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Chapter 8 - Medicaid

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Content Last Updated: 8/25/2010 1:14:57 PM
Graphics Last Updated: 6/15/2009 9:04:53 AM
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Originally written by Lisa Swirsky, Alliance for Health Reform. Updated May 2010 by John Holahan, Urban Institute. This chapter was made possible by the Robert Wood Johnson Foundation. 

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  • The Census Bureau estimates that 42.3 million people were covered by Medicaid at a point in time in 2008. 1 The Medicaid Statistical Information System (MSIS) shows that the average number of people enrolled in Medicaid in 2007 was 45.4 million.2 The number covered at some point during the year is higher.3
  • There were 7.9 million individuals with disabilities and 5.2 million elderly people enrolled in Medicaid, on average, during FY 2007. 4
  • A total of 22.3 million Medicaid beneficiaries, on average, were children in FY 2007.5
  • Children made up 49.1 percent of the Medicaid population in FY 2007, but they accounted for only 20.5 percent of costs. 6
  • Medicaid is the nation's primary payer for long-term care and pays for more than half of publicly financed mental health services. 7
  • Medicaid accounted for $344 billion dollars in 2008 in combined federal and state spending.8
  • The Patient Protection and Affordability Act of 2010 provides for a substantial expansion of Medicaid. 9  

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Medicaid is an entitlement program for low-income individuals financed jointly by each state and the federal government, and state administered.

States choose to participate in Medicaid, but must accept certain federal rules if they are to receive federal Medicaid funding. They must, for example, provide certain mandatory benefits such as inpatient hospital services, laboratory and x-ray services, and physician services. 10 Medicaid also mandates a benefits package for children known as Early and Periodic Screening, Diagnostic and Treatment.11

Medicaid pays for nearly half of long-term care.12 (See Chapter 9, “Long-Term Care,” for more.) Federal law requires every state to provide nursing home care and home health care for the qualified poor. In exchange for federal funding, states must cover certain groups under Medicaid.

Prior to the 2014 implementation of the Medicaid expansion provisions of the health care reform law of 2010 (see below), states must cover:

  1. poor families that meet financial requirements for cash welfare benefits;
  2. families for one year after transitioning from welfare to work;
  3. pregnant women and children under age six with incomes below 133 percent of the federal poverty level (FPL);
  4. children ages six through 18 with income below 100 percent of the poverty level; and
  5. poor disabled or elderly persons who qualify for cash assistance under Supplemental Security Income (SSI). 13

States can voluntarily choose to cover other groups, such as pregnant women and infants between 133 percent and 185 percent of FPL and certain categorically qualified individuals whose medical expenses have made them medically needy.14   

About 22.3 million of Medicaid’s approximately 45.4 million beneficiaries are children.15 A little more than 10 million beneficiaries were adults in families with dependent children. There were 7.3 million individuals with disabilities and 5.7 million elderly people, on average, enrolled in Medicaid during FY 2007.16

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Medicaid Spending

Medicaid accounted for $344 billion dollars in 2008 in combined federal and state spending.17 About $195 billion is federal spending and the remainder is paid by states. Medicaid accounts for 8 percent of spending on prescription drugs and 17 percent of the national spending on hospital care.18

More than half of Medicaid spending is attributable to five percent of the enrolled population – those with the greatest care needs. 19 And although children made up 49.1 percent of the Medicaid population in 2007, they accounted for only 20.5 percent of costs. Non-elderly adults, who made up 22.1 percent of Medicaid beneficiaries, accounted for just 12.4 percent of the costs.20

In contrast, the elderly made up only 11.4 percent of the population, but accounted for 24.7 percent of Medicaid costs. The disabled made up 17.4 percent of the Medicaid population but accounted for 42.4 percent of costs.21

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Dual Eligibles

Much of Medicaid spending provides coverage for so-called “dual eligibles,”22 individuals entitled to both Medicare and Medicaid. Medicaid provides coverage that wraps around Medicare to individuals who are eligible for full Medicaid coverage. Medicare is the primary payer for the acute care benefits that both programs cover, with Medicaid paying the difference up to the state’s payment limit for a given service.

In 2005, there were 8.8 million dual eligibles (17.7 percent of total Medicaid enrollment) who accounted for $131.9 billion,or 45.9 percent, of Medicaid spending. Much of the Medicaid spending by dual eligibles is on long-term services.23 There are other benefits for Medicare beneficiaries entitled to some—but not full—Medicaid benefits. These benefits, collectively called the Medicare Savings Program, provide help with a variety of out-of-pocket costs.

