Medicaid: A primer on America’s biggest health insurance program

Published April 19, 2017

What is Medicaid?

Medicaid provides health insurance to people who are poor, have certain serious physical and mental health conditions, and to elderly people in nursing homes. Today, 74 million Americans – about one in every five people – receive Medicaid benefits and the program has surpassed Medicare as the largest source of healthcare coverage for Americans. Nearly half of beneficiaries are children.

The country spent more than $532 billion on Medicaid in 2015, a cost shouldered by both federal and state governments. Each state sets its own eligibility criteria. And while some benefits are covered by all Medicaid plans, states can decide whether to extend certain optional benefits to recipients.

How is Medicaid different from Medicare?

Medicare provides health insurance for those ages 65 and older, as well as some younger people with serious health issues and disabilities. The federal government administers Medicare, so benefits remain consistent from state to state. Some elderly people with low incomes who receive Medicare are also eligible for certain Medicaid benefits to pay for certain services, or for some out-of-pocket costs that are not covered by Medicare.

What type of benefits does Medicaid cover?

In every state, Medicaid covers essential healthcare services such as inpatient and outpatient hospital care, doctor visits, laboratory tests, x-rays, home health services and nursing home stays. It also covers smoking cessation classes for pregnant women, births at a freestanding birth center or with a certified nurse midwife, and pediatric care. In fact, Medicaid covers the costs of nearly half of all births in the United States.

Optional benefits include physical therapy, dental care and dentures, optometry and glasses, prosthetics, care for hearing, speech and language disorders, and private duty nursing and hospice care. Individual states decide whether to include these services for their Medicaid recipients.

How has the Medicaid program changed since it was created?

President Lyndon B. Johnson signed both Medicaid and Medicare into law in 1965. At the time, Medicaid was the smaller of the two programs. Initially, Medicaid only covered single parents and children on welfare. Since then, the program has grown to encompass families with two parents, the working poor and people with medical conditions that limit their ability to live independently. The number of Medicaid recipients grew exponentially through the 1980s and 1990s, as Congress and the states acted to continually expand eligibility.

More recently, the Affordable Care Act extended Medicaid coverage to an additional 11 million low-income adults and guaranteed federal funding for their medical expenses to avoid additional costs to states. The most recent expansion also provided mental health and addiction treatment services, increasingly crucial as the nation faces an opioid addiction epidemic.

What types of challenges will Medicaid face in the future?

Medicaid funding remains a complicated issue for lawmakers, particularly those looking to reduce federal spending and states whose budgets are squeezed by a variety of factors, including rising healthcare costs.

Is anything being done to improve patient outcomes or reduce Medicaid costs?

Medicaid beneficiaries have a much higher rate of chronic conditions than those covered by employers or through Medicare. One in ten adult Medicaid enrollees has diabetes, and nearly one in three has heart disease. More than a third suffer from a mental illness. With these more complex needs comes higher use of healthcare services, including emergency room, hospital and doctor visits, as well as prescription drugs.

To meet the needs of their Medicaid populations, many states work closely with Medicaid managed care organizations (MCOs) to provide enrollees with better access to disease management, care coordination and mental health services. Some even provide tools to help with housing, education, job training and financial counseling. Approximately 70 percent of Medicaid enrollees participate in this type of care model.

Through this transition, many states are achieving promising results. For instance, by reducing emergency room and hospital visits through better coordinated care and disease management, some states are yielding Medicaid cost savings of up to 20 percent.