ruling made Medicaid expansion optional for states. As of January 2020, 36 states and the District of Columbia have adopted it.

So how does it work today? In states that did not accept the Medicaid expansion, you can qualify for Medicaid coverage if you meet that state’s requirements. In all states, families with household income between 100 and 400 percent of the federal poverty line can qualify for subsidies (tax credits toward premiums) under the Affordable Care Act.

The income that determines eligibility for these programs is not a household’s total income, but rather its modified adjusted gross income (MAGI) — which is adjusted gross income with a few tax deductions added back in.

Who qualifies for Medicaid?

As of December 2019, Medicaid provided health insurance coverage for about 63.9M Americans. Four in 10 recipients are children, and a quarter are elderly or disabled. Most adults who get Medicaid and aren’t elderly or disabled have jobs but don’t have access to affordable coverage through their employers.

Whether you qualify for Medicaid varies based on where you live. If you reside in a state that expanded Medicaid under the Affordable Care Act, you should qualify if your household’s modified adjusted gross income is up to 138 percent of the federal poverty line. In 2020, the federal poverty level was $12,760 for a single person, plus $4,480 for every extra person in the household. As of Feb. 2020, the only states that haven’t adopted the expanded program were Alabama, Florida, Georgia, Kansas, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Wisconsin, and Wyoming.

If your state hasn’t expanded Medicaid, there’s more uncertainty. As of January 2020, the median income limit to qualify for adults who weren’t elderly or disabled and had dependents was 40 percent of the poverty line. Adults without children don’t qualify in virtually all of these states. As of January 2019, every state but Idaho and North Dakota allowed children in households with incomes up to 200 percent of the federal poverty line to qualify. If you fall into one of these categories and can receive Medicaid in your state, you may still have to pay some out-of-pocket costs for your coverage.

Individuals can qualify for both Medicaid and Medicare if they meet the criteria. In 2018, 12.2M people were enrolled in both programs — known as “dual eligible.” These recipients used Medicare to cover most preventive, primary, and acute care as well as prescription drugs, while relying on Medicaid for long-term care, some behavioral health services, and help with Medicare premiums.

How do I apply for Medicaid?

The federal HealthCare.gov website has a form that you can fill out to determine whether you qualify for Medicaid. If you qualify, the site will redirect you to your state’s health and human services department, where you can finish your application and get your coverage set up. You can also apply directly through your state’s health services agency.

If you don’t qualify for Medicaid based on your income or other factors, you can visit the federal healthcare marketplace and apply for subsidies for a private health plan. These are generally available for anyone making 100 to 400 percent of the federal poverty level.

If you qualify neither for your state’s Medicaid program nor subsidies in the federal marketplace, you may still have options. Local community health centers might provide affordable health care, and many regional centers offer services on a sliding scale based on your income.

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