The Medicaid Program

When President Lyndon Johnson signed the Medicare-Medicaid bill into law in July 1965, most of the public and media attention focused on the health coverage for the elderly (Medicare), but the architects of Medicaid packed the program with tremendous potential. It has since evolved from a welfare program that primarily paid for health services to individuals receiving cash assistance into an insurance program that fills in some of the gaps in the healthcare financing system and pays for medical and long-term care for eligible low-income American citizens and legal immigrants (U.S. Social Security Administration 2009). It principally serves the nation’s most vulnerable citizens, such as children, pregnant women, individuals with disabilities, and seniors.  In 2006, approximately 59 million individuals, or about 14 percent of the population, were covered by Medicaid in the United States (Kaiser Family Foundation 2009).

Medicaid is financed jointly by the federal and state governments and is administered by each individual state. The federal government reimburses states for a portion of Medicaid expenditures, with the amount of the federal contribution tied to each state’s per capita income (U.S. Social Security Administration 2009). For example, the Federal Medical Assistance Percentage in Pennsylvania in 2009 is 54.39 percent, which means that for every $100 spent on services and populations covered by Medicaid, the federal government pays $54.39, and the Commonwealth pays $46.61. The federal government also pays about 50 percent of the states’ costs of administering the Medicaid program.

Governed by federal regulations, states are required to cover a set of mandated services for specific groups of people in order to qualify for federal matching payments.  However, subject to these requirements, the states have considerable flexibility in designing their own Medicaid programs.  They can broaden Medicaid eligibility by covering individuals that they are allowed, but not required, to cover (for example, women with breast or cervical cancer). Coverage can also be broadened by raising the income and asset ceilings, expanding the set of covered services, and establishing rules governing the receipt of services (such as imposing limits on the number of services provided). The states can also determine the amounts and methods by which they pay providers for services rendered to Medicaid recipients. Furthermore, they can obtain even greater flexibility by seeking a waiver of certain provisions of Medicaid law. Waivers allow states to do things not otherwise permitted by the Medicaid statute, including both expanding and limiting the program (U.S. Social Security Administration 2009).