What Is Medicaid and How Does It Work?

Medicaid, a government-funded healthcare program enacted in 1965, provides health insurance primarily for low-income individuals and families. Persons who are pregnant or have a qualifying disability may qualify for coverage, as well. Medicaid provides affordable access to medical care, including hospitalization, physician visits, and vision and dental services.

Keep reading to learn how Medicaid works and how to qualify.

When Was Medicaid Introduced?

Medicaid was established on July 30, 1965 and signed into law by President Lyndon B. Johnson. This federal healthcare program provides medical assistance primarily to financially-burdened families. Today, more than 80 million individuals across all 50 states and the District of Columbia rely on Medicaid for healthcare coverage.

How Does Medicaid Work?

To qualify for Medicaid, you must meet income and sometimes health-related requirements. Based on your family size and your household income in relation to the federal poverty level, Medicaid may have a low to zero premium and deductibles. Some states, however, will have share-of-cost requirements for those with incomes too high to qualify for free Medicaid.

Medicaid enrollment lasts year-round for qualified applicants.

When you become a Medicaid member, you can access emergency and primary medical care and long-term services, such as meal preparation, housekeeping, and medication management. Medicaid coverage issued through private health insurance companies grants access to Health Maintenance Organizations (HMO) or Preferred Provider Organizations (PPO) plans. Depending on your plan, your current provider may be in-network and approved to provide you with continuous care.

Is Medicaid Free?

Medicaid can be free depending on where your income falls on the federal poverty level (FPL). Below is information breaking down the FPL in 2021 and 2022.

Federal Poverty Level

Family size

2021 income

2022 income

For individuals

$12,880

$13,590

For a family of 2

$17,420

$18,310

For a family of 3

$21, 960

$23,030

For a family of 4

$26,500

$27,750

For a family of 5

$31, 040

$32,470

For a family of 6

$35,580

$37,190

For a family of 7

$40,120

$41,910

For a family of 8

$44,660

$46,630

For a family of 9+

$4,540 added for each extra person

$4,720 added for each extra person

Source: Healthcare.gov.

The data presented in the above table is used to calculate eligibility for Medicaid and other subsidies.

  • Income above 400% FPL: Qualifies for premium tax credits that lower monthly premium payments.
  • Income at or above 100% FPL: Qualifies for premium tax credits that lower monthly premium payments.
  • Income at or below 150% FPL: May qualify to enroll in or change Marketplace coverage through a special enrollment period. Cannot qualify for Medicaid.
  • Income below 138% FPL: Qualifies for Medicaid based only on income if the state has extended Medicaid coverage.
  • Income below 100% FPL: Won’t qualify for savings on a Marketplace health insurance plan or for income-based Medicaid.

Note: Federal poverty level amounts for Alaska and Hawaii are higher.

Who Qualifies for Medicaid?

Medicaid is designed to help low-income families or individuals from disadvantaged backgrounds access the medical coverage they need at an affordable price. Groups served by Medicaid include:

  • Children in foster care
  • Children of low-income families
  • Parents or caregivers with low income
  • People with disabilities
  • Pregnant women with low income
  • Seniors with low income
  • Individuals receiving Supplemental Security Income (SSI) benefits

Medicaid applicants must satisfy financial eligibility or non-financial eligibility requirements or both.

  • Financial Eligibility: Based on the household’s modified adjusted gross income (see our earlier table on FPL thresholds).
  • Non-Financial Eligibility: Based on factors other than household income, including U.S. citizenship status, pregnancy, age, disability (e.g., blindness) and parenting status.

Each state can establish its own eligibility requirements in addition to what the federal government mandates.

Medicaid eligibility criteria may be wider or narrower depending on your state.

Potential enrollees can undergo an appeal process if they were denied Medicaid benefits by contacting their state’s Medicaid department.

If You Don’t Qualify for Medicaid, CHIP May Be an Option

The Children's Health Insurance Program (CHIP) was signed into law in 1997 and provides low-cost health coverage for children whose families don’t meet Medicaid’s income eligibility requirements. Pregnant women may also be covered by CHIP depending on the state. As of July 2022, over 7 million individuals were enrolled in CHIP.

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What Does Medicaid Cover?

Medicaid covers hospital services, nursing facility services, transportation to medical care and more. Below are two tables that break down the coverage the federal government mandates Medicaid provide and the optional coverage each state may offer Medicaid enrollees.

