Overview of Medicaid

Medicaid was created on July 30, 1965 through the Social Security Act.  It is a program that provides health coverage to low income individuals and families including nursing home coverage.  Medicaid is managed by the individual states but is funded jointly by the states and the federal government.  Because Medicaid is a state administered program, each state has its own guidelines regarding eligibility and services.  Although each state administers its own Medicaid program, the federal Centers for Medicare and Medicaid Services monitors the state-run programs and establishes requirements for service delivery, quality, funding, and eligibility standards.

The eligibility rules differ significantly from state to state, although all states must follow the same basic framework.  In addition, each state has its own name for the Medicaid program.  Examples include “Medi-Cal” in California, “MassHealth” in Massachusetts, “Oregon Health Plan” in Oregon, and “TennCare” in Tennessee.  States may also bundle together the administration of Medicaid with other separate programs such as the State Children’s Health Insurance Program.

Although state participation in Medicaid is voluntary, all states have participated in the implementation of the Medicaid program.  In some states Medicaid is subcontracted to private health insurance companies while in other states it is subcontracted to the providers directly (i.e., doctors, clinics and hospitals).

Though both Medicare and Medicaid provide health care coverage, there are some basic differences between the two.  Medicare is funded entirely at the federal level.  Conversely, states provide up to half of the funding for the Medicaid program. The federal matching formula is different from state to state, depending on each state’s poverty level. The wealthiest states only receive a federal match of 50% while poorer states receive a larger match.

Moreover, unlike the Medicare entitlement program, Medicaid is a means-tested, needs-based social welfare program rather than a social insurance program. Eligibility is determined largely by income. The main criterion for Medicaid eligibility is limited income and financial resources, a criteria which plays no role in determining Medicare coverage.  In addition, Medicaid covers a wider range of health care services than Medicare does.  However, there are instances where a person may be eligible for both Medicaid and Medicare.

Both the federal government and state governments have made changes to the eligibility requirements and restrictions over the years.  Most recently, the Deficit Reduction Act of 2005 significantly changed the rules governing the treatment of asset transfers and homes of nursing home residents.  As per the changes made by the Deficit Reduction Act, a five-year “look-back period” is now created.   That means that if a Medicare applicant makes a transfer below fair market value during the preceding five years, he/she will be penalized for the same.  The Deficit Reduction Act also now requires that anyone seeking Medicaid must produce documents to prove that he or she is a United States citizen or resident alien.

Medicaid does not pay benefits to individuals directly.  Medicaid sends benefit payments to health care providers. Since there are differences in the way Medicaid is administered in the various states, some states may require Medicaid beneficiaries to pay a small fee (co-payment) for medical services.


Inside Overview of Medicaid