The Qualified Medicare Beneficiary program (QMB or “Quimby”), one part of the Medicare Savings Program, pays for Medicare premiums, deductibles and coinsurance for people with incomes below 100 percent of the federal poverty level (FPL) and with resources two times the standard allowed under the Supplemental Security Income program.

Specified Low-Income Medicare Beneficiaries (SLMB or “Slimby”) have their Medicare Part B premiums paid if they are between 100 and 120 percent of the FPL and have resources at or below twice that allowed under SSI. (Part B pays for doctors.) Qualifying individuals can get help with their Part B premiums if they are between 120 and 135 percent of the FPL. However, this benefit is not an entitlement; states receive a limited amount of money from the federal government.

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Federal Medical Assistance Percentage

The federal government reimburses states for a part of their Medicaid program expenses. The federal share, known as the federal medical assistance percentage (FMAP), differs from state to state. FMAP payments vary based on state per capita income.In FY 2008, states received a share as low as 50 percent of total spending or as high as 76 percent.24

The FMAP temporarily increased, however, by 6.2 percentage points for each state under the American Recovery and Reinvestment Act passed by Congress and signed into law in early 2009. Some states with substantial increases in unemployment qualified for additional FMAP increases. 25 The increase will be in effect through the “recession adjustment period” which ends December 31, 2010.

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The Patient Protection and Affordability Care Act of 2010 (PPACA)

The Patient Protection and Affordability Care Act (PPACA) signed by President Obama on March 23, 2010 provides for a considerable expansion of Medicaid.26 States must expand Medicaid to all individuals under age 65 with incomes up to 133 percent of the federal poverty level. The law will primarily affect parents and childless adults.

The financing of the reform is somewhat complex. Currently, states receive federal assistance based on a sliding scale, where the percentage of program costs paid by the federal government (the FMAP described above) is higher for lower-income states.

States will receive their current matching rate for those who are currently enrolled in the program and those eligible under pre-reform criteria who take up coverage after the Medicaid reforms kick in in 2014. 

For those who are newly eligible under reform, states will receive a very high matching rate; federal funding for these individuals will be 100 percentfor 2014-2016, 95 percent in 2017, 94 percent in 2018, 93 percent in 2019, and 90 percent in 2020 and thereafter. States that have already expanded eligibility to childless adults will receive a higher FMAP that will increase each year so that by 2019 they receive the same federal financing as states receive for new eligibles.

Second, states may expand coverage to childless adults beginning on April 1, 2010 but will receive their regular FMAP for these individuals until 2014. This provision may be particularly attractive to states that are covering large numbers of childless adults today under a state-funded program.

Third, the law will increase Medicaid payments  for providers in family medicine, general internal medicine, or pediatric medicine who provide primary care in  in fee-for-service and managed care practices. Rates will increase to 100 percent of Medicare payment rates for 2013 and 2014; these increased payment rates are 100 percent federally financed.

Fourth, states are required to maintain current Medicaid (and Children’s Health Insurance Program) eligibility levels for children until 2019, and maintain current Medicaid eligibility levels for adults, until the new health insurance exchanges are fully operational. (See the health reform chapter for details.)

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The expansion of Medicaid to adults with income up to 133 percent of the federal poverty level under the Patient Protection and Affordability Care Act will mean large increases in enrollment in many states. Because of the very high federal matching rates available to states for new enrollees, new state financial burdens will be relatively low initially. However, the administrative burden of large increases in enrollment is likely to be significant. Are states equipped for those new responsibilities?

States are facing enormous problems in paying for their Medicaid programs because of the recession. The American Recovery and Reinvestment Act (ARRA) has helped states finance higher levels of enrollment. Once the enhanced match provided by the ARRA ends, the state share of financing a larger Medicaid program will increase sharply. How will states respond?  

The financing of Medicaid will be a significant issue in the upcoming debates over the deficit and entitlement reform. States have been reasonably aggressive over the years in attempting to control health care costs. However, it seems that health care costs will continue to increase because of (or in spite of) health reform. All efforts to contain the growth in costs will be explored. Most of these efforts will involve attempts to control spending on high-cost populations either through new capitated arrangements for the chronically ill, including long-term care populations, or through delivery system reforms such as medical homes.