Mandatory Medicaid Benefits

  • Inpatient hospital services
  • Nursing Facility Services
  • Rural health clinic services
  • Family planning services
  • Freestanding Birth Center services (when licensed or otherwise recognized by the state)
  • Outpatient hospital services
  • Home health services
  • Federally qualified health center services
  • Nurse Midwife services
  • Transportation to medical care
  • EPSDT: Early and Periodic Screening, Diagnostic, and Treatment Services
  • Physician services
  • Laboratory and X-ray services
  • Certified Pediatric and Family Nurse Practitioner services
  • Tobacco cessation counseling for pregnant women

Optional Medicaid Benefits

  • Prescription Drugs
  • Occupational therapy
  • Other diagnostic, screening, preventive and rehabilitative services
  • Dental Services
  • Eyeglasses
  • Private duty nursing services
  • TB Related Services
  • Hospice
  • Services in an intermediate care facility for Individuals with Intellectual Disability
  • Clinic services
  • Speech, hearing and language disorder services
  • Podiatry services
  • Dentures
  • Chiropractic services
  • Personal care
  • Inpatient psychiatric services for individuals under age 21
  • Case management
  • State Plan Home- and Community-Based Services
  • Physical therapy
  • Respiratory care services
  • Optometry services
  • Prosthetics
  • Other practitioner services
  • Community first choice option
  • Health homes for enrollees with chronic conditions
  • Services for individuals Age 65 or older in an institution for mental disease (IMD)
  • Self-directed personal assistance services

What Isn’t Covered by Medicaid?

Medicaid will not pay for:

  • Cosmetic surgery and any complications
  • Durable medical equipment replaced through a warranty
  • Free health screenings or devices that are given away
  • Personal comfort items, such as beautician services and TVs

Medicaid will generally exclude coverage for services received outside of the U.S. unless the individual qualifies for a travel-related exception. Medicaid may also provide coverage if a foreign hospital is closer than a domestic facility.

Does Medicaid Cover Home and Community-Based Services (HCBS)?

Medicaid provides various home- and community-based services (HCBS). The level of support is typically based on the needs of the individual. Services may include:

  • Personal care
  • Home health care
  • Case management
  • Caregiver and client training
  • Durable medical equipment
  • Hospice care
  • Health promotion
  • Senior centers
  • Adult daycares
  • Information and referral services
  • Pharmacy
  • Meal delivery programs
  • Transportation and access
  • Congregate meal sites
  • Home safety assessments
  • Home repairs
  • Homemaker services
  • Financial services
  • Legal services
  • Telephone reassurance

Source: CMS.gov.

How Do I Apply for Medicaid?

You can apply for Medicaid through the Health Insurance Marketplace or through your state’s Medicaid department. Follow the steps below to enroll in Medicaid:

  1. Submit your application: In most states, you can apply ​in person, by mail, over the phone or online​.
  2. Verify your eligibility: You may be contacted to confirm or elaborate on details in your application form. Those interested in Medicaid can take a short screening survey through HealthCare.gov to verify their eligibility.
  3. Enroll in a plan: There could either be one option or several. If there are multiple options, choose the best one for you and your family.
  4. Enjoy your benefits: Once you’re enrolled, you’ll have access to doctor visits, immunization, hospital care, nursing home care, pregnancy-related services and more.

How Medicaid Works With Medicare

If you are dual-enrolled in Medicaid and Medicare, your Medicaid coverage can cover copays, coinsurance, deductibles and Part B premiums from Medicare.

Medicaid may also pay for prescription medications that Medicare Part D or your Medicare Advantage plan won’t cover.

Prescription drug coverage is considered optional under federal guidelines, but every state offers prescription drug coverage.

Medicaid FAQs

What’s the difference between Medicare and Medicaid?

Medicare provides healthcare primarily to seniors, younger people with disabilities and people with qualifying medical conditions. Medicaid is an affordable health insurance option primarily for free healthcare to low-income families, qualified pregnant women and children and individuals receiving Supplemental Security Income (SSI).

Who pays for Medicaid?

Medicaid is jointly funded by the federal and state governments.

Does Medicaid cover assisted living?

Medicaid can cover assisted living. Services may include health care, hospice care, senior centers, adult daycares and congregate meal sites.

Key Takeaway

  • Enacted in 1965, Medicaid provides affordable healthcare coverage to low-income families, pregnant women, children, individuals receiving Supplemental Security Income (SSI) and those with qualified disabilities.
  • You can apply for Medicaid through the Health Insurance Marketplace or through your state’s Medicaid department.
  • You can get dual coverage by being enrolled in both Medicaid and Medicare.
  • There are mandatory services the federal government requires Medicaid to cover in every state, such as physician services, inpatient hospital services and transportation to medical care.

Sources

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