Medicaid

Medicaid in one sentence

Medicaid is a joint federal-state program that pays for medical care for people with limited means: limited income and, for some groups, limited assets. It was created in 1965 by Title XIX of the Social Security Act, the same law that created Medicare. The two are easy to confuse, so remember the core difference:

• Medicare is an entitlement based on age or disability (65 and over, certain disabled people, end-stage renal disease). Income does not matter.
• Medicaid is needs-based (means-tested). Eligibility turns on income, not on age alone. Assets are also counted for some groups, such as the aged, blind and disabled and the medically needy, but not for children, pregnant women, parents or ACA expansion adults.

Memory hook: Medicare is for people we care for because of age; Medicaid is aid for people with limited means.

Who runs it and who pays for it

Each state designs and administers its own Medicaid program through a state plan for medical assistance that the federal government must approve. Federal law sets the minimum rules every state plan must meet (42 U.S.C. § 1396a), and a named State Medicaid agency runs the program in each state.

Funding is shared. The federal government pays a percentage of each state's costs, called the Federal Medical Assistance Percentage (FMAP). Poorer states receive a higher federal share; the federal government pays at least half everywhere. Because states have room to design their own plans, and can obtain federal waivers (for example, to offer home and community-based services instead of nursing-home care), eligibility and benefits differ from state to state.

Who qualifies

States must cover certain mandatory groups and may cover others. Commonly covered groups include:

• Low-income children and pregnant women
• Low-income parents and caretaker relatives
• Aged, blind and disabled people with low income, including most people who receive Supplemental Security Income (SSI)
• In states that adopted the Affordable Care Act expansion, low-income adults under 65 with income up to 138% of the federal poverty level

Many states also have a medically needy or spend-down program, which lets a person whose income is too high qualify once medical bills reduce their available income. The Children's Health Insurance Program (CHIP) is a companion program for uninsured children in families that earn too much for Medicaid.

What it covers

Federal law requires certain mandatory benefits, including inpatient and outpatient hospital services, physician services, laboratory and X-ray, nursing facility services, home health care, and screening and treatment for children (EPSDT). States may add optional benefits such as adult dental care, eyeglasses and physical therapy. Covered people usually pay little or nothing out of pocket.

For a producer, the most important coverage fact is this: Medicaid is the largest payer of long-term nursing-home care in the country. Medicare pays only for short-term skilled nursing care, not long-term custodial care, so many people who need years of care spend down their savings until they qualify for Medicaid.

Spend-down, asset transfers and estate recovery

Because people try to qualify for nursing-home Medicaid by giving assets away, every state plan must follow federal rules on liens, recoveries, transfers of assets and certain trusts (42 U.S.C. § 1396a(a)(18)):

• Look-back period: assets given away for less than fair value within 60 months (5 years) before applying can trigger a penalty period of ineligibility.
• Estate recovery: after a recipient dies, the state must seek repayment from the estate for long-term care paid on behalf of recipients aged 55 or older.

This is why long-term care insurance matters: it protects assets that would otherwise be spent down. Many states also run long-term care partnership programs, where a qualifying private policy lets the insured keep extra assets when later applying for Medicaid.

Medicaid is the payer of last resort

Medicaid pays after every other source that is legally responsible for the bill. The state plan must take all reasonable measures to find liable third parties, including health insurers, self-insured and group health plans, managed care organizations and pharmacy benefit managers, and must seek reimbursement when such liability is found (42 U.S.C. § 1396a(a)(25)). States must also have laws requiring those insurers to accept the state's right of recovery and the assignment to the state of the patient's right to payment.

• A person with private health insurance and Medicaid: the private insurer pays first.
• A dual eligible (Medicare and Medicaid): Medicare pays first, and Medicaid fills in, often paying Medicare premiums, deductibles and coinsurance.

Exam traps

• Medicaid is means-tested; Medicare is not. Age alone never qualifies anyone for Medicaid.
• Medicaid is run by the states, within federal rules, and funded jointly.
• Medicaid, not Medicare, is the main payer of long-term custodial nursing-home care.
• Medicaid pays last, after private insurance and after Medicare.