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  • Make sure you understand the difference between Medicaid and Medicare, especially with regard to long-term care. Medicaid will grow substantially with health reform and will serve far more people than will Medicare. Medicare covers some nursing home care and home health care but usually these follow hospitalization. The true long-term care services that are provided to the chronically ill are financed by Medicaid. Read the Medicare and long-term care chapters in this sourcebook for details.
  • State financing for Medicaid is complicated. For example, financing of Medicaid can refer to Medicaid spending for your state, including federal Medicaid funds, or Medicaid spending using state only funds, not including federal matching funds. It is also important to realize that Medicaid financing often substitutes for uncompensated care provided to the uninsured. Uninsured patients who are not covered by Medicaid would become financial burdens to hospitals and clinics and much of that care is financed with state and local taxes.
  • Most states contract with managed care organizations to provide coverage to beneficiaries. What contractual obligations between the state and the insurer exist to ensure quality of care? How are these obligations enforced? How will managed care change with health reform?
  • Dual eligibles are a constant point of contention between federal and state governments. Be sure to sort out what state and federal obligations are toward these individuals and whether the respective obligations are being met. The PPACA will create a new office tasked to improve the coordination between federal government and the states for the care of dual eligibles.
  • Be mindful of which groups and services are mandated to be covered by Medicaid and which groups and services are covered at your state’s option. Coverage for voluntary groups varies significantly from state to state, while mandatory coverage is the same across states. The same is true for benefits.

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  • How has the serious recession that has plagued the U.S. economy affected state ability to maintain existing Medicaid benefits and provider reimbursement rates? The ARRA has provided states for additional matching funds but has required states to maintain the current eligibility levels. How is your state using these new funds?
  • The increased Medicaid financing provided by the federal government as a result of the ARRA of 2009 is scheduled to end in December 2010. A proposal to provide for a six-month extension is being debated in Congress. How will the end of ARRA affect your state and its ability to sustain its Medicaid programs after the higher federal matching assistance ends?
  • How are access to care and quality affected by the relatively low payment levels that Medicaid sets for hospitals, physicians and other providers? What percentage of physicians in your state accept Medicaid patients? Do these physicians have practices made up largely of Medicaid patients?
  • What strategies is your state pursuing to streamline Medicaid costs, improve efficiency, and improve quality?
  • What impact are Medicaid budgetary problems having on safety net providers such as community health clinics and public hospitals? How will these safety net providers be affected by health reform?
  • The American Recovery and Reinvestment Act of 2009 includes financial incentives toward the adoption of electronic health records (EHRs) by several types of Medicaid providers (physicians, nurse midwives, nurse practitioners, dentists, certain physician assistants, children’s hospitals and general acute care hospitals) that serve a high volume of Medicaid patients.27 Is this incentive causing providers in your area to get on board with EHRs? If not, why not? What hurdles do providers face?
  • The PPACA will provide for large – if temporary – increases in Medicaid physician payment rates. How will physicians respond to these rates? Will there be greater physician participation in Medicaid? Will physicians be willing to care for patients who would otherwise be seen in community health centers and emergency rooms, thus reducing the net new costs of the higher payment rates?  

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Joan Alker , Senior Researcher, Center for Children and Families, GeorgetownUniversity, 202/784-4075

Howard Cohen , Attorney, HC Associates, Inc., 202-441-0161,

Karen Davis , President, The Commonwealth Fund, 212/606-3800,

Stan Dorn , Senior Research Associate, Urban Institute, 202/833-7200

Judy Feder , Professor, Public Policy Institute, GeorgetownUniversity, 202/687-8397

Marsha Gold , Senior Fellow, Mathematica Policy Research, 202/484-4227

Dan Hawkins , Vice President, Federal, State, and Public Affairs, National Association of Community Health Centers, 301/347-0400x3001,

Robert Helms , Resident Scholar, American Enterprise Institute, 202/862-5877,

John Holahan , Director of Health Policy Research, Urban Institute, 202/261-5666

Joy Johnson Wilson , Federal Affairs Counsel, National Conference of State Legislatures, 202/624-5400,

Genevieve Kenney , Senior Fellow, Urban Institute, 202/261-5568

Ann Kohler , Director of Health Policy, Policy and Government Affairs, National Association of State Medicaid Directors, 202/682-0100,

Barbara Lyons , Deputy Director, Commission on Medicaid and the Uninsured, Kaiser Family Foundation, 202-347-5270,

Charles Milligan , Executive Director, Hilltop Institute, UMBC, 410/455-6274,

Judy Moore , Co-Director, National Health Policy Forum, 202/872-0292

Patricia Nemore , Attorney, Center for Medicare Advocacy, (202)293-5760x102,

Nina Owcharenko , Senior Policy Analyst, Center for Health Policy Studies, The Heritage Foundation, 202/608-6221

Edwin Park , Co-Director of Health Policy, Center on Budget and Policy Priorities, 510/524-8033

