Medicaid

September 17, 2011

Medicaid was established in 1965 through the Title XIX of the Social Security Act. This federal-state program was developed to finance health care for low-income persons, specifically the categorically needy and the medically needy. Categorically needy are those receiving Aid to Families with Dependent Children (AFDC) (now Temporary Assistance for Needy Families) and those who receive Supplemental Security Income (SSI) because they are aged, blind, or disabled. All states must cover the categorically needy. The medically needy are those who have enough money to live on, but not enough to pay for medical care. In 1972, an amendment to the Social Security Act added family planning services to the list of essential services. One purpose of the federal government was to ensure medical care for those on welfare, predominantly single, poor women, and their children. The link to cash assistance is a defining characteristic of the program and makes this an entitlement program.

The Medicaid program, financed by general tax revenues, is a cost sharing program between the states and the federal government. The federal government contributes roughly 57% of the cost and the states pay the balance. The eligibility and benefit structures are determined by each state. In particular, the state defines the scope, amount, and duration of services. Each state defines the eligibility for classification as medically needy, for example. A state Medicaid program must provide the minimum services: (a) inpatient and outpatient hospital services; (b) skilled nursing facilities; (c) physician services; (d) home health care; and (e) early and periodic screening, diagnosis, and treatment (EPSDT) of children under 21 who are eligible. Dental services, prescribed drugs, eyeglasses, intermediate care facilities, and other services are optional services and states may offer any or all of these. Services must be provided to children and pregnant women at no cost. Deductibles (a set amount the patient must pay before Medicaid pays) are not permitted and co-pays (a percentage of charges paid by the patient) generally do not apply. Eligibility for cash assistance is also defined by the state and determines which parents in families can enroll in Medicaid. Many low-income families are not eligible for their state programs. All poor children under 19 years, all children under age 6 years, and pregnant women with incomes up to 133% of the federal poverty level are considered eligible for Medicaid under recent federal requirements.

Medicaid provides coverage to many of the sick and disadvantaged in the society. Children and their parents constitute the majority of the program’s beneficiaries (73%) but account for only a quarter of the spending. Individuals with disabilities and older people who are poor (or the dually Medicare-Medicaid eligibles) also receive services through Medicaid. This group of beneficiaries incur the highest per capita expenditures, and consume disproportionate amounts of Medicaid dollars. In 1999, Medicaid covered 5% of nonelderly adults and 15% of those with incomes below 200% of poverty. Medicaid’s role as a primary source of long-term care, gap coverage for Medicare, and major source of coverage for the disabled is likely to continue with the increasing growth of the elderly population.

Medicaid costs have risen through a combination of increased enrollment (from 4 million in 1966 to 47 million in 2002) and medical inflation. Total health care expenditures have had the fastest growth since 1991 and have created significant challenges for the federal and state governments in delivering Medicaid services. State-funded Medicaid spending increased by 11% from fiscal year (FY) 2000 to 2001 and is expected to increase by another 13.4% in FY 2002. State Medicaid expenditure increases are most notably due to prescription drugs, enrollment increases, increased cost and use of medical services, and long-term care expenses. In most states, Medicaid costs outstrip state revenue. Selected actions by government intended to address these concerns have influenced the benefits available to Medicaid beneficiaries. In the early 1990s, states concerned about the growing uninsured in their states, submitted applications for waivers under section 1115 of the Social Security Act. This allowed states flexibility in modifying eligibility, payment methods, and other program characteristics, including enrollment of beneficiaries in managed care plans, as an attempt to reduce costs and accommodate increasing enrollment. Another outcome was the extension of health coverage to the working poor and their families who were not previously eligible for Medicaid. Efforts to provide services for poor children prompted the development of State Child Health Insurance Programs, a program to provide coverage for children whose family income was too high for Medicaid. In addition, the 1996 Personal Responsibility and Work Opportunity Act redefined the eligibility, scope, and duration of welfare benefits and set the stage for the work requirements linked to these benefits.

The Medicaid program has achieved access to health care comparable to private insurance for lowincome populations. Notable successes are in the provision of care for pregnant women and children and the development of enhanced or special services as part of the benefit package. Further, Medicaid has been a “gap” insurance, and a safety net program for the sickest and the frailest in the society. Medicaid provides coverage for mental health and substance abuse services, expensive drugs for treatment of AIDS, and rehabilitation services not covered by private insurance. In long-term care, Medicaid pays for 44% of nursing home expenditures. Despite this progress, Medicaid is reliant upon the state and federal economy. In more prosperous times, benefits across states may vary less and individual programs may begin to address the needs of beneficiaries. In times of economic distress, however, benefits may be restricted through eligibility, cash assistance, and scope of services or duration of benefits. Reform of Medicaid and the state-to-state variability of services have been a focus of public policy debate for the last decade and will be on the health care agenda for the foreseeable future.

The Medicaid program is of particular relevance to women. Women as single heads of household may rely on Medicaid for themselves and their children, especially during pregnancy. Women who are elderly, disabled, and draw low income count on Medicaid for access to specialized medical care. The overrepresentation of women in the poor and the elderly population, especially those residing in nursing homes, suggests that women have a critical investment in the eligibility and benefits of the Medicaid program.

SEE ALSO: Access to health care, Health insurance, Health maintenance organizations, Medicare

Suggested Reading

  • (2003). Medicaid comes of age. Health Affairs, 22(1), 7—277.
  • Kovner, A. R. (1990). Health care delivery in the United States. New York: Springer.
  • Novick, L. F., & Mays, G. P. (2001). Public health administration: Principles for population-based management. Gaithersburg, MD: Aspen.
  • Raffel, M. W., & Raffel, N. K. (1994). The U.S. health care system: Origins and functions. Albany, NY: Delmar.

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