Scott Pattison , Executive Director, National Association of State Budget Officers, 202/624- 8804

Ron Pollack , Executive Director, Families USA, 202/628-3030, Communications Director: David Lemmon --

Dean Rosen , Principal, Mehlman, Vogel, Castagnetti, Inc. ,202/585-0217,

Sara Rosenbaum , Chair of Department of Health Policy, GeorgeWashingtonUniversity, 202/530- 2343

Diane Rowland , Executive Director, Kaiser Commission on Medicaid and the Uninsured, 202/347-5270,

Ray Scheppach , Executive Director, National Governors Association, 202/624-5320

Pat Schoeni , Executive Director, National Coalition on Health Care, 202/638-7151

John Sheils , Vice President, The Lewin Group, 703/269-5610

Stephen Somers , President, Center for Health Care Strategies, 609/528-8400,

James Tallon , President, United Hospital Fund, 212/494-0700,

Grace-Marie Turner , President, Galen Institute, 703/299-8900

Judy Waxman , Vice President for Health and Reproductive Rights, National Women's Law Center, 202/588-5180,

Alan Weil, Executive Director , NationalAcademy for State Health Policy, 202/903-0101

Judith Wooldridge , Senior Vice President, Mathematica Policy Research, 609/275-2370

Marian Wright Edelman , President, Children's Defense Fund, 202/628-8787

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Tom Bradley , Unit Chief, Health Systems and Medicare Cost Estimates Unit, Congressional Budget Office, 202/226-9010

James Cosgrove , Director, Health Care, Government Accountability Office, 202/512-7029,

Jean Hearne , Specialist in Social Legislation, Congressional Research Service, 202/707-7362

Bill Lasowski , Deputy Director, Center for Medicaid and State Operations, Centers for Medicare and Medicaid Services, 410/786-2003

Cindy Mann , Director, Center for Medicaid and State Operations, Centers for Medicare and Medicaid Services, 410-786-3871 x 9114,

Trish Riley , Director, Maine Governor's Office of Health Policy and Finance, 207/624-7442,

Richard Rimkunas , Head, Health Insurance and Financing, Congressional Research Service, 202/707-7334

Andy Schneider , Chief Health Counsel, House Committee on Energy and Commerce, 202/225-5051

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David Abernethy , Senior Vice President, HIP Health Plans, 202/393-0660,

Christine Burch , Executive Director, National Association of Public Hospitals, 202/585-0100,

Brenda Craine , Director, Washington Media Relations, American Medical Association, 202/789-7447,

Patricia Gabow , CEO and Medical Director, Denver Health, 303/436-6606,

Thomas Johnson , Executive Director, Medicaid Health Plans of America, 202/857-5720,

Keith Lind , Senior Policy Advisor, AARP, 202/434-3845

Alicia Mitchell , Vice President, Media Relations, American Hospital Association, 202/626-2339

Meg Murray , Chief Executive Officer, Association for Community Affiliated Plans, 202/204-7509,

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Alliance of Community Health Plans

American Enterprise Insititute

American Hospital Association

American Medical Association

Center for Health Services Research and Policy, George Washington University

Center for Medicare Advocacy

Center on Budget and Policy Priorities

Centers for Medicare and Medicaid Services

Children's Defense Fund

The Commonwealth Fund

Congressional Budget Office

Consumers Union

Denver Health

Families USA

George Washington University Department of Health Policy

Georgetown University Center for Children and Families 

Georgetown University Health Policy Institute

Government Accountability Office

Health Policy R & D

Health Reform GPS

Hilltop Institute, UMBC

Kaiser Commission on Medicaid and the Uninsured  

Kaiser Family Foundation Medicaid/CHIP main page

Lewin Group

Maine Governor's Office of Health Policy and Finance

Mathematica Policy Research

Medicaid Health Plans of America

Medicare Rights Center

National Academy for State Health Policy

National Association of Children's Hospitals

National Association of Community Health Centers

National Association of Public Hospitals

National Association of State Budget Officers

National Association of State Medicaid Directors

National Center for Policy Analysis

National Coalition on Health Care

National Conference of State Legislatures

National Governors Association

National Health Law Program

National Health Policy Forum

National Partnership for Women and Families

National Resource Center for Patient-Directed Services

National Women's Law Center

Robert Wood Johnson Foundation

State Coverage Initiatives (Robert Wood Johnson Foundation)

United Hospital Fund

Urban Institute


1 Urban Institute estimates from the 2009 Current Population Survey, U.S. Department of Commerce Census Bureau.

2 Urban Institute tabulations from the 2007 Medicaid Statistical Information System.

3 Urban Institute tabulations from the 2007 Medicaid Statistical Information System.

4 Urban Institute tabulations from the 2007 Medicaid Statistical Information System. (

5 Urban Institute tabulations from the 2007 Medicaid Statistical Information System. (

6 Urban Institute tabulations from the 2007 Medicaid Statistical Information System. (

7 Congressional Research Service (2008). “Medicaid: A Primer.” January 17, CRS-12. ( ).

8 Center for Medicare and Medicaid Services, “National Health Expenditures.” January 2010.

9 Kaiser Commission on Medicaid and the Uninsured. “Summary of Health Reform Law.” April 21, 2010.

10 Congressional Research Service (2008). “Medicaid: A Primer.” January 17, CRS-4. ( ).

11 Congressional Research Service (2008). “Medicaid: A Primer.” January 17, p. CRS-5 ( ). See also: Centers for Medicare and Medicaid Services, Overview of Medicaid Early & Periodic Screening & Diagnostic Treatment Benefit. (

12 Long-term Care Financing Project (2007). “Fact Sheet: National Spending for Long-Term Care.” January. (

13 Congressional Research Service (2008). “Medicaid: A Primer.” January 17, CRS-2-3. ( ).

14 Congressional Research Service (2008). “Medicaid: A Primer.” January 17, CRS-3. ( ).

15 Urban Institute tabulations from the 2007 Medicaid Statistical Information System.

16 Urban Institute tabulations from the 2007 Medicaid Statistical Information System.

17 Center for Medicare and Medicaid Services, Office of the Actuary. “National Health Expenditures.” January 2010.

18 Center for Medicare and Medicaid Services, Office of the Actuary. “National Health Expenditures.” January 2009.

19 The Kaiser Family Foundation (2008). “Medicaid: A Primer.” December, page 15. (

20 Urban Institute tabulations from the 2007 Medicaid Statistical Information System.

21 Urban Institute tabulations from the 2007 Medicaid Statistical Information System.

22 The Kaiser Family Foundation (2008). “Medicaid: A Primer.” December, page 16. (

23 John Holahan, Dawn M. Miller, and David Rousseau, “Rethinking Medicaid's Financing Role for Medicare Enrollees.” Kaiser Commission on Medicaid and the Uninsured, February 2009.

24  Federal Register. “Federal Financial Participation in State Assistance Expenditures; Federal Matching Shares for Medicaid, the Children's Health Insurance Program, and Aid to Needy Aged, Blind, or Disabled Persons for October 1, 2010 through September 30, 2011.” Washington, DC: U.S. Government Printing Office, Vol. 74, No. 227, November 27, 2009.

25 The American Recovery and Reinvestment Act of 2009 (H.R.1.) Section 5001, Temporary Increase of Medicaid FMAP. (

26 Kaiser Commission on Medicaid and the Uninsured. “Summary of Health Reform Law.” April 21, 2010.

27 The American Recovery and Reinvestment Act of 2009 (H.R.1.) Section 4201, Medicaid Provider HIT Adoption and Operation Payments; Implementation Funding. (

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How Medicaid Expands Under Reform, and Who Pays

Related Resources

03.31.2011 - Arizona asking feds to OK cutting 160K from Medicaid rolls, Mary K. Reinhart and Ginger Rough (, Arizona Republic (Phoenix)

Gov. Jan Brewer will formally ask federal health officials today to eliminate more than 160,000 people from the Medicaid rolls under a sweeping plan that would freeze two programs for adults and eliminate coverage for catastrophic care.

03.30.2011 - Florida lawmakers seek Medicaid doctors', hospitals', nursing homes' liability limits, Mark Caputo (, Miami Herald

In the midst of expanding HMO-style management in Medicaid, the Legislature is passing a raft of proposals that limit the liability of Medicaid doctors, hospitals, nursing homes and private community-based care companies.

03.11.2011 - Kasich hopes more healthy babies will reduce Medicaid costs, Catherine Candisky ( Joe Vardon (, Columbus Dispatch

Reducing the number of low-weight babies born in Ohio will be one of the initiatives to lower health-care costs that Gov. John Kasich is expected to unveil in his state budget next week.


Graphics for This Chapter

Medicaid Enrollees and Expenditures by Enrollment Group, 2005

Medicaid as Percent of Health Expenditures, 2006

2009 Poverty Level Guidelines

Medicaid Enrollment in 2007


This sourcebook for journalists was made possible with the support of the Robert Wood Johnson Foundation.

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